Thursday 19 February 2009
US-Goldman falls after CNBC report on margins
CNBC reports that several GS partners had leveraged GS stock to buy alternative investments, and are now being forced to borrow money to cover margin calls following stock declines. Says GS is now in the awkward position of making margin calls on their own partners, who can’t meet those margin calls.
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US-Goldman falls after CNBC report on margins
CNBC reports that several GS partners had leveraged GS stock to buy alternative investments, and are now being forced to borrow money to cover margin calls following stock declines. Says GS is now in the awkward position of making margin calls on their own partners, who can’t meet those margin calls.
CNBC
18 February 2009
Shares of Goldman Sachs fell on Wednesday, after CNBC reported that several Goldman partners had been forced to borrow money in order to cover large margin calls.
The partners are borrowing “tens of millions” of dollars in order to do so, the report said.
Shares of Goldman fell 1.8 percent to $84.18, hitting a session low of $81.07 earlier in the day.
The CBOE Volatility Index .VIX, or VIX, fell 1.32 percent to 48.02 in afternoon trade as U.S. stocks rebounded following Wall Street’s descent to three-month lows. The February VIX futures and options expired this morning with a settlement at 48.40. March futures based on the VIX are now the front month and sit at 44.30. The VIX reflects investors’ consensus about expected stock market volatility over a 30-day period and is based on Standard & Poor’s 500 index .SPX option prices.
Goldman Sachs derivatives strategists recommend three trades to gain upside exposure to financials to hedge an underweight or short position. Implied volatility in financials remains elevated relative to history and is especially elevated vs. the S&P 500, they said in a note. They prefer trades that limit exposure to a decline in implied and realized volatility from current levels. One included buying call spreads to hedge a short portfolio: on average investors can buy call spreads offering exposure in a plus 15 to 37 percent range for a 5 percent premium. They also suggest selling puts to collect yield for limiting profit on a short portfolio: on average investors can collect 12 percent for selling a 27 percent out-of-the-money put and call spread-collars to hedge a short portfolio: investors can combine the two trades above to collar positions while collecting a net credit, they said.
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