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kilroy

The Worst Is Over My @ss. Eat My Shorts, Mobius Dickus

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Copied off bloomberg terminal. not on internet yet

By Darrell Hassler

Aug. 28 (Bloomberg) -- A Cheyne Capital Management Ltd.

commercial paper program with as much as $20 billion in assets,

including real estate securities, may liquidate because of losses,

Standard & Poor's said.

The program, called Cheyne Finance LLC, is a structured

investment vehicle that purchases securities by issuing short-and

medium-term debt, S&P said in a statement today. It breached a

test based on losses in the portfolio that may force liquidation,

S&P said. London-based Cheyne Capital is the portfolio manager.

Stuart Fiertz, a founder of Cheyne Capital, didn't return

requests for comment.

Losses in the value of securities backed by subprime mortgage

and funded by short-term debt have caused commercial paper yields

to soar this month. There are about $385 billion outstanding in

structured investment vehicles and 23 percent of their assets are

mortgage securities or collateralized debt obligations that often

hold mortgages, according to an Aug. 9 report by Bear Stearns Cos.

Near-term sales from the vehicles because of losses in the

market value of subprime mortgage securities may total $23 billion, Bear Stearns said.

The Cheyne portfolio is primarily invested in ``real estate

securitizations'' and none of the assets have had downgrades, S&P

said. Structured investment vehicles often aren't backed by credit

lines from banks like asset-backed commercial paper programs, of

which there is $1.05 trillion outstanding.

S&P cut the credit rating on the commercial paper issued by

Cheyne Finance by two levels to A-2 from A-1+. The rating on

senior debt was reduced six levels to A- from AAA, the highest

rating.

Aug. 30

The average yield on the highest rated asset-backed

commercial paper with one-day maturity has risen 0.71 percentage

point this month to 6.04 percent as investors have fled funding

linked to subprime mortgages, according to Bloomberg data.

Cheyne Capital may begin liquidating assets and by Aug. 30

will estimate expected proceeds from future asset sales, S&P said.

Queen's Walk Investment Ltd., a fund run by Cheyne Capital

that invested in mortgages, reported in June a loss of 67.7 million euros ($92 million) in the year ended March 31.

Securities of subprime mortgages to people with poor credit

or high debt have lost value because of the highest delinquency

rate in four years. Commercial paper is debt due in 270 days or

less.

--Editor: Bostick

To contact the reporter on this story:

Darrell Hassler in Chicago at +1-312-443-5936 or

dhassler@bloomberg.net.

To contact the editor responsible for this story:

Emma Moody at +1-212-617-3504 or

emoody@bloomberg.net.

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how much of this stuff is out there? How many people are defaulting or is it all just sentiment? I dont understand, anyone care to put in simple terms, er so i can explain it to my 4 year old? It's not for me you understand, my mate oh yes my son :blink:

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Guest vicmac64
how much of this stuff is out there? How many people are defaulting or is it all just sentiment? I dont understand, anyone care to put in simple terms, er so i can explain it to my 4 year old? It's not for me you understand, my mate oh yes my son :blink:

I dont know enough to decipher this - HEY RB OR STRBEAR OR CGNAO - give us your take on this - or anyone else suitably qualified that I haven;t mentioned - what does this mean??

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Guest grumpy-old-man
I dont know enough to decipher this - HEY RB OR STRBEAR OR CGNAO - give us your take on this - or anyone else suitably qualified that I haven;t mentioned - what does this mean??

20 billion dollars + company will probably liquadate = massive knock-on effects to other investment vehicles stored within other companies that have money invested in this company.

Then the other smaller companies lose money that other even smaller companies have invested in other investment vehicles.....

This would be my basic understanding.

edited: the old "domino effect"

Edited by grumpy-old-man

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Remember... no one knows the extent of the problem. And *that* is the problem. Its a massive perception of risk. Because what cannot be priced is purely risk.

Its contagious, just like many of us predicted it would be.

Underneath this contagion is probably a smaller, real, problem than a perceived problem. But its all about risk. And its the 'unknown unknowns' that make this so very risky for financial companies who are in this mire.

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Remember... no one knows the extent of the problem. And *that* is the problem. Its a massive perception of risk. Because what cannot be priced is purely risk.

Its contagious, just like many of us predicted it would be.

Underneath this contagion is probably a smaller, real, problem than a perceived problem. But its all about risk. And its the 'unknown unknowns' that make this so very risky for financial companies who are in this mire.

This is exactly why George S. has place all these puts and is waiting now for it being a self-fulfilling prophecy.

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This is exactly why George S. has place all these puts and is waiting now for it being a self-fulfilling prophecy.

I'm really going to show my ignorance but I've read it so many times now I have to ask WTF is a 'put'?

sensible answers would be appreciated, smart ones may be applauded.

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A PUT is a gamble that a market will go down. An owner of a put has the right bt not the obligation to sell at a certain price to the seller of the put. Its a one way bet that costs an upfront premium.

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Guest grumpy-old-man
You may want to ask what a call and an option is as well.

I shall not show my ignorance by trying to give you an answer.

why not, I showed mine about 5 posts above, come & join my club. :unsure:

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A put option (sometimes simply called a "put") is a financial contract between two parties, the buyer and the writer (seller) of the option. The put allows the buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the writer (seller) of the option at a certain time for a certain price (the strike price). The writer (seller) has the obligation to purchase the underlying asset at that strike price, if the buyer exercises the option.

Note that the writer of the option is agreeing to buy the underlying asset if the buyer exercises the option. In exchange for having this option, the buyer pays the writer (seller) a fee (the premium). (Note: Although option writers are frequently referred to as sellers, because they initially sell the option that they create, thus taking a short position in the option, they are not the only sellers. An option holder can also sell his long position in the option. However, the difference between the two sellers is that the option writer takes on the legal obligation to buy the underlying asset at the strike price, whereas the option holder is merely selling his long position, and is not contractually obligated by the sold option.)

Exact specifications may differ depending on option style. A European put option allows the holder to exercise the put option for a short period of time right before expiration. An American put option allows exercise at any time during the life of the option.

The most widely-known put option is for stock in a particular company. However, options are traded on many other assets: financial - such as interest rates (see interest rate floor) - and physical, such as gold or crude oil.

The put buyer either believes it's likely the price of the underlying asset will fall by the exercise date, or hopes to protect a long position in the asset. The advantage of buying a put over shorting the asset is that the risk is limited to the premium. The put writer does not believe the price of the underlying security is likely to fall. The writer sells the put to collect the premium. Puts can also be used to limit portfolio risk, and may be part of an option spread.

From Wiki - i thought i understood what a put was until i read that.....

F :blink:

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A PUT is a gamble that a market will go down. An owner of a put has the right bt not the obligation to sell at a certain price to the seller of the put. Its a one way bet that costs an upfront premium.

Thanks.

Is it expensive ? what are the figures based on?

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From Wiki - i thought i understood what a put was until i read that.....

F :blink:

Interesting Furby but your avatar is distracting me to much to work out if I understand it or not. :huh:

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Thanks.

Is it expensive ? what are the figures based on?

It depends on many factors like expiration date, volatility in the markets, and of cours the strike price. There is also a famous formula for it (Black-Scholes, and Merton; Nobel Prize stuff). A put can easily become worthless, but can also make you a rich man. I don't deal with options myself, but from what I remember from foreign exchange rate options, when the time horizon is something 6-18 months your premium can be some low percentage of the nominal amount. Say, you insure 100,000,000 Sterling against USD fluctuations, you might end up paying a few 100,000s or 1,000,000s for that privilege. I am sure some people here can help you more with the quantitative aspect of it.

Easy example: Say you have a put with Strike 13,000 on the DOW, and the DOW plunges on maturity of the option to 12,000. Then, the option is worth 1,000 on that day (because in theory you could buy for 12,000 and have the right to sell for 13,000). Of course, no one buys or sells anything anyway.

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This is exactly why George S. has place all these puts and is waiting now for it being a self-fulfilling prophecy.

I would like to repeat this information to others. Do you have any sources I can use to prove it to them?

Thanks!

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http://business.timesonline.co.uk/tol/busi...icle2341770.ece

Credit crisis to claim Wall Street casualties

Four US investment banks are about to give investors their first look at wounds inflicted by the sub-prime collapse

"We haven't yet seen the impact on the underlying business at investment banks. The question is if they had the same losses in their proprietary trading. But no one knows what's going on in there. It's faith-based investing."

Edited by alabala

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CALLS :

If you buy a call for £1, you have the right to buy a stock at £1, so you're betting the market will go up

If stock goes up, you make money as you buy it for £1, and sell it at the higher rate.

If the stock goes down, you don't do anything

If you sell a call for £1, someone else has the right to buy a stock at £1 from you, so you're betting the market will go down

If stock goes up, you lose money as you have to sell it for £1, and buy it back at the higher rate to cover yourself.

If the stock goes down, the other person won't buy the stock from you for £1

PUT

If you buy a put for £1, you have the right to sell a stock at £1, so you're betting the market will go down

If stock goes down, you make money as you sell it for £1, and buy it back at the lower rate.

If the stock goes up, you don't do anything

If you sell a put for £1, someone else has the right to sell a stock at £1 to you

If stock goes down, you lose money as you buy it for £1, and sell it back at the lower rate.

If the stock goes up, the other person won't sell the stock to you for £1

Selling calls and puts can lead to large losses - indeed, selling a call can in theory, lead to unlimited losses as the stock may rocket. You could also invest in futures, if you really wanted to lose money.

Clear as mud ?

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http://www.nytimes.com/2007/08/29/business...f=worldbusiness

A London money management firm, Cheyne Capital Management, may be forced to liquidate the assets backing its $10 billion commercial paper program in the latest casualty of the jittery credit market.

Standard & Poor’s, the rating agency, yesterday abruptly downgraded, by six notches, the ratings of the short-term notes issued by Cheyne Finance, a structured investment vehicle that the fund uses to bolster returns.

Just two weeks ago, on Aug. 15, S.& P. declared those same notes to be the highest investment grade.

The speed at which the downgrade occurred, analysts said, is an indication of how quickly prices have deteriorated for these types of notes.

Ouch

http://www.forbes.com/markets/equities/200...9markets06.html

Edited by Ash4781

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