Everything Warren Buffett: WALL STREET JOURNAL: It Was Two Views on Moody's: Mr. Einhorn's vs. Mr. Buffett's

Friday, May 29, 2009

WALL STREET JOURNAL: It Was Two Views on Moody's: Mr. Einhorn's vs. Mr. Buffett's

By TENNILLE TRACY

Bearish traders piled into Moody's after a well-known hedge-fund manager said he had sold the company's stock short.

Trading in Moody's quickly zipped to six times the normal level, with investors picking up 5,000 calls that allow them to buy the company's stock and 23,000 puts that allow them to sell it, according to Trade Alert.

Investors made a beeline for near-term put options, attempting to take advantage of the day's 4.5% decline or to speculate on future weakness in the stock. They scooped up batches of June $26 puts, paying $1.25 on hope the stock slips below $24.75 before June 19.

Moody's closed the session at $26.89, rebounding from an intraday low of $25.68.

Fueling the day's action was news that David Einhorn of Greenlight Capital, a hedge-fund manager who vocalized concern about Lehman Brothers before it collapsed, had sold Moody's stock short.

The news prompted a wave of selling in Moody's shares, despite the fact that Berkshire Hathaway's Warren Buffett owns a substantial stake in the rating firm, marking a powerful vote of confidence in the stock.

"When you come out short on a stock that [Mr. Buffett] owns, you're probably shorting against one of the brightest investors out there," said William Lefkowitz, an options strategist with vFinance Investments. "That takes a lot of guts, and I think that gives people more confidence in what he's saying."

In Savient Pharmaceuticals, meanwhile, the bulls appeared to be dominating the activity in near-term contracts. They gravitated toward June $5 calls and June $7.50 calls, for example, taking positions that work best if Savient rises.

There were sellers of July $10 calls, however, which suggests there is limited upside to the stock. Savient closed at $5.75, losing 2.5%.

Savient is seeking approval from the Food and Drug Administration for a new drug for gout patients. An advisory committee, appointed by the FDA, is scheduled to review the drug on June 16.

Elsewhere, there was noteworthy volume in two exchange-traded funds -- one that follows home builders and another that follows gold companies.

In the SPDR S&P Homebuilders ETF, investors showed a preference for bullish contracts, picking up 119,000 calls and 16,000 puts. Within the first few minutes of the session, one investor adopted a massive "call spread" in the fund's September contracts -- buying September $15 calls and selling September $17 calls. Priced at 20 cents, the position makes money if the ETF climbs above $15.20 by mid-September.

The transaction took place a few minutes before the Commerce Department reported a minor increase in single-family home sales in April, which failed to meet the expectations of economists surveyed by Dow Jones.

The home builders fund closed at $11.75, dropping 2.4%

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