*New Countrywide rumors

The stock is getting whacked this morning - at last check down 17.5 percent, to $6.30 (it had been as low as $5.76). The reason behind the plunge is more speculation among traders that the Calabasas-based company needs more cash to stay afloat, and that tighter lending restrictions might put it over the edge. As it has in the past, Countrywide denies any substance to the Chapter 11 rumors, which seem to be originating within the complex arena of credit-default swaps. Basically, those are bets about a company's ability to repay debt. From Bloomberg:

Credit-default swaps tied to Countrywide's debt soared to a record as investors demanded as much as 30 percent upfront and 5 percent a year to protect from a Countrywide default for five years, according to broker Phoenix Partners Group in New York. Yesterday, investors were demanding 20 percent upfront and 5 percent a year. Contracts trade on upfront payments when the market sees a high risk of default.

You might recall that Countrywide has tapped emergency credit lines and got a bailout from Bank of America Corp. By the way, BofA is down today as well.

*Update: Joe Kinahan, chief derivatives strategist for Thinkorswim, tells Marketbeat's David Gaffen that there was heavy buying of put options — the right to sell a stock. Volume in the four most active January put options comes to around 45,000 contracts, compared with around 24,000 in call options (the right to buy a stock). “These are speculative trades, and volatility is through the roof,” Kinahan says. “It’s almost a panic situation.”

Countrywide close: The stock finished the day down 27.7 percent, to $5.60.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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