The Smartest Guys in the Room Pt. 1 - Where We Stand

The Latest:
The Enron trial is going to have an interesting couple of days with Andrew Fastow on the stand. The former CFO has already pleaded guilty, is the government's star witness and under intense pressure to make the case against Skilling and Lay. Skilling's lawyer was able to discredit a previous witness Kevin Hannon on the stand (this did not move the contract) and will be ruthless in going after Fastow. Fastow was the key architect in all of the SPE's that eventually caused the demise of Enron.

The Contracts:
Lay is facing seven criminal charges and has to be convicted on at least four for the contract to pay off. The wild card charges are 38-41 in the indictment (bank fraud and false statements); these will be decided in a bench trial and are unrelated to the collapse of Enron. They they also have no bearing on the contract so we can ignore them.

Skilling is facing 31 charges and the contract pays off if he is convicted of at least sixteen.

Only the first charge of conspiracy to commit securities and wire fraud is shared by both men yet the contracts so far have moved almost in tandem. This is where the opportunity will eventually present itself as the Lay charges are considerably weaker than the ones facing Skilling (more on this later).

The Lay Guilty Contract hit 72.9 today, a new high, from a low of 46.1 at the beginning of February. The contract, including today's high, it up 8 points since the trial started.

We'll be watching this one. The Trade: Flat for now.