Bloomberg News reported Tuesday that the Chicago Board Options Exchange is investigating unusual trading volume in the days before the Sept. 11 terrorist attacks that destroyed New York's World Trade Center and damaged the Pentagon.
Specifically, the exchange is looking into trading in put options on companies that were directly harmed by the attacks.
Trading volume surged in September and October for put options on AMR Corp, which owns American Airlines, and on UAL Corp, owner of United Airlines, the two carriers that were hijacked.
Trading also rose for options on Marsh & McLennan Cos, an insurance company that was a large tenant in the World Trade Center, and Morgan Stanley Dean Witter & Co, the largest tenant in the twin-towered complex.
Suspicious trading in puts on other companies, such as Citigroup Inc and Bear Stearns & Cos, also are under investigation.
Japan, Hong Kong, and Germany are conducting similar investigations into suspicious pre-attack trading. German authorities are reported to be investigating unusual trading in the insurance giant Munich Re.
Everyone is wondering the same thing: Did the terrorists or their comrades put on trades designed to enrich themselves from their horrendous crimes of Sept. 11? It would be the icing on the cake, as the saying goes, to find out that whoever is responsible for these dastardly attacks set out to reap a trading fortune in the process.
Paper trail
Now all of this could be speculation. Maybe it was just an innocent coincidence and there is a good explanation. And the financial community is ripe for what could be an understandable bout of paranoia. But these trades sure look queer to me.
Consider that on the day before the attacks, 1,535 put contracts with US$30 October strikes on American Airlines were purchased. Each put gives the holder the right, but not obligation, to sell 100 shares of stock at the strike price. The trading in that particular put on that day was five times the usual volume.
What's more, the volume surge on put options for the above-mentioned companies was for at-the-money puts, meaning the contract was in line with the underlying stock price. AMR closed at US$29.70 the day before the attacks.
The options also were close to expiration, in September and October.
Options close to expiration, and close to the stock price, are the best options to buy if you expect a large movement in a stock price to occur right away.
When the underlying stock price moves down, these put options will pick up value at a breathtaking and accelerating speed.
In the case of the American Airlines puts, the 1,535 contracts that were worth US$337,700 at the end of trading on Sept. 10 were worth US$1.6 million at Tuesday's close.
As I said above, we don't know at this time if this is a horrific case of insider trading, coincidence or our imaginations running wild. But it fits the pattern of behavior of what we know of the hijackers.
They were clever like a fox in the micro level but stupid when it comes to the big picture. How clever to hijack four planes and use them as manned cruise missiles they aimed at the World Trade Center and Pentagon. How stupid to leave a trail of clues that could be traced.
And they may have left another set of clues if all this supposition about the puts turns out to be true.
If these clowns really bought puts on airline stocks and financial companies the day before the attacks, then they left another incriminating paper trail that may help provide proof of who masterminded this evil.
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