Hmmmmm From the Crystal Ball Forum
This is a report by Jon Najarian of Tradingmarkets.com
The Chicago Board Options Exchange (CBOE), the biggest U.S. options market, confirmed it is probing unusual options trading before the terrorist attacks that flattened New York's World Trade Center and damaged the Pentagon. There had been rumors circulating that suspicious trades were made in put options, which increase in value as a stock or index drops, and perhaps in S&P and related futures contracts as well.
According to people familiar with the situation, securities regulators in the U.S., Europe and Asia are investigating whether terrorists bought put options, or shorted stocks or futures, because of their advance knowledge of the terrorist attacks.
It’s important to note that U.S. Securities and Exchange Commission Chairman Harvey Pitt acknowledged the rumors, but said, "our enforcement division has been looking into a variety of market actions that could be linked to these terrible acts, including the subjects of the rumors."
Both the CBOE and SEC appear to be taking a serious look into these rumors, as has the International Organization of Securities Commissions and the Deutsche Boerse AG (DTB). An official at the DTB said that trading on Sept. 6 and 7 for Munich Re, the largest reinsurer, were double the average daily volume for the previous six months, but that the official found nothing irregular.
As an option trader, I look at the volumes of derivatives such as options and futures and the leverage associated with both as a very tempting point of entry for someone looking to get bullish or bearish in a hurry. Frequently, insider-type buying or selling evidences itself through listed options or futures. Just as we knew the T-Rex in "Jurassic Park" was approaching from the water shaking in puddles on the ground, we know something is up when we see unusual volumes in options of securities or indices.
Given the severity of these accusations and the potential for any ill-gotten gains to go toward funding future terrorist activities, I certainly hope the investigators will look long and hard at any of the suspicious volumes I note below. If the evidence bears out that the buying of these put contracts could have been executed on behalf of terrorists or their sympathizers, we should not only freeze the accounts, but also trace the money back to its source. Wouldn’t that be wonderful if we were able to catch some of the bad guys for acting with capitalistic greed instead of religious zealotry?
Put options in United Airlines (UAL), American Airlines (AMR), Morgan Stanley Dean Witter (MWD), Merrill Lynch (MER), Bear Stearns (BSC), Citigroup (C) and Marsh & McLennan.
American Airlines
On Sept. 10, 1535 AMR October 30 strike put contracts (which gave the buyer the right to sell 153,500 shares at $30) traded. That trade represented five times the total volume traded prior to Sept. 10. AMR hit a low of $15.89 yesterday, representing a paper gain of over $1.7 million.
United Airlines
In UAL, an unusual order was entered on Sept. 6 to buy 2000 October $30 put options. Those puts likewise exploded in value from that date through yesterday’s trading, representing a gain of more than $2 million according to sources at Bloomberg.
Morgan Stanley
Between Sept. 6 and right up to the final day of trading prior to the disaster, someone was aggressively accumulating October 45 puts, which similarly, went deep in-the-money yesterday, as MWD shares fell to $42.18 from $49.88. That’s 80 times the previous average trading volume.
Citigroup
With its Travelers Insurance Group facing perhaps $500 million in claims, you can understand why the buyers of the October 40 put options would profit handsomely from their short position in Citigroup. Citigroup puts saw nearly 45 times the previous daily average trade from Sept. 6 – 10.
Bear Stearns
Another Wall Street powerhouse and specialist firm that saw above average volume in its September 50 puts.
Marsh & McLennan
One of the biggest insurance brokers also experienced unusual put volumes, as 1,209 September 90 puts traded vs. an average of just 13 contracts on an average day.
Futures Trading
Bloomberg has reported that Japan's Securities and Exchange Surveillance Commission is probing futures trade in Tokyo and Osaka. On the Osaka Securities Exchange, 8,826 Nikkei-225 December futures contracts changed hands on Sept. 10, compared with a daily average of 1,151 contracts in the previous week.
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