Skip to comments.$1 Billion in Risky Stock Market Transactions Similar to Pre-9/11 Activity
Posted on 08/31/2007 1:13:19 PM PDT by mojito
In the weeks preceding the 2001 attacks on America, there were very significant financial warning signs that something big and bad could be about to happen. Huge surges in purchases of put options on stocks of United Airlines and American Airlines, the two airlines used in the attacks, and put options on Merrill Lynch & Co., and Morgan Stanley, stocks of two financial services companies hurt by the attack were noted. Put options are essentially bets that a stock or stock index will drop on or before a certain date; the larger the drop, the bigger the gain for the purchaser of the option.
Fast forward to the present day, and we have the same type of trading that took place in the days that preceded the 9/11 attacks but on a larger scale. Nearly $1 billion of put options have been purchased, basically betting that Standard and Poor's 500 index will fall significantly by the third Friday in September. A large number of these options have also been purchased calling for 50% decline by September 21, 2007. For example, a 5% drop in the Dow Jones Industrial Average would be the current equivalent of about 670 points. A decline of 11% would equal about 1,470 points in todays market. Obviously, larger drops, such as a 50% decline, would cause an unprecedented market collapse. Money would be made for the purchaser(s) of the put options but the same purchaser(s) stand to lose over $1 BILLION in the investment if the market remains relatively static through September 21, 2007.
The questions are: who can stand to lose $1 BILLION, who will gain in the wake of such a devastating collapse, who are the investors, and what do they know that we dont?
And yet no names of these speculators ever comes to light.... just that it happens, like it happens every day,...
The pre-9/11 options traders *bought* shares of airliners and protected the value of those shares with options contracts. Had it just been the options contracts alone (which was what was reported), it would have been a big deal.
The current options move has a single Player buying both puts and calls...a harmless spread trade, but the article is only mentioning one side of that trade in order to be sensational.
Dispelling the ‘Bin Laden’ Options Trades:
An excerpt of the article, which tries to explain this as part of an investment strategy called a “box-spread trade”:
“As if the mortgage-market meltdown wasn’t enough to spook investors, some market players expressed concerns about unusual options bets that some observers have dubbed “Bin Laden Trades.”
The blogosphere and options trading desks have been rife with speculation about these trades, which are unusually large bets that the market will make a huge move in the next month. Some entity, or entities, has taken a large position on extremely deep in the money S&P 500 options, both puts and calls, that won’t pay off unless the market undergoes an extremely large price move between now and the options’ expiration on Sept. 21.”
Frankly, I don’t buy it. I’m somewhat familiar with this strategy, which is meant to spread risk in a roiled market. Rather, this is a HUGE stake betting on a near-catastrophic melt-down in the financial markets.
This conspiracy crap has been totally debunked. The market conditions at the time made those positions "resonable".
Those hats are made out of a billion dollars worth of foil.
see this article mentioned above for some of your answers:
Half an hour to closing. Down 260. Look out below!