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Balanced Fare: We Report, You Deride

Thursday, July 31, 2003



Believe The Rumors!

Well, if you can believe Snopes. As a sidebar to the predictive power of markets and the "Futures on Terror" (see below), lots of folks have mentioned rumors that there was odd stock market activity prior to the 9/11 attacks.

Over to Snopes Urban Legends, in a report from October 2001:

Claim: In the days just prior to the September 11 terrorist attacks, the stocks of United and American Airlines were shorted by parties unknown.

Status: True.

...In the month prior to the 11 September 2001 attacks on the World Trade Center and the Pentagon, highly unusual trading activity involving American and United Airlines stock was noted by market analysts who at the time had no idea what to make of it. Wildly unusual discrepancies in the put and call ratio — 25 to 100 times normal — were observed in stock options of the two airlines. In one case, Bloomberg's Trade Book electronic trading system identified option volume in UAL (parent of United Airlines) on 16 August 2001 that was 36 times higher than usual.

...it was during the final few trading days (the market closes on weekends) that the most unusual variances in activity occurred. Bloomberg data show that on 6 September, the Thursday before that black Tuesday, put-option volume in UAL stock was nearly 100 times higher than normal — 2,000 versus 27 on the previous day.

On 6 and 7 September, the Chicago Board Options Exchange handled 4,744 put options for United Airlines' stock, translating into 474,000 shares, compared with just 396 call options, or 39,600 shares. On a day that the put-to-call ratio should have been roughly 1:1 (no negative news stories about United had broken), it was instead 12:1.

On 10 September, another uneventful news day, American Airlines' option volume was 4,516 puts and 748 calls, a ratio of 6:1 on yet another day when by rights these options should have been trading even.

No other airline stocks were affected — only United and American were shorted in this fashion.

Accelerated investments speculating a downturn in the value of Morgan Stanley and Merrill Lynch (two New York investment firms severely damaged by the World Trade Center attack) were also observed.

The Chicago Board Options Exchange is investigating each of these trades and at this time is declining to offer comment on its progress...

Last updated: 3 October 2001


One might expect a final report to be available. Assistance would be appreciated.





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