Sell, Sell, Sell

I have addressed the issue of the put options before, but one of our commenters brought it up, and I have read more on the issue since then, so I figured it merited addressing. It is one of the genuinely interesting subjects brought up by the conspiracy theorists, that can actually be discussed intelligently without immediately diving into nutcase zionists with thermite charges theories.

As some have pointed out, the 9/11 Commision report I have previously mentioned, refers to an investigation into ties with Al Qaeda, which they consider part of a coverup, because it would be irrational to conclude Al Qaeda had anything to do with this, and they should have investigated ties to shadowy neo-con/Zionist/Illuminati banks etc. instead.

But, as the report says (emphasis mine):

A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10.

This missed the larger point that the investigators not only found the purchasers of the stock to not be suspicious, but the purchase itself was not suspicious. In this case, the puts were only part of a trading strategy to hedge their investment in UAL stock. In this case:

The investor
bought 95% X 3,150 put options (going short) = 299,250 shares
bought 115,000 shares (going long)

At the time their stock was selling for around $30 a share, so we are to believe that these evil international banker conspirators, upon knowing that 2 United Airlines planes were going to be hijacked, went out and bought over $3 million of stock in the company? Not the most likely plan.


Buying stock and taking out a put option to hedge it, is a common investment strategy by the way. There is actually a mathematical way to calculate how many options you need to buy based on its value and volatily, called the delta, which is way beyond the scope of this post, but click on the link if you are interested in an explanation.

Regardless, even if this was some type of conspiracy, how much money was made off of purchasing these options? Not that much. Insight Magazine did an article on this and found the following:

On Sept. 6, 2001, the Thursday before the tragedy, 2,075 put options were made on United Airlines and on Sept. 10, the day before the attacks, 2,282 put options were recorded for American Airlines. Given the prices at the time, this would have yielded speculators between $2 million and $4 million in profit--hardly what any analyst would call a killing in the options markets. Based on historical data for both airlines, the put options just prior to Sept. 11 neither were dramatic nor unprecedented.

A lot of money for you and me, but peanuts by international banking standards.

Much has been made regarding the volume being more than usual, but options trading is not like regular stock trades, where shares trade hands constantly, options are contracts largely taken out by investment firms, that are purchased from other investment firms. Thus, they are not anonymous, if someone does something unusual, they have to come back to collect their money later, and whoever got cheated is most likely going to look into it. Additionally the volume varies wildly depending on the investment climate and the firms involved.

Loose Change mentions 3,150 options as being 4 times its daily volume. But as Insight reports, this was not that much of an unusual amount. On October 19, 2000 6,625 put options on UAL were sold, over twice the amount of September 6, 2001. That was up from just 374 puts the previous day. Oddly enough, I don't remember any hijackings of UAL planes taking place any time soon after that.

The same goes for the other two companies mentioned. In actuality, if someone wanted to make money of the attacks, the best way would not be to buy puts in the companies involved, but to short the entire market, or buy oil futures. The Dow dropped over 16% in the weeks after 9/11, and buying puts on the much larger index market could have been done in larger quantities without drawing any attention, but then again the Loose Change boys couldn't put this much more complex theory into an ominous looking graphic in their movie that could be understood by their 20-something audience.

Update: An October 8th, 2001 article in Barron's, puts another nail into the coffin of this theory:

One large UAL put order was sent to the bustling CBOE floor in the days prior to Sept. 11 by a customer of Deutsche Bank. The primary trading post for UAL expected to handle the whole 2,500-contract order.

Instead, the customer split that into chunks of 500 contracts each, directing each order to various exchanges around the country, according to people familiar with the trade. Moreover, some of the options have yet to be exercised, possibly because those customers' accounts have been frozen.

But some option veterans say there's nothing unusual about either the size or manner in which the order was handled. Options in UAL are heavily traded, usually by institutions hedging their stock positions. Activity in AMR options also isn't conclusive. The heaviest trading was not in the cheapest, short-dated puts that would have provided the biggest gains to a conspirator with foreknowledge of the events of Sept. 11. Moreover, at least one analyst had issued a "sell" recommendation on AMR the previous week.

Finally, these and many other options had grown quite cheap in the weeks prior to the terrorist attacks -- another reason put buyers might have been legitimately attracted to them.