Waterboy's Presentation to the Nation of Islam

Wow, it's like traveling back in time to the original Loose Change:

I mean, Put Options and the Hijackers found alive?  I have to wonder where Kevin is going to come down on the Missile or Plane controversy.

SEC Releases Report on the 9/11 Put Options

As I have mentioned before, I have always had a special academic side interest on the subject of the 9/11 put options, so it was especially interesting to read more on the SEC and FBI investigation into this, which was recently released. Despite the troofer claims that nothing connected to 9/11 was ever investigated, this part of the investigation was actually more extensive than previously believed.

In addition to the sex industry groups identified above, we also reviewed trading in certain financial products, including exchange traded funds and broad and narrow indices (e.g. Dow Jones Industrial Average, Nasdaq 100, and the American Stock Exchange Airline Index).

Together with the market surveillance groups at several self regulatory organizations (SROs), including the New York Stock Exchange (NYSE), the American Stock Exchange (Amex), the Philadelphia Stock Exchange (PHLX), and the NASDR, we obtained the identity of numerous accounts that traded in a total of 103 individual securities and 32 indices or exchange traded funds. We reviewed and analyzed trading records for those accounts to determine whether trades made during the period prior to September 11 were consistent with earlier trading. When possible, we interviewed the individuals for the investment decisions and/or the traders who placed the trades.

Another Study on the 9/11 Put Options

Given the utter trash that passes for research in the troofer community, it is always interesting to see research by actual academics on related issues. One of the topics I have always had a personal interest in has been the put options, on which supposedly the New World Order elites made a killing after the attacks drove down the values of airline stocks. Hey, have to justify that class in options theory I took in b-school somehow. Three academics from Switzerland have come out with a paper on detecting "informed trades" in the stock markets, not just around 9/11 but most of the last decade it appears.

I just went through it quickly, and haven't taken the fine tooth comb approach yet, but from what I understand so far, I am not impressed. It involves an interesting methodology, which they describe as:

According to our method, an option trade is identified as informed when it is characterized by a statistically large increment in open interest and volume, induces large returns and gains, and is not hedged in the stock market. Specifically, for each option the increment in open interest is compared to its daily volume to check whether or not this transaction can be classified as unusual. If so, the corresponding return and gain are calculated over various horizons. When the return and gain are statistically important, the probability that the option trade is not delta hedged is calculated. When this probability is sufficiently low, the option trade is identified as informed. This method is applied to each put option contract on 14 companies in various business sectors traded in the Chicago Board Options Exchange from January 1996 to April 2006 analyzing approximately 1.5 million of option contracts. In total 37 transactions are identified as informed trades: 6 occurring in the days leading up to merger and acquisition (M&A) announcements, 14 before quarterly financial/earnings related statements, 13 related to the terrorist attacks of September 11th, and 4 which could not be identified.

While this makes a certain amount of sense, there is one problem, one which way too many people in finance and economics make, that of randomness in the market. This is another subject which I have always had an interest in, and there is actually a bit of a minor industry in publishing now on the subject. As a short aside I recommend Nassim Nicholas Taleb's Fooled by Randomness and The Black Swan as well as Benoit Mandelbrot's The Misbehavior of Markets, and Malkiel's classic A Random Walk Down Wall Street.

In any case, the problem here is the authors come up with 37 transactions which they identify as anomalies, and call those "informed trades". But they come up with this out of a population of 1.5 million option contracts. With that large of a population, there is no practical way to distinguish what is an actual sign of insider trading, and what is random noise. With that much data there should be a huge number of purely random coincidences, no matter how many standard deviations you go out. Yes, some of those 37 trades may actually be actual cases of insider trading, but just by chance most of them should not be.

Another factor in this lies in whether their methodology is even legitimate. They base this on the assumption that put options which are not hedged against a long position in the stock are speculative, and therefore informed. There are, however, numerous ways of hedging a stock position. As the 9/11 Commission famously pointed out:

A U.S-based investment advisor registered with the SEC purchased 2,000 UAL puts on September 6, constituting 96% of the volume. The SEC's Eric Ribelin and Andrew Snowden interviewed both the CEO of the advisor and the trader who executed the transaction. They received the innocuous explanation for the trade which is set forth in the SEC report. [See Report at 9 (explaining the advisor manages hedge funds with $5.3 billion under management, was pursuing a bearish strategy with respect to most airlines stocks in response to recent bad news announcements, and had actually purchased 115,000 shares of AMR on September 10, believing the negative information on AMR was already reflected in the price).]

They hedged a short option position, not with a long equity position in the same stock, but in a different industry stock. There are even more ways than this, for example you can hedge a position in airline stocks (a major consumer of oil) with a position in energy companies (a major producer). Even this is aside from the question of whether it is a valid assumption to say that any options which are not hedged must be "informed trades".

Regardless, the one thing I can guarantee is truthers will use this paper to claim it is now proven that the elites knew of the attack ahead of time.

Welcome to April, 2009

I checked my Fender Custom Shop daily desk calender this morning, and I am pretty sure it said April 22nd, 2009, Earth Day at that. Troofers, however, always seem to think it is still mid-September 2001, and ignore everything we have learned since then. Take this post today on 911 Blogger:

On September 19, 2001 the Chicago Tribune reported that regulators around the world were investigating in attempts to discover if terrorists or individuals who knew of the upcoming events profited through the purchase of put options in financial markets. The 9/11 Commission conceded, “some unusual trading did in fact occur” however, it was claimed, “each such trade proved to have an innocuous explanation.”
The put options volume on Boeing and United Airlines were 4 to 5 times above the daily put volume data prior in the year. The data on record shows no similar trade volume was placed on any other airline stock symbol during the same period of time.

OK, that was 7 1/2 years ago. Might want to find some newer information. The poster continues:

The reasoning behind the Commission’s decision and why no charges were filed was due to the fact that 95 percent of the puts were purchased by a U.S. based institutional investor who was said to have been investigated thoroughly by the FBI and SEC and had no conceivable ties to al Qaeda. News and market analysts, as well as all of the supporting evidence suggests the parties who own these puts had to have had advanced knowledge of the attacks. While officially all of the trades placed in the weeks leading up to the attacks were found to be innocuous, the hard evidence and the exponential increase of put options suggests otherwise.

Hey, guess what, the 9/11 Commission released their internal memorandums on this several months ago. You can read it for free even.

A U.S-based investment advisor registered with the SEC purchased 2,000 UAL puts on September 6, constituting 96% of the volume. The SEC's Eric Ribelin and Andrew Snowden interviewed both the CEO of the advisor and the trader who executed the transaction. They received the innocuous explanation for the trade which is set forth in the SEC report. [See Report at 9 (explaining the advisor manages hedge funds with $5.3 billion under management, was pursuing a bearish strategy with respect to most airlines stocks in response to recent bad news announcements, and had actually purchased 115,000 shares of AMR on September 10, believing the negative information on AMR was already reflected in the price).]

Welcome to 2009.

Investigate, but Ignore Previous Investigations

Once again showing what savvy investigators they are, a poster over at 911 Blogger calls for an investigation into the "highly irregular put options".

Secondly, Congressman Kucinich has repeatedly promised an inquiry into several aspects of the attacks, especially the highly irregular Put Options which likely
indicates insider trading. He should be pushed into keeping his word and to expanding the inquiry into War Games and the PEOC activities.

Now I don't know if Frodo has promised this or not, but this issue has already been investigated to death, as the recently released 9/11 commission memos revealed. Yeah, there is an idea, let's call in the exact same people again, so they can tell us, "Didn't we already go over this?"

What do you want to bet that not a single member of the "truth" community has actually bothered to read these memos?

More on the 9/11 Put Options

I have always had a personal interest in the 9/11 put option theories, a result of all those finance classes I took in b-school no doubt, so even though this was one of the weaker theories to begin with, most of it had been explained in the 9/11 Commission Report, I was interested to see some additional details in the recent document dump.

First of all, the press misreported much of this. For some reason troofers seem to think the media is infallible, when it benefits them.

When asked if anything initially looked suspicious, Cella said some of the option trading numbers in UAL and AMR looked suspicious at first blush, before the SEC investigated and understood the trading at issue. At the same time, he said the numbers were never as suspicious as reported in the press. Specifically, he said press reports typically doubled the options trading volume over the actual volume. He said the mistake likely resulted from the Options Clearing Corp's (OCC) public web site, which lists both sides of a trade (buy and sell) as separate trades. Thus, a reporter checking the web site for trading volume could easily overstate the trading volume by a factor of two. In addition, Cella said the trading volume on a given day includes both buys and sells. For example, the 2,282 AMR puts traded on 9/10/1, as reflected in the SEC report, includes puts sold by customers as well as puts bought by customers.

As explained before, much of this volume was part of a hedge strategy anyway:

A U.S-based investment advisor registered with the SEC purchased 2,000 UAL puts on September 6, constituting 96% of the volume. The SEC's Eric Ribelin and Andrew Snowden interviewed both the CEO of the advisor and the trader who executed the transaction. They received the innocuous explanation for the trade which is set forth in the SEC report. [See Report at 9 (explaining the advisor manages hedge funds with $5.3 billion under management, was pursuing a bearish strategy with respect to most airlines stocks in response to recent bad news announcements, and had actually purchased 115,000 shares of AMR on September 10, believing the negative information on AMR was already reflected in the price).]

And now we finally find out what newsletter recommended buying puts. Undoubtedly they will now be added to the incredible vastly improbable ranks of the conspirators.

The SEC determined that the unusual volume in AMR puts on September 10 largely resulted from an increase in the October 30 puts series. Investigation revealed that Options Hotline, a California newsletter, edited by Steve Sarnoff, recommended the purchase of this series in the issue emailed and faxed to its 2000 subscribers on September 9, 2001. The SEC interviewed 28 people who bought the October 30 puts, and 26 of them cited the Options Hotline. The SEC saw that 27 additional individual purchasers of the October 30 series of AMR on September 10 were also Options Hotline subscribers. The SEC interviewed Sarnoff, who explained the basis for his recommendation.

Another report also touches on the "mysterious unclaimed put options" which as we have said before, are not mysterious, they just had not expired at the time they were reported on. Thanks to MikeW and Lapman at the JREF forum for pointing these out for me.

More 9-11 Denier Logic

Here's a new movie called Open Complicity from the Ann Arbor 9-11 Deniers group. I watched about fifteen minutes of it, and as the original poster at Google video notes, those are fifteen pretty dull minutes indeed. I'll watch more when I get a chance, but for now I wanted to address some of the illogic shown early.

First, the film claims that "only" those stocks affected by 9-11 had unusual trading patterns in the days leading up to the attacks. This is absurd, and indeed, if it were true, it would be exceedingly unusual in and of itself. Of course, what the film really means to say is that nobody paid any attention to unusual trading in other stocks because those stocks were not impacted by 9-11. The film goes on to claim that since only the particular stocks impacted by 9-11 had unsual trading patterns, the odds against this occuring by chance were astronomical. The usual misuse of statistics from the Deniers, in other words.

The film goes on to claim that the profits from the pre-911 trades were never collected, and thus whoever did the trading lost their initial investments. This is just an example of how little 9-11 conspiracy theorists know about stock markets in general and put options in particular. While it is true that the SF Chronicle reported that the options had not been cashed in an article dated 9/29/01, the reason for that is quite simple. The options had not expired.

The Expiration Date is the month in which the option expires. All options expire on the third Friday of the month unless that Friday is a holiday, then the options expire on Thursday.

As noted in the film, the purchasers of the put options did not purchase the options that would have risen most in value (i.e., short-term put options), so clearly they had purchased put options expiring after September. And when put options expire with a profit that profit is not lost; the deal is simply unwound by crediting the buyer of the put option with the difference between the strike price and the share price as of the close of business on the expiration date (and debiting the seller of the put option the same amount).

Hilariously, the film attributes the fact that the options had not been sold as "nothing if not a sign of guilty conscience". Yeah, these folks were willing to profit on an event that killed thousands of Americans, and yet when it came time to take the money they suddenly felt guilty?