"Osama''s Insider Trading" Version 2.0

Lou Paulsen wwchi at enteract.com
Fri Sep 21 07:17:27 MDT 2001

Several days ago, if you recall, the media started to circulate the rumor
that Osama had been selling short shares of the reinsurance firms on the
European exchanges.  The stories they were circulating were lacking in data,
completely devoid of information that anyone had really done this, and full
of innuendoes by imperialist government officials.  They were just part of
the imperialist propaganda campaign against Osama.

Now, a couple days after THAT, we have a story that someone, always presumed
by the media to be Osama, bought large numbers of 'put' options in American
and United airlines and maybe some other issues in the days before the
attack.  This story emanates from the Chicago Board Options Exchange. Each
'put' is associated with a particular company, a price, and an expiration
date.  Thus, there are 'American Airlines $30.00' puts with a certain
expiration date.  If you have one, you can sell a share of American Airlines
for $30.00 to the person who sold the put at any time before the expiration

If American Airlines is trading well above 30, that put may turn out to be
completely worthless (since there is no reason to sell the share at $30
since you can get more for it on the open market), and you can buy it for
two or three dollars.  If American Airlines goes to 18, the put is then
worth at least $12.00.

The person who sold the put doesn't believe the shares will go that low, and
thinks he is getting free money from a needlessly worried person.  The buyer
of the put is, as you said, 'insuring' against the chance of the shares
going down.  Often buyers of puts already own the shares in question, and
want to make sure they don't lose money if American Airlines goes below 30,
for example.  Or, they can just be speculating, since if American Airlines
goes down to 18, the put has obviously increased in value.

Now, what do we make of this 'put' story?  It has a lot more numbers, it has
more financial people involved, and it seems to be a lot more factual than
the 'short sales' story.  But does that mean that it turns out that someone
really WAS doing stock market trading with knowledge of the attack, and that
even though at first they were looking at short sales in Europe, it turns
out it was really put options in Chicago?  Or does it mean that they have
just come out with a slicker version of the hoax?

Here is one of my reasons for suspicion.  These options are traded by
specialists in the Options Exchange, who deal with the options on the shares
of certain companies.  IF there was really unusual trading in American
Airlines options, for example, these traders must have noticed it on
September 10.  And then when two American Airlines planes crashed on
September 11, would they not have become suspicious then?  Would they not
have gone to the media or the authorities immediately?  Of course the
exchange was closed but the offices were open.

Instead, they waited until the exchanges reopened and the shares actually
fell.  This means that the sellers of the puts (which are not the same
people as the trading personnel, I should say) now stand to lose large
amounts of money now if someone actually exercises these options.  However,
they will save large amounts of money if the buyers of these options never
come forward to exercise them.  This gives them a motive to put out a false
story, which is at least as good as the motive of some 'terrorist' to
speculate in stocks.

I haven't investigated this business myself, and so far as I know no
trustworthy 'left' financial analyst has investigated it either, so I am
keeping my own judgment completely open.  Logically speaking, it might be:

a) That the variations in trading volume in the 'puts' before the attack
were really nothing special, and the media, or their sources, are just
fooling people by making up numbers or misinterpreting them.

b) That there were high volumes before the attack but their cause was
unrelated to the attack - for example, if an unfavorable earnings analysis
was published somewhere - or were just products of the unpredictable
changing desires of people in the market - by chance, that is.  To say that
trading was 'many times normal' sounds as if chance couldn't be involved,
but it depends on the volatility of the issues in question.  One large
stockholder who decides to insure his holdings can account for a big spike
in the volume of the options.

c) That there were high volumes before the attack because someone really was
trading on advance knowledge.  This could then be (1) someone acting for the
perpetrator group, whatever that turns out to be (2) someone associated with
a member of the perpetrator group, trading for his/her own advantage (3)
someone associated with an intelligence agency, trading for his/her own
advantage (4) someone else entirely.

I really have no guess here yet.

Lou Paulsen

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