"Osama's Insider Trading": V2.0 is also a hoax

Lou Paulsen wwchi at enteract.com
Sat Sep 22 11:45:07 MDT 2001

A little addition to my post on the "airline puts" story.  I said before I
had an open attitude, but I am revising my attitude considerably in the
direction of skepticism, and I have two reasons.

First: it seems to me that if there were really anything to the idea that
people with insider knowledge had been buying airline options before the
Sept. 11 attack, we would be hearing MORE about it now.  It wouldn't take
the FBI long to force the names of the buyers to be divulged.  Instead, we
are hearing less.  I think this means that they really know it is going

Second: I actually looked at a graph of AMR (American Airlines) stock
performance on Yahoo finance.  They don't have graphs for the options, but
they have a graph for the underlying stock.  It shows that AMR's price had
been slumping since mid-July and particularly in the first week of
September, apparently due to their bad earnings reports.  It wasn't
plummeting dramatically, but on Sept. 10 it had gotten down close to $30.

Now, one of the options whose 'high volume' was reported in the articles
about the supposed put-buying scheme was a $30 option (which allows you to
sell a share of stock at $30).  See this Bloomberg article:


How does interest in the option vary with the price of the stock?  While the
price of the stock hovers well above the "strike price" of $30, there is a
good chance that the option will never be exercised, and interest in it
remains low.  As the share price approches the strike price, however, things
become much more volatile.  If the share price stays above $30, the option
will ultimately be valueless.  If the share price goes below $30, the option
will be valuable.  And if you are interested in speculating on AMR going
lower, buying a put is a much cheaper way to do it than short-selling.
Therefore, the maximum interest in the put is when the share price is just
above the strike price, and falling, which is exactly what AMR was doing in
the days before September 11.

In short, I now tend to believe that the 'extraordinary' interest in the AMR
$30 put option in the days before the attack is most simply accounted for by
the fact that the share price was behaving in just such a way to excite that

Afterword: having written the above, I then went to dig up the Bloomberg
article which is linked above.  I noticed that this article also referred to
a UAL put option with a strike price of $30.  Would my theory also explain
the increased volume in UAL?  I went back to Yahoo finance and dug up the
UAL chart, and found that the price behavior of UAL stock was very similar
to AMR's in August and September, and it happens (this really is
coincidence) that the share prices for the two companies were and are just
about identical.  UAL stock was also falling in the low 30's in the first
week of September and closed around 31 on September 10!  Thus, the price
fluctuations of UAL ALSO account for the high volume of the option the day
before the attack.

By the way, they already know this.  You don't have to be a wizard of
finance to figure this out.  And the finance reporters must be deliberately
omitting this information from their articles.  I now conclude that Version
2.0 (the airline puts version) is as much of a hoax as Version 1.0 (the
reinsurance short selling version).

Lou Paulsen

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