Chilling: UAL & AMR Options Activity in Early September

Has anyone else heard anything about the investigation into this?

I can´t confirm or deny anything about an investigation, but it would make sense to try and make the most profit as possible from the attack. That way they haven´t just made a very successful terrorist attack, but also financed it with little added troubles.

Could you please explain how put options work? I´m not really familiar with stock market terms (I´m more of a portfolio investment type ).
I thought the only way to make profit out of this, especially with airline stocks (which have been going down of course) would be to either sell them before the attack, if you had any (no profit, but also no losses), or buy after the attack and hope they go up again.

A put option is a contract giving its holder the right to sell the underlying security at a locked price until the put option expires. The AMRVF put option is an October 20 $30.00 put. Specifically, the AMRVF option gives its holder the right to sell American Airlines (AMR) for $30.00 up until October 20th.

However, one needn't actually own the AMR stock to benefit from owning the put option. Just before the terrorist attacks, AMR was trading for about $30.00 per share. The AMRVF put option was trading for about $2.00. If AMR is trading for $30.00, the right to sell AMR for $30.00 by October 20th is not going to be worth a great deal. In fact, the AMRVF put options were worth about $2.00. However, in AMR's subsequent drop to below $17.00 after the terrorist attack, the right to sell AMR for the price of $30.00 by October 20th becomes extremely valuable. In fact, they became as valuable as $16.00. At this point, the holder of the AMRVF put option need only sell the option back into the options market to realize a profit of $14.00, or a percentage gain of 700%.

Put options exist because they are written (created) by market participants who have a position in the underlying security. In the case of AMR, short sellers of the security may write a put option against their short position in AMR, thus giving up the option to participate in decrease in the price of AMR. They in effect sell the option to someone else.

A short position in a security is achieved by selling a security 'short'. Assume an individual has no position in a security and believes the price of the security is going to go down. That individual may sell the security without owning it, with the obligation to buy it back at a later date. The short seller hopes to buy back the security for a lower price. So when the individual goes 'short', their broker 'borrows' the security from a holder of the security, and sells the security on the market, thus creating a 'short' position for the short seller. Later, when the short seller buys the security back to close his position, the borrowed security is returned to the original owner of the security. The individual whom the security is borrowed from is never aware of the borrowing, and doesn't care, because it does not affect him.

Short selling was introduced into the markets to temper exuberant markets.

There is currently an investigation into possible heavy short selling of the airline stocks and insurance stocks prior to the terrorist attack.

Edited by - bishop_pass on September 24, 2001 6:49:48 PM

thanks for the info.... that would definitely look like the way to make big money out of this. Were any other stocks than airline affected as well? ´Cause now the markets all over the world are very shaky.

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Original post by Hase
thanks for the info.... that would definitely look like the way to make big money out of this. Were any other stocks than airline affected as well? ´Cause now the markets all over the world are very shaky.

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Reinsurers: insurance companies which insure other insurance companies when catastrophic losses occur. Some notable ones: Munich Re and Hannover Re. There stock prices plummeted also. The insurance and reinsurance companies which survive will raise their rates considerably, passing on the cost to those who need insruance. This of course, costs the economy and stifles growth. Investigators are looking into possible short selling of resinsurance companies by bin Laden or his associates.

Decreased air travel means a decreased demand for aircraft. Boeing announced they would layoff 30,000 employees. Hotels and travel agencies are affected. What of all the subsidiary aerospace companies which provide the support infrastructure for aircraft manufacturing?

Other long term effects aer hard to predict. What of the home real estate market as home buying dries up because of layoffs and people concerned about a weakening economy?

I have heard finding evidence on this, due to the scale of the paper trail, is going to be like trying to put together a 10,000 piece jig-saw puzzle where all of the colors are white.

Fortunately, the resources of an entire government (if not the NATO block) are at the investigators disposal.

If this is true, it definitely highlights a very sophistocated operation.

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Just waiting for the mothership...