These were effectively gambles that their share prices would fall, which of course is what happened once the attacks took place.

United Airlines stocks were falling in price, too. There was plenty of talk about potential insider dealings in other stocks, too. What about most of the options being put through a CIA-linked bank?

Similarly, much of the seemingly suspicious trading in American on September 10th was traced to a specific U.

Details of 9/11 Insider Trading Lead Directly to CIA's Highest Ranks

Perhaps the strongest challenge to this conclusion comes from Professor Allen M Poteshman from the University of Illinois at Urbana-Champaign. Professor Poteshman points out several reasons to question the foreknowledge argument: Despite the views expressed by the popular media, leading academics, and option market professionals, there is reason to question the decisiveness of the evidence that terrorists traded in the option market ahead of the September 11 attacks.

One event that casts doubt on the evidence is the crash of an American Airlines plane in New York City on November According to the OCC Web site, three trading days before, on November 7, the put-call ratio for options on AMR stock was 7. On the basis of the statements made about the links between option market activity and terrorism shortly after September 11, it would have been tempting to infer from this put-call ratio that terrorism probably was the cause of the November 12 crash.

Subsequently, however, terrorism was all but ruled out. While it might be the case that an abnormally large AMR put-call ratio was observed by chance on November 7, this event certainly raises the question of whether put-call ratios as large as 7.

For starters, the article notes that the heaviest trading in the AMR options did not occur in the cheapest, shortest-dated puts, which would have provided the largest profits to someone who knew of the coming attacks. Similarly, the stock price of UAL had recently declined enough to concern technical traders who may have increased their put buying, and UAL options are heavily traded by institutions hedging their stock positions.

Finally, traders making markets in the options did not raise the ask price at the time the orders arrived as they would have if they believed that the orders were based on adverse nonpublic information: However, he then devises a statistical model, which he suggests is consistent with foreknowledge after all: Conclusion Options traders, corporate managers, security analysts, exchange officials, regulators, prosecutors, policy makers, and—at times—the public at large have an interest in knowing whether unusual option trading has occurred around certain events.

A prime example of such an event is the September 11 terrorist attacks, and there was indeed a great deal of speculation about whether option market activity indicated that the terrorists or their associates had traded in the days leading up to September 11 on advance knowledge of the impending attacks.

This speculation, however, took place in the absence of an understanding of the relevant characteristics of option market trading. This paper begins by developing systematic information about the distribution of option market activity. It constructs benchmark distributions for option market volume statistics that measure in different ways the extent to which non—market maker volume establishes option market positions that will be profitable if the underlying stock price rises or falls in value.

The distributions of these statistics are calculated both unconditionally and when conditioning on the overall level of option activity on the underlying stock, the return and trading volume on the underlying stock, and the return on the overall market.

The option market volume ratios considered do not provide evidence of unusual option market trading in the days leading up to September The volume ratios, however, are constructed out of long and short put volume and long and short call volume; simply buying puts would have been the most straightforward way for someone to have traded in the option market on foreknowledge of the attacks.

A measure of abnormal long put volume was also examined and seen to be at abnormally high levels in the days leading up to the attacks.

Consequently, the paper concludes that there is evidence of unusual option market activity in the days leading up to September 11 that is consistent with investors trading on advance knowledge of the attacks. One issue that troubles us about this is the lack of analysis of the string of bad news delivered by American Airlines on September 7th, the trading day before September 10th, when the most significant trading occurred.

Professor Poteshman told us via email: My study does include quantile regressions that account for the market conditions on particular stocks. Hence, there is at least a first order correction for the negative news that was coming out on Sept.

But can you really treat the news so simply? Professor Paul Zarembka supports the claims, saying: Obviously the AMR news was less significant, but we would still say that you cannot accurately judge the significance of these trades until you take it into consideration.

Similarly,much of the seemingly suspicious trading in American on September 10 was traced to a specific U. The September 6th UAL puts would automatically appear significant, then, even though only one investor was reportedly behind them. Newsletters and share tipsters do deliver spikes in trading every day, at least here in the UK.

Profiting From Disaster? - CBS News

There was bad news on Friday that may well have justified the newsletter suggesting puts be purchased and if that news had leaked or been suspected prior to release then you might have an explanation for earlier purchases, too.

Many are purchased by people who do little research themselves, and simply follow the recommendations provided. Anyway, Screw Loose Change raised a similar issue or two that you might want to consider.