Montag, 12. Februar 2007

Inside Trade

Loose Change claims:

4,516 put options are placed on American Airlines, almost 11 times its daily average.

And here's the debunking from Screw Loose Change:

American stock had been falling, and on Friday, Sept. 7 they announced a prediction of higher-than-expected losses for Q3 and Q4, on top of a Q2 loss. On Monday, investors made the safe bet that the stock would continue to has covered this issue in depth.
And from the 9/11 Commission Report, chapter 5, note 130:
Highly publicized allegations of insider trading in advance of 9/11 generally rest on reports of unusual pre-9/11 trading activity in companies whose stock plummeted after the attacks. Some unusual trading did in fact occur, but each such trade proved to have an innocuous explanation. For example, the volume of put options--investments that pay off only when a stock drops in price--surged in the parent companies of United Airlines on September 6 and American Airlines on September 10--highly suspicious trading on its face. Yet, further investigation has revealed that the trading had no connection with 9/11. A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10. Similarly, much of the seemingly suspicious trading in American on September 10 was traced to a specific U.S.-based options trading newsletter, faxed to its subscribers on Sunday, September 9, which recommended these trades. These examples typify the evidence examined by the investigation. The SEC and the FBI, aided by other agencies and the securities industry, devoted enormous resources to investigating this issue, including securing the cooperation of many foreign governments. These investigators have found that the apparently suspicious consistently proved innocuous. Joseph Cella interview (Sept. 16, 2003; May 7, 2004; May 10-11, 2004); FBI briefing (Aug. 15, 2003); SEC memo, Division of Enforcement to SEC Chair and Commissioners, "Pre-September 11, 2001 Trading Review," May 15, 2002; Ken Breen interview (Apr. 23, 2004); Ed G. interview (Feb. 3, 2004).

Let me get this right. „Yet, further investigation has revealed that the trading had no connection with 9/11.“

Why? Because of "a single U.S.-based institutional investor with no conceivable ties to al Qaeda“. That means the investigation is blocked because the trail doesn't lead to Al-qaida! What is that for an “investigation“ when the result stands before the investigation even starts (petitio principii).
They're saying that a "single U.S.based investor... purchased 95 percent of the UAL puts“.
When it's only one company, how could someone claim that this trading is referred to a general fall of airline-options and a general recommendation made by a trading newsletter? That 95% of the purchased put was done by one investor is prove that this options-trade wasn't result of general business. This investor had a very special interest in these put-options. Who was this single investor?

The bank which purchased 95% of the UAL-Put-options was Alex Brown Inc, headed until 1998 by "Buzzy" Krongard, who became executive director of the CIA in March 2001 (resigned December 2004).
Krongard was chairman of Alex Brown Inc, America's oldest investment banking firm. Alex Brown was acquired by Bankers Trust, which in turn was bought by the german Deutsche Bank. His last post before resigning to take his senior role in the CIA was to head Bankers Trust – Alex Brown's private client business, dealing with the accounts and investments of wealthy customers around the world.

Now, as we've just seen that the Commission Report contradicts itself, let's see other aspect of the Inside-Trade:

On Sptember 10th, 1,535 contracts changed hands on options that bring a profit if AMR stock falls below $30 per share before Oct. 20. That was more than 60 times the previous daily average, according to a Bloomberg analysis of options market data (BLOOMBERG NEWS, Sept.20, 2001, also CBS News, Sept.26,2001)

In "Unusual Options Market Activity with an Application to the Terrorist Attacks of Sept. 11, 2001" by Allen M. Poteshman of the University of Illinois, the author states:
"When the option market activity in the days leading up to the terrorist attacks is compared to the benchmark distributions, the volume ratios and call volume indicators are seen to be at typical levels. The indicator of long put volume, however, appears to be unusually high, which is consistent with informed investors having traded in the option market in advance of the attacks."

According to Bloomberg News, Sept.20, 2001, October $30 put options for UAL soared, with 2,000 contracts traded on Sept. 6, three trading days before the attack. That was 285 times the previous average trading.

According to CBS News, Sept. 26, 2001, there has been a jump in UAL put options 90 times above normal between September 6 and September 10, and 285 times higher than average on the Thursday before the attack.

The Put/Call Ratio for UAL was 25 times higher than normal:

But there were more suspicious trades before 9/11.

On 21 September 2001, the Herzliyya International Policy Institute for Counterterrorism, states in the report entitled "Black Tuesday: The World's Largest Insider Trading Scam?" :
„Morgan Stanley Dean Witter & Co., which occupied 22 floors of the World Trade Center, saw 2,157 of its October $45.00 put options bought in the three trading days before Black Tuesday; this compares to an average of 27 contracts per day before September 6.“

That means 719 daily average the last three day before 9/11, compared to 27 daily average. That's 26 times more than before. The report goes on:
„Merrill Lynch & Co., with headquarters near the Twin Towers, saw 12,215 October $45.00 put options bought in the four trading days before the attacks; the previous average volume in these options had been 252 contracts per day“

That's 12 times more than the previous average volume.
Morgan Stanley's stock dropped 13% and Merrill Lynch's stock dropped 11.5% when the market reopened.

Again, Bloomberg News, Sept.20, 2001:
Citigroup Inc., which has estimated that its Travelers insurance unit may pay $500 million in claims from the World Trade Center attack, had about 45 times the normal volume during three trading days before the attack for options that profit if the stock falls below $40. Citigroup shares fell $1.25 in late trading to $38.09.

„European regulators are examing trades in Germany's Munich Re, Switzerland's Swiss Re, and AXA of France, all major reinsurers with exposure to the Black Tuesday disaster.... It is not clear if any trades in these stocks ring alarm bells.“

Also, note that German Central Bank president Ernst Welteke reports that a study by his bank indicates,
„There are ever clearer signs that there were activities on international financial markets that must have been carried out with the necessary expert knowledge“,
not only in shares of heavily affected industries such as airlines and insurance companies, but also in gold and oil. [Daily Telegraph, 9/23/01] His researchers have found
almost irrefutable proof of insider trading“ [Miami Herald, 9/24/01]. „If you look at movements in markets before and after the attack, it makes your brow furrow. But it is extremely difficult to really verify it.“

Nevertheless, he believes that
„in one or the other case it will be possible to pinpoint the source.“ [Fox News, 9/22/01]

Welteke reports "fundamentally inexplicable rise" in oil prices before the attacks [Miami Herald, 9/24/01] and then a further rise of 13 percent the day after the attacks. Gold rises nonstop for days after the attacks. [Daily Telegraph, 9/23/01]

There were also other suspicious winners of 9/11:

Raytheon saw its stock rise immediately after the attack. Purchases of call options on Raytheon stock increased sixfold on the day before the attack.
A Raytheon option that makes money if shares are more than $25 each had 232 options contracts traded on the day before the attacks, almost six times the total number of trades that had occurred before that day. A contract represents options on 100 shares. Raytheon shares soared almost 37 percent to $34.04 during the first week of post-attack U.S. trading. Bloomberg News, 10/3/01

Five-year US Treasury notes were purchased in abnormally high volums before the attack, and their buyers were rewarded with sharp increases in their value following the attack.
The Wall Street Journal reported on October 2 that the ongoing investigation by the SEC into suspicious stock trades had been joined by a Secret Service probe into an unusually high volume of five-year US Treasury note purchases prior to the attacks. The Treasury note transactions included a single $5 billion trade. As the Journal explained: "Five-year Treasury notes are among the best investments in the event of a world crisis, especially one that hits the US. The notes are prized for their safety and their backing by the US government, and usually rally when investors flee riskier investments, such as stocks." The value of these notes, the Journal pointed out, has risen sharply since the events of September 11. (Suspicious trading points to advance knowledge by big investors of September 11 attacks,, 10/5/01)

Let's summarize:

-a jump in United Airlines put options 90 times above normal between September 6 and September 10, and 285 times higher than average on the Thursday before the attack.

-a jump in American Airlines put options 60 times above normal on the day before the attacks. No similar trading ocurred on any other airlines

-Morgan Stanley saw, between September 7 and September 10, an increase of 26 times in the purchase of put options on its shares.

-Merrill-Lynch saw a jump of more than 12 times the normal level of put opinions in the four trading days before the attacks.

-a jump of Raytheon call options more than 6 times higher than the average

-extraordinary high volumes in gold and US Treasury notes.

Shouldn't there be a real investigation, even if the result would be that the investors have "no conceivable ties to al Qaeda"?

Bottom Line: Loose Change is backed up by the facts. Screw Loose Change didn't debunked Loose Change.