Before 9/11, puts on American and United traded about 10 times as much as calls
No other airline showed the same pattern, and trading in big World Trade Center tenants surged even more.
Lit Nomad · Quant explains how to actually get rich quickIn the days before September 11, 2001, trading volume in bets that American Airlines and United Airlines shares would fall ran about 10 times trading volume in bets that they would rise.
Those down bets were made with put options, contracts that pay off when a stock falls, while the up bets were made with call options, which pay off when a stock rises.
No other airline showed anything close to that lopsided pattern. American and United were the two airlines whose planes were hijacked in the attacks.
The unusual trading was not limited to airlines. Two companies that each occupied more than 22 stories in the World Trade Center, including financial firm Morgan Stanley, saw trading activity run more than 45 times its usual level in the days before the attacks.
Questions people ask
Did investigators ever explain the unusual trading?
The 9/11 Commission concluded there was no unusual activity and treated the pattern as coincidence. Some critics doubt that conclusion.
Why would someone use put options to bet against a stock instead of just selling the stock?
Puts offer leverage. A trader pays a relatively small premium for the right to profit from a large drop, so the return can be many times the initial outlay. They also do not require owning the stock or borrowing shares to sell short.
What happened to airline stocks after the attacks?
U.S. stock markets closed after September 11 and reopened on September 17. Airline shares fell sharply that week, with American and United among the hardest hit, as investors feared a long slump in air travel and higher security and insurance costs.