Airline Stocks the day before

Maybe this has been answered but I can’t find it.

On our PBS station they were saying how people were buying stocks in AA and UAL the days before the attack and selling it after.

Now I’m thinking don’t stocks go down? So wouldn’t they lose?

But then they said something about “puts” or something sounding like that.

They also said none of this occured on Delta or Northwest or the other major airlines.

Can anyone explain or direct me to another thread if this has been answered?

One way to make money on a stock going down is to “short” the stock. Here’s a description.

The basic idea:

  1. Borrow shares of a stock from your brokerage. They usually have plenty of shares sitting around in their brokerage accounts that aren’t doing anything, so they don’t mind this.
  2. Sell the borrowed shares immediately and get some cash.
  3. Wait (unless you’re a day trader).
  4. Now buy some shares on the market so you can repay your brokerage.

If the price of the shares at step 4 is less than it was at step 2, then you made money. Yeah!! But the price of the stock actually went down. It’s like magic.

(You can also do it with options, which is where the “put” terminology comes in. Stock Option Basics)

I heard that some people, suspected of being part of the terrorist plot, made a ton of money by short-selling shares of American and United Airlines’ stock. They sold the stock before the attacks and bought it after, when United and American Airlines stocks were dirt cheap. So not only did they help kill 5000+ people, but they made a killing doing it :frowning:

Does anyone know if this stock profit rumour has been proven true? It seems too easy to trace back to the account holder. Requirements to open a brokerage account are strict (even for overseas investors). And the SEC is notoriously good at tracing this kind of stuff.

And I see no way any regular trader (i.e., non-terrorist related) could have known soon enough to profit from this. Yes, the market was in pre-open trading, but the logisitcs of quickly getting off short sales immediately after the incident would be difficult.

Can someone talk to me like I’m THREE. I don’t get it.

Can you use a “fer instance.”


Markxxx, IANABroker, but we’ll give it a shot.

Here’s a fer instance:

IBM is selling for $100 today and I think it’s going to go down in price in the future. I tell my broker I wish to “short” ten shares, which has a value of $1000 (there may be collateral requirements, but we’ll keep it simple and ignore that). On paper, I just gained $1000 dollars, as if I had sold the shares. Three months later, IBM is selling for $80 a share. I “close” my position at this time, which is basically saying “I’ll pay for those shares now”. The value of the ten shares is now only $800. Since I had $1000 dollars on paper originally, and only have to pay the $800 now, I’ve made a $200 profit (excluding any fees, taxes, etc.).

Shorting is VERY risky. If you buy the original ten shares outright, a “long” as opposed to a “short”, the most money I can possibly lose (say IBM goes bankrupt) is $1000. A share can’t be worth less than $0. If I were “short” on the other hand, and IBM’s value went to $2000 a share before I decided to get out, I would owe $20,000.

In reality, most shorts start getting out at the first sign of a surge in the stock price. If you have a very large number of “shorts”, this can be a problem, since with each block you “close” on, you are actually buying shares. Buying shares usually causes the price to raise even further.

I hope that helps.

All right:

  1. Stock is selling at $50
  2. You borrow 100 shares from the broker and sell them. You get $5000.
  3. Stock drops to $40 the next day.
  4. You buy 100 shares to give back to your broker. Cost: $4000
  5. Income ($5000) minus cost ($4000) = profit ($1000)

IRL, it’s more complicated, of course: you need to put up money to borrow the stock, and there are broker’s fees, etc., but that’s the basic principle.

It’s the same with options, though more complicated.

Markxxx, if your question is about options (‘puts’) see the link posted by SmackFu. Options are just a riskier, less expenisve (with a higher reward potential) way to profit from stock movement.

DMC and Chuck thanks that made sense.

OK I did see the program tonight on our PBS station. It was a local Chicago show.

Can’t find anything on line about the fact that traders said that the volume of doing this was higher on the days before the WTC strike. The panel also noted it was only UAL and AA.

It was PBS WTTW channel 11 Chicago where they showed the discussion.

Sorry, but the SEC are an open joke among the investment banking community. They are about 10 steps behind the curve, don’t understand complicated trades, and when they finally bust someone it’s usually a slap on the wrist.

Requirements to open a brokerage account in Hong Kong for example require that the investor transfers money into the brokerage account and fill out a simple form. Please check for a example. Trading options in the US via an overseas broker is pretty easy and could be set up so that it is hard to trace.

If one account bought puts on the airlines, insurers and brokerage houses, then that would be a red flag and easy to trace back. If 20 seperate accounts linked to seperate off-shore companies in tax havens such as Bermuda or Swiss bank accounts, bought a relatively small number of puts each on 10 different global markets, then there would be nothing to trace but one could still make millions.

If those accounts sold call options, which also increases in value as the share/index price falls, it would be a lot harder to trace. Selling calls looks a lot less suspicious, and a very straight forward trade in the current market. I would be surprised if regulators also looked at call short sellers.

OK, this is my recollection from a radio report this afternoon. A huge number of ‘put’ options were bought for United on Thursday and Friday of last week, and for American on Monday. One market observer said that it was a bigger set of options than he had seen on anything in twenty years of trading on the Chicago Mercantile Exchange. Furthermore, big short-sells were put in on those stocks (as well, I’ve heard, as on insurance company stocks) on the German and Japanese stock exchanges. This last is particularly suspicious-the logical place to make these transactions would have been at the NYSE. Unless, of course, you had reason to think that the NYSE might be closed for a week or more … you’d hate to miss your chance for your quick, um, never mind, I’d better think of another metaphor.

Obviously, the SEC and other international watchdogs are all over this money trail like flies on s***. But I have a sinking feeling that the money is already in the form of cash under bin Laden’s mattress.

Granted, the SEC’s effectiveness can be debated. But I don’t think they are an ‘open joke.’ Especially when a case of this magnitude is presented to them. I have no doubt that they could trace the route of money, if the case is big enough (and I think this case is big enough).

I’d still like to see some cites on the volume figures of airline options prior to (and including) 9/11. (Puts and calls.)

I’m of the opinion, yes opinion, that these stock profit rumours are just that. The musings of a public still obsessed with the stock market. (And of a public searching for a ‘reason.’)

Well, here’s the source (an AP newswire) of the radio report I heard. There are reports from Frankfurt, Tokyo, and Amsterdam of suspicious short-selling, but I couldn’t find any numbers … but from Chicago:

*In the days before the attacks, unusually high numbers of put options were purchased for the stocks of AMR Corp. and UAL Corp., the parent companies of American Airlines and United Airlines, which each had two planes hijacked. There was no such trend involving other carriers.

On Sept. 6-7, when there was no significant news or stock price movement involving United, the Chicago exchange handled 4,744 put options for UAL stock compared with just 396 call options - bets that the price will rise. On Sept. 10, an uneventful day for American, the volume was 748 calls and 4,516 puts, based on a check of option trading records … “I saw put-call numbers higher than I’ve ever seen in 10 years of following the markets, particularly the options markets,” John Kinnucan, a principal of Broadband Research, an independent telecommunications research firm, told the San Francisco Chronicle. “When one sees this type of activity, the first thing one does is ask oneself, ‘What is the explanation? What are people worried about?’”*

No specific cites on ranges for AMR and UAL put/calls for previous dates, other than the subjective ‘higher than I’ve ever seen in 10 years’ comment. You can read the whole AP story here:

Bumping-I’d really like to see escapol’s opinion of these rumors now that there are some genuine numbers here … escapol? escapol? :slight_smile:

Well, now that there are some numbers, I’m in total agreement that this is suspicious. Even more so because the volume on the puts of the two different airlines were so close (around 4,500).

But this is not difficult to trace, unless it was done with 100 different accounts. But then it would just take more time. I’ve no doubt they will quickly found out who made those trades.

I’d like to know exactly which month options these are. A check of open interest shows the largest open interest in UAL Oct 40 puts, 2,333. Which means either 1) they’ve closed out half the position or 2) they spread out the purchases over various months.

Also, what are the volume figures of these put options AFTER the attack? Cause you can’t make a profit unless you sell them.
If this turns out to be true (that the terrorists purchased these options to turn a profit) it will be very interesting indeed: They’re funding their operations by using the very system they are trying to destroy.

On another check of the open interest, the UAL Nov 40 puts show an open interest of 2,000. So it looks like they bought about 2,000 each of the Oct and Nov puts. And, thus, haven’t sold any of them yet. Just my WAG.

Bumping to see if anyone has new info on this.

Escapol, I’ve been watching bloomberg pretty closely but haven’t seen anything further on this. Certainly, the volumes are highly suspicious when you look at a combination of the airlines, insurers and brokers. Please post if you find anything additional and I’ll do the same.

Here is a quote from Bloomberg. (Bloomberg links change rapidly, so it’s easier to just look up and click on the “attack on America”

German probes into trading before last week’s terrorist attacks are focusing on stock- index, oil and gold futures, airline and insurers’ shares and options, Bundesbank President Ernst Welteke said.

German central bank research into trading before the attacks shows ``that activities on international financial markets must have been planned and executed with the necessary knowledge,’’ Welteke said, citing a Bundesbank memorandum.

There were share price movements at a whole series of companies, especially at airlines,'' Welteke told reporters at a meeting of European finance officials. Now it depends on the extent to which such suspicions can be verified – on how far one can trace who has made such transactions.’’

Bit of a more in-depth article on this.