Put Options

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Claim

One of the most commonly repeated claims of 9/11 foreknowledge is based on the financial trading that took place just before the attacks. Put options, essentially bets that a share price will fall, were placed in unusually high levels just before 9/11 on both airlines involved in the attack, as well as major companies based in the WTC, insurers that had underwritten the cover to the World Trade Centre complex, and others. When the stock exchange reopened, all these share prices had plummeted, and the buyers made huge profits.

Mike Ruppert was one of the first people to link the story to the US government, with an article entitled "Suppressed Details of Criminal Insider Trading Lead Directly into the CIA’s Highest Ranks: CIA Executive Director “Buzzy” Krongard managed firm that handled “PUT” options on United Airline Stock":


(Go follow the link to read the whole thing).

The story also appeared in the mainstream media a week or so after the attacks:


The suggestion is that these purchases were unusually targeted at companies that would directly suffer from the attacks, then. Volumes were far higher than normal, and there was no other news that might explain why people might think these particular share prices would fall. Therefore, it's claimed, the put option buyers must have had some level of foreknowledge of the 9/11 attacks.

The Commission account

The main body of the 9/11 Commission Report made only brief reference to the put options, and even that was hidden away in a footnote:


We've frequently seen the Commission criticised for this, however they did give many more details on the issue in Appendix B of the Commision's Terrorist Financing Staff Monograph, which we include here in full.


The Commission reported no reason for suspicion, then. And as an example explain that the purchaser of the United Airlines put options also bought 115,000 American Airlines shares on September 10, not a good sign of foreknowledge. They provide few other details, though, and so many 9/11 researchers continue to claim that only foreknowledge of the attacks could explain the put options. But in reality there were several other reasons why investors might have been gloomy about the future.

General economic context

The purchase of high numbers of put options indicates a belief that share prices are about to fall. It's sometimes argued that this indicates foreknowledge of 9/11 because there was no other reason to expect falling prices at the time:


However, the "no news" line isn't exactly telling you the whole truth.

Here's the Washington Post discussing share prices on September 1 2001, for instance:


An improvement at the end of the week, but people generally think it's a blip, with the Dow Jones down 4.5% overall, and that's following a 5.3% fall in August.

General pessimism continued into the following week:


Everyone's waiting for the unemployment figures, then. And unfortunately, they turn out to be worse than expected:


This all contributed to a significant decline in share prices just before 9/11.

Image:DJIA context.gif

There were plenty of people who seemed pessimistic about the future, then. And they had specific reasons to be buy put options for some 9/11-related companies, too.

Individual companies

A number of different companies have been mentioned as possible targets of "insider dealing" prior to 9/11. But do these claims stand up to examination? Or might there have been other reasons to buy put options for them?

American Airlines

The American Airlines (AMR) share price had peaked at over $40 at the beginning of 2001. By August 2001 it was closer to $35, though, and on September 10 it had dipped below $30.

Image:Amrsp.gif

The share price had fallen 13% in the month before 9/11, then. Might investors have thought it could fall further, and so be tempted to buy puts?

What’s more, immediately before 9/11 American Airlines released a string of bad news:

Here's the official release:

Here's how the updates were interpreted in the Dallas Morning News of September 8, 2001:


So this could be "the first time since 1993 that AMR has posted a full-year loss", earnings estimates were being downgraded, and one analyst is worried "that consumers will quit responding to the fare sales", which, if it happens, could make the situation even worse.

And this is the context in which investors may have been considering American Airlines on Saturday September 8th, 2001. The 9/11 Commission tell us that a newsletter recommended buying put options one day later, on the 9th, and the largest number were bought on the 10th. It seems to us that, when you consider the economic situation at the time, and the specific problems faced by AMR, this is an entirely plausible situation. No foreknowledge of 9/11 is required.

Even if you disagree, though, it's plain that a significant profit warning the trading day before the put options were purchased is at the very least a relevant factor. And yet, those pushing the "foreknowledge" argument never seem to mention it at all. Why might that be?

United Airlines

United Airlines didn't see the same specific bad news as AMR, however it was already known as a very poor performer within the industry. In fact, as CNNfn pointed out on August 24th 2001, it was losing more money than anyone else:


Air Transport World said the losses surprised Wall Street, especially in comparison with their trading the previous year:


And Business Week says that, while there are "some signs of improvement", the airline business is facing major problems:


Even the good news came with qualifications.


That is, at least some of the increase is coming from a very low base.

The end result of all this is that the share price was declining, immediately prior to 9/11.

Image:Ualsp.gif

Put it all together, and some analysts have said there's no other explanation required.




Boeing

Boeing are occasionally referenced as a target for 9/11-related insider trading.


However, what you'll rarely see are any contemporary comments from the Media. For example, the Chicago Tribune published the following on Saturday September 8th:


No surprise about falling share prices here. With airlines already reporting bad news, it would hardly seem surprising if some investors might believe they would fall further still.

British Airways



KLM


Munich Re


Swiss Re


Options Hotline

There's plenty of context around the trades to explain why they were made, then.

And in one particular example, the case of the September 10th American Airlines put options, we have considerably more.

A 9/11 Commission document, for instance, named the newsletter that was responsible for a large part of the unusual volume.


To be clear, we're not saying you have to believe the SEC's verdict. However, they have now told us which newsletter was responsible. The tip itself isn't available online, but we obtained a copy:


So this is direct evidence that a particular individual - Steve Sarnoff, the editor of the newsletter - was recommending the purchase of AMR put options based on economic arguments only, just as we've argued was appropriate.

Perhaps some will want to expand the conspiracy to include Sarnoff, too, and claim he was somehow tipped off about the attacks. But this makes little sense. Why would the conspirators care about the Sarnoff or the Options Hotline? Where is the benefit in enriching a few of his subscribers?

A simpler explanation, surely, is that the situation unfolded exactly as it appeared. The airlines and the US economy were in trouble throughout 2001; American delivered a series of profit warnings on Friday, September 7th; Sarnoff felt the share price had further to fall, and on Sunday recommended purchasing puts; some of his subscribers did so on Monday; and entirely coincidentally, the attacks occurred on Tuesday.

Buzzy Krongard

There's still the question of a "CIA link" to these trades, of course, as discussed by Mike Ruppert:


Ruppert himself pointed out that Krongard left in 1998, though. You might have thought the link expired at that point, but apparently we're supposed to believe it was still significant. Why, though? If, let's say, Government conspirators wanted to engage in a perfectly legal transaction to purchase put options in United and American Airlines, then why would it matter which bank they used? Especially if you're assuming they had enough power to block any investigation? It's not as though the transactions could remain hidden.

Presumably the explanation would be that people at this bank would be willing to help the CIA profit from the deaths of thousands of American citizens. There's not a jot of evidence for that, though, and Ruppert himself points out that Bankers Trust had changed ownership since Krongard's day, being acquired by Deutsche Bank in 1999. Are the Germans in on it, too?

Finally, although some sites quote the trades as all or mostly being linked to AB Brown, you might notice they never post references to prove that. Why? Because if they did you'd read something like this.

The best we have is an unidentified source saying that "at least some" (not "most") of the trades for one of the shares in question (not "all") was made through Alex Brown. If it was so vital to use a "CIA-linked bank" to make these trades, then why not use all of them?

It's clear that, for the conspiracy to stand up, we must make an increasing number of assumptions. That the conspirators needed to use a particular bank, for instance, even though they have the power to cover up just about any investigation. That the conspirators had influence at AB Brown, even though Krongard had left years before. That the report about Deutsche Bank being involved in the first place is accurate, and that the conspirators would be stupid enough to let this information get out, but clever enough to spread the trades across other banks (which presumably must be "CIA-linked", too). Maybe this is all true, but it would help if there was some evidence to support any of these claims.

Poteshman

Perhaps the strongest support for the "insider trading" claims comes from Professor Allen M Poteshman from the University of Illinois at Urbana-Champaign. He decided to investigate this further, analysing market data statistically to try and assess the trades’ significance. Professor Poteshman points out several reasons to question the foreknowledge argument:


However, he then devises a statistical model, which he suggests is consistent with foreknowledge after all:


(And note, he's only saying "consistent with". There are those who pretend this means he's proved trading with inside knowledge. They are wrong. As usual.)

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. Especially in the context of falling share prices at the time. Professor Poteshman told us via email:


But can you really treat the news so simply? Professor Paul Zarembka supports the claims, saying:


But we’re not saying they were random, rather that they may have been a rational response to significant bad news delivered the day before. Poteshman is essentially saying (with regard to AMR) is that people bought too many puts for that to be explained by the 9/7 news, therefore another explanation is required, but how can you say that without analysing the news itself? After all, if that news had been “we’ll probably be bankrupt in six months” then the put ratios would probably have been even more significant, and Poteshman’s model given even more confirmation of “unusual option market activity”, but would that have made the idea of foreknowledge more likely? Of course not. Obviously the AMR news was less dramatic, but we would still say that you cannot accurately judge the significance of these trades until you take it into consideration.

Another complication here comes in the fact that put volumes in these shares were normally low, from what we’ve read, and this obviously makes it easier for spikes to appear. The 9/11 Commission said:


The September 6th UAL puts would automatically appear significant, then, even though only one investor was reportedly behind them. But he was an institutional investor (at least according to the Commission), someone with a lot of money to spend, his purchases are always going to stand out. But does that really mean you can mathematically indicate it’s likely that investor had foreknowledge of 9/11, without considering the other market conditions and information available at the time?

And it’s a similar story with the AMR trades. Professor Poteshman appears to be saying that the traders were more pessimistic about the future of AMR than they should have been, that they over-reacted to the news and bought more puts than he’d expect, but newsletters and share tipsters regularly deliver spikes in trading, at least here in the UK. Many are followed by people who do little research themselves, and just follow the recommendations provided. So the tipster's view becomes extremely important: if he says "buy puts" then many of them will simply follow suit, and the higher the circulation of the newsletter, the greater the resulting spike of “abnormal trades” will be.

What's more, as we mentioned above, we now know the newsletter whose recommendation was responsible for the purchase of many of the 9/10 AMR puts: the Options Hotline. We also know that editor Steve Sarnoff was responsible for suggesting this particular trade, and we have his alert explaining why.

And so, unless Sarnoff is about to be accused of somehow capitalising on advance knowledge of the attacks, we can see that there was a reasonable economic case for purchasing AMR puts on 9/10, in which case they can't be regarded as clear foreknowledge of the attacks. (There is still an unknown institutional investor, but if Sarnoff believed the put options were a good recommendation then there's no reason to believe that others might not have thought the same.)

And while this is only one date considered by Poteshman, if his measure leads to an incorrect conclusion for the September 10 trades, then how can we be sure it's accurate elsewhere?

Anyway, Screw Loose Change raised a similar issue or two that you might want to consider. And please don’t end this here: go read Poteshman’s paper, just to assess this for yourself. If you’re not great at statistics then some of it will make your eyes glaze over, guaranteed, but there are also interesting comments that are accessible to everyone, so overall it’s well worth a read.

Objections

There are those who say market conditions before 9/11 couldn't possibly explain the put options. A number of objections are raised to support this point of view.

Too specific

The trades were "too specific", we're told. Why were only American and United Airlines affected, for instance, the two carriers that would be involved in 9/11?

One partial answer here is that there were concerns over other airlines:


And Alexander Rose has written that short interest in other airlines was up, if not by as much as with United and American:


There was a general expectation that stock prices would fall, then. But why did these airlines suffer in particular? We've already seen that American Airlines released surprisingly bad news on the 6th of September. United was the largest carrier, so if an investor believed the downturn was a general one then it would be natural to expect them to suffer even more, and a New York Times article confirms that the companies could be expected to perform in a similar way:


If you were an investor who read about the American Airlines profit warning over the weekend, then, it wouldn't be unreasonable for you to assume that United Airlines next figures would be even worse, and that you could profit by purchasing some put options.

There were more companies than just the airlines involved, of course, but were these put options really as targeted as is sometimes claimed? The book "Black Ice: The Invisible Threat of Cyber-Terrorism" tells us that "the Bank of New York and Cantor Fitzgerald financial services were the stock brokerage companies that suffered the most damage on September 11", with Cantor losing nearly 700 people and the Bank of New York losing major telecoms facilities. But we've seen no suggestion of suspicious trading in either company directly (though there's a less quoted issue re: a Cantor network: see here).

The reality is that when you get away from the airlines, most of the other targeting is considered in retrospect. That is, people were looking at companies with high put options prior to 9/11, considering those that might be said to be affected by the attacks, and presenting those as the most suspicious. But there were many different companies within the WTC, multiple insurers responsible for its insurance cover, and a host of other companies that would see their businesses seriously affected by 9/11. With the stock market falling, surely you would expect at least some of these to have put options "spikes" over any particular few weeks?

Volume

Another common objection tells us the put options were too high to be normal trading. But is that really true?

The first complication here comes in determining what the volumes actually were. Go to Prison Planet, for instance, and you might come across this archived story that seems to tell you:


4,744 on UAL over two days, then 4,515 on SMR in one day. That's all clear, right? Except it isn't. Another archived article at the same site tells us this:


And an article on financial site The Street says there were 2,000 UAL put options purchased on the 6th of September, with 1,535 AMR puts bought on September 10. So which is correct?

Figuring out the significance of these volumes is equally problematic. 9/11 Research uses the following quotes:


That's 285 and 60 times more than average, then? Not according to the Chicago Tribune:


The "285 times higher than average" becomes only "four times" higher than normal for United Airlines, while American's "60 times average" is now "nearly 11 times its average daily volume for the year".

There could be many explanations for this. The calculations may be defining "normal" and "average" in different ways, for instance. Perhaps they're looking at different sets of put figures (it's a complicated business). Whatever the cause, it's plain that there are significant contradictions here, even between figures produced in mainstream media stories. Don't take any "x times bigger than usual" claims as necessarily true.

It's also worth noting that put option spikes aren't uncommon, as Insight revealed:


They're using the lower figure for American Airlines put options here. However, the United Airlines spikes of 8,212 and 8,072 (if accurate) show that the 9/11 figures, while high, were in no sense unique.

And as the same article points out, these figures weren't high in terms of option trading. The volume could have been even higher, and there were safer ways to do it:


If these volumes really weren't so exceptional then it raises a problem for another aspect of this story, a claim originated by Mike Ruppert and retold here by David Ray Griffin:


This is applying hindsight in a fairly dramatic manner, and it’s also leaving out crucial information: the American puts followed the trading day after the company had released a major profit warning, when you’d expect investors to believe the shares had further to fall, and the United Airlines trade volumes were lower than the spikes that occurred in March and April. If a United Airlines spike of 8,072 in March didn’t suggest an imminent attack, then why should 4,744 puts over two days in September have any more effect?

Related Issues

Mayo Shuttock III

On 9/11 Mayo Shattuck III] was chairman of Deutsche Banc Alex Brown, the US private client and asset management division of Deutsche Banc. This has been tied in some quarters to the put options purchased before the attacks, as History Commons illustrates:

We've seen not the slightest evidence to support such a claim, though, and at first glance it makes no real sense. Why would Brown resign because of the put options, which weren't yet even being reported in the press? If anyone has an explanation that's based on more than conjecture then we've yet to see it.

Further, while History Commons do their best to put a conspiratorial spin on this by saying "no reason is given" for the resignation, that simply isn't true.


A reason for the resignation was given, and it turns out that Shattuck was maintaining a connection with the company. Anyone might claim that the reason is false, and doubtless they will, but without some - or indeed any - evidence to support that, it's hard to see where this story will go.

Conclusion

We cannot prove that the pre-9/11 put options weren't made with foreknowledge of the attacks. And we suspect not even those who instigated the trades could do that. We now know that Steve Sarnoff was the author of the 9/9 newsletter recommending the purchase of American Airline put options, for example. The institutional investor is yet to be named, but even if they were, and they explained in detail their reasons for that decision, that will never constitute solid proof of anything. And so those who want to believe something else will continue to claim that maybe they had received a tip-off from elsewhere.

What we can show, however, is that the usual discussion of these issues leaves out a considerable amount of relevant detail.

Books like "The Hidden History of 9/11" claim the 9/11 Commission footnote was their only word on the topic, for instance, ignoring the details provided in the Terrorist Finance monograph we've quoted.

We've not seen anyone even begin to fully address the economic circumstances of the time, including the general fall in share prices in the weeks before 9/11, and the bad news that specifically related to United and American Airlines.

The significance of the put options volumes appears to be exaggerated. Previous spikes are rarely even mentioned. And while high level conspirators might be able to cover up investigations in the US, we've yet to see any explanation of why inquiries in other countries revealed nothing, despite dramatic headlines when the stories first appeared.

In short, we believe there are explanations for the put options, other than 9/11 foreknowledge: it's just that you're not being told what they are.

References

These articles are neutral, or tend to support the idea that the put options may indicated 9/11 foreknowledge.

These 9/11 articles tend to support the foreknowledge claims:

These articles raise at least some questions about whether the put option purchases support any claim of foreknowledge about 9/11. Some concentrate only on terrorist or bin Laden connections, and so are of limited use in addressing whether insiders in the US were involved, however all have some useful points to make.

9/11 Commission documents

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