Mystery Trader Places $1B Worth Of Put Options Suggesting New 9/11 Style Catastrophe

[beltman713]

http://www.prisonplanet.com/articles/august2007/270807_market_crash.htm

Market Crash Forecast Suggests New 9/11Mystery trader bets on huge downturn that could only be preceded by catastrophe

Paul Joseph Watson
Prison Planet
Monday, August 27, 2007

A mystery trader risks losing around $1 billion dollars after placing 245,000 put options on the Dow Jones Eurostoxx 50 index, leading many analysts to speculate that a stock market crash preceded by a new 9/11 style catastrophe could take place within the next month.

The anonymous trader only stands to make money if the market crashes by a third to a half before September 21st, which is when the put options expire. A put option is a financial contract between two parties, the buyer and the writer (seller) of the option, in which the buyer stands to benefit only if the price of the asset falls.

"The sales are being referred to by market traders as "bin Laden trades" because only an event on the scale of 9-11 could make these short-sell options valuable," reports financial blogger Marc Parent (http://mparent7777-2.blogspot.com/2007/08/45b-bet-on-another-911-within-4-weeks.html). Dow Jones Financial News first reported on the story (http://www.financialnews-us.com/?page=ushome&contentid=2448565379).

The trader stands to make around $2 billion from their investment should an event trigger a market crash before the third week in September.

Such a cataclysmic jolt could only happen as a result of two factors, China dumping its vast dollar reserves in reaction to the sub-prime mortgage collapse, which it has threatened to do (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml), or a massive terror attack on the same scale or larger than 9/11.

http://www.prisonplanet.com/images/august2007/270807stock.gif

9/11 itself was foreshadowed by unprecedented put options (http://911research.wtc7.net/sept11/stockputs.html) that were placed on United and American Airlines. Though the Securities and Exchange Commission refused to reveal who placed the options, private researchers traced the investments back (http://www.commondreams.org/views02/0522-07.htm) to the Deutsche Bank owned Banker’s Trust, which was formerly headed by then Executive Director of the CIA, Buzzy Krongard.

Put options on Morgan Stanley and Merrill Lynch, two of the World Trade Center's most prominent occupants, also spiked in the days before 9/11.

News of the suspicious trades is dovetailed by the comments of Former US Treasury secretary Larry Summers yesterday (http://www.channelnewsasia.com/stories/afp_world_business/view/296153/1/.html), who told ABC News that the risk of a recession in the U.S. was greater that at any time since 9/11.

[AuGmENTor]

How can thyey do that anonymously? If I go take 1 dollar more than ten grand out of the bank, the feds are notified. So how is it this person or entity can do this? At least we are cognizant of it this time. They wont be getting away with SHIT this time.

[Gold9472]

I don't know if a Currency Transaction Report (CTR) applies to stock trades.

I asked my father...

Jon: Question about stocks... Does a "Currency Transaction Report" apply to stock trades? Meaning if you make purchases of a stock over $10k, do you have to file with the Government?

Jon's Father: You don't need the report if the money was sitting at the brokers. You should need it if you brought in 10k cash.

Jon: Meaning if the $10k was already in the hands of the mutual fund company, or brokerage, you don't have to. Only if you insert a new $10k in, correct?

Jon's Father: Correct.

Jon: Thank you.

Jon's Father: Cash, a check is different.

Jon: What is the policy for a check?

Jon's Father: There probably is none, because the money would show in the checking account.

Jon: Ok.

[AuGmENTor]

Wow that was quick... Do you trust your source?

[Gold9472]

Wow that was quick... Do you trust your source?

"Jon's Father" in regards to stocks? You bet your ass. Money is one of his three favorite things. Family. Friends. Money.

[beltman713]

Someone in the comments section at C & L is saying they saw a story somewhere about $4.5B worth of put options be bought.

[Gold9472]

More Investors Are Betting On Major Selloff in Stocks

http://www.cnbc.com/id/20461003

By Jim Kingsland | 27 Aug 2007 | 03:42 PM ET

Not everyone on Wall Street is convinced that the worst is over.

In fact, some investors are betting tens of millions of dollars that the market is headed for a selloff--a major selloff.

The reason: worries about a worsening credit crunch, along with speculation that the Federal Reserve may defy expectations and hold off on cutting interest rates at its Sept. 18 meeting.

So far, over $500 million in in so-called put options have been purchased betting that the benchmark Standard and Poor's 500 index S&P 500 INDEX .SPX [.SPX 1466.79 -12.58 (-0.85%) ] will tumble anywhere from 5% to 11% in September. Some investors are even buying put options calling for 52% decline. A "put" option increases in value as the underlying stock or index falls.

To put it in perspective, a 5% drop in the Dow Jones Industrial Average would be the equivalent of 667 points. An 11% decline would equal 1,468 points. And a 52% drop? You don't even want to know.

The upshot is that some major investors are putting up big money that the market is facing a major decline.

"There is still fear and investors are buying crash protection," says Todd Salamone, senior vice president of research at Schaeffer's Investment Research.

Of course, there are always investors betting on big declines--they're called bears. What's unusual is the amount of money being put up on such a doomsday scenario.

"The activity in those puts has been a lot more aggressive then we have seen in the past," said Bill Lefkowitz, options strategist at brokerage firm Finance Investments. "Part of it is the environment and volatility where the Dow Industrials can easily swing over a hundred points during the day, or session to session."

Salamone of Schaeffer's points out that the index options have been "put dominated over the last several months." And the bets may have as much to do with hedging portfolios--basically an insurance policy you hope you don't need--as much as outright speculation.

"We don't know who the end users of these options are and often they are specialists, pros looking at arbitrage plays, so the common man doesn't necessarily need to be concerned," adds Andrew Wilkinson, a senior market analyst at Interactive Brokers. "But it’s a legitimate build of people wanting protection against the next 10% down should it come."

Whatever the reason, Lefkowitz says worries about what the Fed will do about interest rates are spurring big investors to buy protection in case of a major market drop.

"If the Fed doesn't cut Fed funds, the options market is telling you that the overall stock market will come down hard," says Lefkowitz. "We could be quickly under the 1400 level of the S&P 500 if the Fed doesn't act."

Fed-fund futures and a variety of market pundits have been forecasting a 100% likelihood the Fed will lower the benchmark lending rate, now at 5.25%, meaning there's no room in the market from the Fed for a surprise.

Lefkowitz also says the activity isn't strictly driven by money managers looking to protect portfolios. The put options are tempting enough for speculators to jump in. He says even if the market doesn't fall to below S&P 1400, the put options could still easily rise in value by "20, 30, 40 percent if we saw another large down day."

[Gold9472]

Seems like it's a trend.

[AuGmENTor]

This may fit wih the something big in 90 days theory...

[Gold9472]

Remember... the 90 days theory is 2 years old.

[AuGmENTor]

Oh, I thought there had been a new one issued. My bad.

[Gold9472]

Not that I know of, but the fact that the 90 day threat isn't legitimate doesn't mean that other people aren't projecting the same thing (in this time frame).

[werther]

The put options placed before 9-11 were nowhere near this magnitude were they?

[AuGmENTor]

And: What are the new ones put options on? Did I miss it? The 911 ones were pretty specific.

[Uber Commandante]

The put options were on the Dow Jones Eurostoxx 50 index. If you don't know, an index that you can trade like this is basically a 'make believe' entity that only has worth based on the average worth of the 50 companies that make it up. It offers no physical commodity or anthing.

So, this put trader is speculating that the average worth of the 50 companies that are in the index will drop by 1/3 to 1/2 on average. Then the value of the index will drop by 1/3 to 1/2, thereby making him A FUCKLOAD OF MONEY!!!!ITS MINE, MINE, ALL MINE!!!

[AuGmENTor]

Da?

[Uber Commandante]

and here are the companies that make up that index:

http://uk.finance.yahoo.com/q/cp?s=%5ESTOXX50E

[AuGmENTor]

I skimmed it and only saw one airline. Not that that means anything. I guess they are figuring the whole thing would drop, huh?

[Gold9472]

Uber's smarter than I thought he was.

[amman254]

Uber's smarter than I thought he was.

yeah, some people get "up" when their tokin'....

[Gold9472]

yeah, some people get "up" when their tokin'....

I happen to think Uber is ridiculously smart. In fact amman, I think it's safe to say if I had never met Uber, I wouldn't be here today.

[AuGmENTor]

I happen to think Uber is ridiculously smart. In fact amman, I think it's safe to say if I had never met Uber, I wouldn't be here today.Care to explain?

[werther]

article (http://www.thestreet.com/newsanalysis/optionsfutures/10377063.html)

Dispelling the 'Bin Laden' Options Trades


http://www.thestreet.com/tsc/c.gif
By Steven Smith (http://apps.thestreet.com/cms/email/tscEmailStory.do?storyId=10377063&authorId=1005529&storyUrl=/newsanalysis/optionsfutures/10377063.html) and Aaron L. Task (http://apps.thestreet.com/cms/email/tscEmailStory.do?storyId=10377063&authorId=378&storyUrl=/newsanalysis/optionsfutures/10377063.html)
Staff Reporters
8/30/2007 3:23 PM EDT

As if the mortgage-market meltdown wasn't enough to spook investors, some market players expressed concerns about unusual options bets that some observers have dubbed "Bin Laden Trades." The blogosphere and options (http://www.thestreet.com/financial-dictionary/option.html) trading desks have been rife with speculation about these trades, which are unusually large bets that the market will make a huge move in the next month. Some entity, or entities, has taken a large position on extremely deep in the money S&P 500 options, both puts (http://www.thestreet.com/financial-dictionary/put-option.html) and calls (http://www.thestreet.com/financial-dictionary/call-option.html), that won't pay off unless the market undergoes an extremely large price move between now and the options' expiration on Sept. 21.

However, Dan Perper, a Partner at Peak 6, one of the largest option market makers and proprietary trading firms, has confirmed that the trades are part of a "box-spread trade."

"This was done as a package in which the box spread was used [as a] means of alternative financing at more attractive interest rates" explained Perper.

Simply put, two parties agree to trade the box at a price that essentially splits the difference between current rates.

For example, the rough numbers would be that given the September 700/1700 box must settle at a value of 1,000 -- it is currently trading around 997 -- that translates into a 5% interest rate.

For the seller it is a way to borrow money at a slight discount to the prevailing rate, and for the buyer, it is a way to lend money at a low rate of return, but it's better than nothing at a time when others are scared and have painted themselves into a box (ha ha) because they have run out available funds.

Currently there are about 63,000 700/1700 boxes open. Perper expects that once the September options expire, you will see similar boxes established in the December series. As to why the September 700 put has over 116,000 contracts open, Perper thinks a good portion of that was created from the prior rollover when April options expired.

The positions in question had option industry experts perplexed to come up with a rational explanation, which are far from the best or most efficient way to profit from what would be outlier events.

Those concerned about the worst-case scenario recalled that large put contracts were placed on airline stocks, notably American, a unit of AMR and United Airlines, in the weeks leading up to the Sept. 11, 2001 terror attacks.

The first area of focus was that open interest (http://www.thestreet.com/financial-dictionary/open-interest.html) September 700 S&P puts had such an unusually high number for such a low-probability trade. A put is a defensive bet that gives the holder the right to sell a security at a specified price, in this case more than 50% below the S&P 500's current level of 1463 as of Wednesday's close.

For comparison's sake, according to the Option Clearing Corp., the open interest in the July 700 strike some three weeks prior to expiration on July 20 was 790 calls and 7,300 puts, and the August 700 strike showed 1,250 calls and 14,800 puts prior to Aug. 17 expiration.

And the volume completely outstrips anything seen last September, when the S&P was around 1300, some 20% below current levels. In September 2006, the 700 strike had 600 calls and 7,500 puts, and no strike below 1000 had open interest surpassing 42,000 contracts, and that was the 900 puts.

[werther]

Page 2

The bulk of the September SPX trades in question have been put on since June 1. Similar bets have also been placed on the DJ Eurostoxx 50 index, which won't pay off unless the index tumbles nearly 25% to 2800, or below, by expiration on the third Friday of September. The trades were noted in various online forums, where the worst case scenario is often the first conclusion: "Only an act of terrorism akin to 9-11 -- within the next four weeks -- could make these options valuable," writes one poster in the TickerForum chat room.

Others, such as the "Just Wondrin What Happened" blog, speculated that "China, reeling over losing $10 billion in bad loans to the sub-prime mortgage collapse presently taking place, is going to dump U.S. currency and tank all of Capitalism with a Communist financial revolution."

Furthermore, the TickerForum posters focused on the 65,000 contracts open on SPX 700 calls, ostensibly bullish bets that give the holder the right to buy the index at that level.

Given the fact that these calls are some 700 points in-the-money (http://www.thestreet.com/financial-dictionary/in-the-money.html), and therefore have a delta (http://www.thestreet.com/financial-dictionary/delta.html) of 1.0 -- meaning the options price moves dollar-for-dollar with the underlying index -- "the only advantage to owning them is it would be a more efficient and slightly less capital-intensive way to gain one-to-one exposure" to the S&P 500, Randy Frederick, director of derivatives at Charles Schwab, writes in an email exchange.

[werther]

page 3

Frederick noted the Spyder Trust (SPY (http://www.thestreet.com/stocks/quote/SPY) - Cramer's Take (http://www.thestreet.com/search/cramer/SPY) - Stockpickr (http://www.stockpickr.com/thestreet-symbol/SPY/) - Rating (http://ratings.thestreet.com/tools/basic/ratings.html?tkr=1&s=SPY)) and other index and exchange-traded products provide a much more liquid, efficient and higher-leveraged way to establish a bearish position quickly. Plus, it's a lot easier to "hide" a big trade in the Spyders than the SPX options, which are only traded on the Chicago Board of Option Exchange and will be seen and facilitated by a tight-knit group of market makers.

Because there are about half the number of open contracts on S&P 700 calls vs. puts, it was also posited that these trades are part of a large strangle (http://www.thestreet.com/financial-dictionary/strangle.html).

There is also open interest of 61,741 on the September 1700 puts. "Since this is only 11 contracts different from the 700 calls, it is possible that these two positions are making up a very large strangle, which could be either a breakout or neutral strategy depending upon whether or not it is a short strangle or a long strangle," writes Frederick. "If this is a short position, it may be anticipating the market will drop if the Fed does not cut rates as many expect" at its Sept. 18 policy meeting.

But such a strangle trade, with each leg being so deep in the money, would require a nearly 50% price move, up or down, to turn a profit.

Frederick said the position leaves him more confused than scared, although he wouldn't dismiss the frightening conclusion bloggers have come to. "It is also interesting that the anniversary of 9/11 occurs between now and the expiration of these options," he writes. "Perhaps there is speculation that another attack is in the works."

[werther]

page 4

Brian Overby, director of education at TradeKing, a discount broker that caters to sophisticated option traders, suggested that this could be a box trade before Perper came forth. Overby noted that the September 1700 strike has open interest of 73,745 calls and 61,741 put options. "This could be someone trying to create a box spread (http://www.redoption.com/glossary.php?byLetter=B&word=43), which is a position composed of a long call and short put at one strike, and a short call and long put at a different strike. The position is largely immune to changes in the price of the underlying stock, and in most cases, is a simple interest rate trade."

So the upshot is there is an explanation for this very unusual configuration of open interest in the S&P 500 Index's September options, but it also shows jitters remain in this market.


end

[krsjuan87]

have u guys heard anything else about this?

[PhilosophyGenius]

Kinda hard to believe that with all the attention 9/11 insider trader got they'd do it again, not only that, but on a bigger scale.

9/11 inside trader was mentioned in Casino Royale for fuck's sake.

Stocks have been acting funny for a while now so this could be anything.

(but of course I'm no expert on this)

[krsjuan87]

thanks for the insight

http://www.whatreallyhappened.com/archives/cat_economy.html

i was browsing through this earlier today and it blew my mind ....the dollar is in a real bad place ....i mean....i knew it allready but when u read article after article it makes u do a little more then scratch your head .....somethings got to give

[AuGmENTor]

I am always amazed they have managed to hold it all together as long as they have..

[krsjuan87]

yea ....one of my main concerns is the money i have invested for my mother in mutual funds....i keep thinking i should pull it out and transfer it to some other form of currancy

[AuGmENTor]

Well, I wouldn't sweat it too much man. It's not like you're gonna be the ONLY ONE to say, "WHEW, disaster averted! Got Moms monry out just in time!" EVERYONE, cept for the ones who know about it and are so far above us so as to be invisible. My thinking is that money will be totally worthless. Kinda like the civil war when if you took a confederate dollar into the store to buy bread, they laid it on the bread and cut a piece that big out. I feel a bad moon rising...

[simuvac]

I am always amazed they have managed to hold it all together as long as they have..

Agreed. Like, remember the $2.3 trillion that went "missing" from the Pentagon? Shouldn't a large number like that mean something? Isn't that like 1/5 the national debt? And yet life goes on, it doesn't seem to matter.

I realize economics is a scam, but shouldn't there be some kind of internal order to the scam? Like, even though it's a big consensus trance, there should be consequences for major disruptions. Instead, they just seem to print more money and call it a day. I don't get it.

But I think most people are thinking the same thing at this point: How much longer can this charade continue...?

[krsjuan87]

Well, I wouldn't sweat it too much man. It's not like you're gonna be the ONLY ONE to say, "WHEW, disaster averted! Got Moms monry out just in time!" EVERYONE, cept for the ones who know about it and are so far above us so as to be invisible. My thinking is that money will be totally worthless. Kinda like the civil war when if you took a confederate dollar into the store to buy bread, they laid it on the bread and cut a piece that big out. I feel a bad moon rising...

yea i know this ....one has to realize that when the dollar drops out that at some point (prob not to long afterwords) a new monitary system will develop. it would be nice to know how to move the funds i have around to protect them and still have something so my mother wouldnt have to work till she dies ya know.....

[AuGmENTor]

yea i know this ....one has to realize that when the dollar drops out that at some point (prob not to long afterwords) a new monitary system will develop. it would be nice to know how to move the funds i have around to protect them and still have something so my mother wouldnt have to work till she dies ya know.....I would be guessing, so I guess that's what I'll do: I can't imagine what a new standard of trade would be. It certainly wont be gold anymore, as I think all of that shit mysteriously disappeared. (Well, a good chunk of it anyway.) If ya ask me, what the fuck is gold good for anyway? I think initially some bastardized barter system will arise. That is of course if we were left to our own devices, which, let's face it. prolly aint happening. Stock up on Tuna, shotgun shells, and bottled water.

[krsjuan87]

has anything else come of these put options?

[AuGmENTor]

Not that I am aware of. I don't know what the time-line of one of these options is for that matter. I am a bizzaro wealth of information about all things financial. The only thig I know for sure is that I am broke, and will prolly still be broke tomorrow.

[krsjuan87]

they were suppose to expire on the 21st so i guess we will see