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New options put fear factor into trading (9/11 options trading) [View All]

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UpInArms Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-25-04 10:52 AM
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New options put fear factor into trading (9/11 options trading)
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http://www.chicagotribune.com/business/chi-0404240327ap...

(free registration or try www.bugmenot.com )

After an exhaustive study, Allen Poteshman, a professor of finance at the University of Illinois, has confirmed news reports shortly after Sept. 11, 2001:

Trading in options on airline stocks AMR and UAL indicates someone profited from advance word of the terrorist attacks.

"There is evidence of unusual option market activity in the days leading up to Sept. 11," Poteshman writes in a paper posted on the Internet that goes deeper than the initial reports.

...more...

the report can be found here:

http://64.233.167.104/search?q=cache:uuplwqWJMHcJ:www.b...

or here in pdf

http://www.business.uiuc.edu/poteshma/WorkingPapers/Unu...

excerpt:

The largest value of the ShortLong statistic during the target period was 0.89 which occurred for AMR on September 10. This value of ShortLong is at the 0.80 quantile of the unconditional daily distribution. Panel A of Table 6 indicates that on September 10 the 0.50 quantile of the conditional daily distribution on ShortLong for AMR was 0.034 and the 0.90 quantile of this distribution was 0.954. Consequently, it appears that in this case there is little
difference between the conditional and the unconditional quantile. The largest daily value of the AbnLongPut variable during the target period, 3.83, also occurred for AMR on September 10.

This value of AbnLongPut was seen to be at the 0.99 quantile of the unconditional distribution.

Panel B of Table 6 indicates that on September 10 the 0.95 quantile of the conditional daily distribution on AbnLongPut for AMR was 1.285 and the 0.99 quantile of this distribution was 4.265. Once again, it seems that there is not much difference between the unconditional and the conditional quantile. Unreported analysis show that the conditional and unconditional results are also very similar for the statistics that measure maximum daily values over four trade date
windows. Hence, it does appear that the AbnLongPut ratio for AMR and UAL was unusually high during the target period even after accounting for variation in its distribution associated with the independent variables in the quantile regression model.21

This finding is consistent with the widespread speculation shortly after September 11 that the terrorists or their associates traded
ahead in the option market based upon foreknowledge of the impending attacks.
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