The New Options Market was designed for the benefit of new option traders. Each video offers a concise presentation of an option strategy with illustrative examples – all in less than five minutes.

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Via Mat Fogarty of Xpree

Unusual Option Market Activity and the Terrorist Attacks of September 11, 2001 – by Allen M. Poteshman – 2006

Options traders, corporate managers, security analysts, exchange officials, regulators, prosecutors, policy makers, and—at times—the public at large have an interest in knowing whether unusual option trading has occurred around certain events. A prime example of such an event is the September 11 terrorist attacks, and there was indeed a great deal of speculation about whether option market activity indicated that the terrorists or their associates had traded in the days leading up to September 11 on advance knowledge of the impending attacks. This speculation, however, took place in the absence of an understanding of the relevant characteristics of option market trading. This paper begins by developing systematic information about the distribution of option market activity. It constructs benchmark distributions for option market volume statistics that measure in different ways the extent to which non–market maker volume establishes option market positions that will be profitable if the underlying stock price rises or falls in value. The distributions of these statistics are calculated both unconditionally and when conditioning on the overall level of option activity on the underlying stock, the return and trading volume on the underlying stock, and the return on the overall market. These distributions are then used to judge whether the option market trading in AMR, UAL, the Standard and Poor’s airline index, and the S&P 500 market index in the days leading up to September 11 was, in fact, unusual.

The option market volume ratios considered do not provide evidence of unusual option market trading in the days leading up to September 11. The volume ratios, however, are constructed out of long and short put volume and long and short call volume; simply buying puts would have been the most straightforward way for someone to have traded in the option market on foreknowledge of the attacks. A measure of abnormal long put volume was also examined and seen to be at abnormally high levels in the days leading up to the attacks. Consequently, the paper concludes that there is evidence of unusual option market activity in the days leading up to September 11 that is consistent with investors trading on advance knowledge of the attacks.

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My thoughts:

1. Hummmm…. I’m skeptical.
2. The FBI, the SEC and the 9/11 Commission looked into each of these options trades, and they were all legit.
3. This issue has consequence for the field of prediction markets. At the heart of the DARPA-PAM brouhaha was the fear that Bin Laden and his friends could speculate on the PAM prediction exchange, so as to profit financially from his terrorist activities. Bullshit argument.
4. You remember that the CFTC asked in its “concept release” whether they should forbid prediction markets about terrorism —and on what ground.

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