I haven't seen this diaried, but if it has been, I will delete. A series of very unusual options trades has some on Wall Street spooked that extremely large puts and calls -- set to expire on September 21 and requiring a huge swing in the markets to be profitable -- might be a precursor to another terror attack. As reported by TheStreet.com, one or more entities has made an unusually large bet that the S&P 500 will swing by 50% or more before the end of September. Traders and bloggers are struggling to figure an innocent explanation for the bizarre investments, reminiscent of the options taken on American Airlines in advance of the 9/11 attacks.
The investors in question have purchased 116,000 "open interests," the right to sell S&P securities at more than 50% less than the current trading level. TheStreet.com's Steven Smith and Aaron L. Task report that:
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.
Similar bets have been placed on the Eurostoxx 50 index, which will not be profitable unless the index drops 25% or more before September 21. However, the pessimistic options bets are offset by the purchase of 61,741 September 1700 puts, suggesting that the investor(s) might be engaged in a complex "strangle" or a "box trade" strategy that seeks to make a profit if the Fed does not cut rates or on interest rate changes. The large market move necessary to make these type investments profitable, however, render them curious at best as legitimate strategies.
Randy Frederick, director of Derivatives at Charles Schwab, is not convinced that the options make sense on the face of it:
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
On the other hand, the 911 Commission dismissed suggestions that the trades that preceded those attacks were of any significance:
Exhaustive investigations by the Securities and Exchange Commission, FBI, and other agencies have uncovered no evidence that anyone with advance knowledge of the attacks profited through securities transactions," according to the Final Report of the National Commission on Terrorist Attacks Upon the United States.
So what do these unusual options trades mean? Are they an indication of an intent to profit from an imminent terror attack? Are they sure bets made by someone in the administration or military establishment with foreknowledge of an impending attack on Iran? Just coincidence? My personal guess is that this is one more sign that an attack on Iran is coming soon, but who can say? Vote below for what you think these trades mean.