Thread by @FinEklavya

Was 9/11 the most blatant case of insider trading?

How the Al-Qaeda group made billions of dollars in a single day through options trading.

Decoded!🕵️

@Vivek_Investor @Gautam__Baid @nooreshtech @drprashantmish6 @NeerajMarathe @saketreddy @caniravkaria @tapak7

🧵👇

It was September 5, 2001, when the Osama Bin Laden-led Al-Qaeda group finalized the day to execute the most brutal terror event of the century

The attack known as 9/11, shook the supremacy of the US from its very core by demolishing the 2 most prestigious assets- the twin towers

The terrorist traders privy to the information had only four days left to profit from the terror that they were about to unleash. The Al-Qaeda group was backed by wealthy Saudis who used to trade in stocks on a regular basis.

Conventionally, the members of a terrorist squad are people living in downtrodden countries who are victims of suppression & illiteracy

However, the members of the Al Qaeda group were not from any impoverished country but in fact, were doctors & engineers from developed nations.

Osama Bin Laden, the leader of Al Qaeda, was himself a financially sophisticated man raised in one of the wealthiest families of Saudi Arabia.

Weeks after the 9/11 attacks, Bin Laden made the following comments :

“...if the fall of the towers…was the event that was huge, then consider the events that followed it..let us talk about the economic claims which are still counting…the losses on wall street reached 16%...

...this has never happened since the opening of the market 230 years ago. The gross amount that is traded in the market was around $ 4 trillion….if we multiply 16% with $ 4 trillion...the loss reaches $ 640 billion with Allah’s grace….”

On 11th Sept 2001, four airplanes were hijacked which belonged to publicly traded airline companies on NYSE- American Airlines and United Airlines.

While the exact details of the 9/11 terror attack were known only to the top rung leaders, the news of the upcoming attack was known to a wider circle.

The circle included the family & friends of hijackers and financial backers.

Decades of insider cases have revealed that ‘options’ are the favorite tools of insider traders as it provides much greater amounts of leverage for the same amount of cash as compared to regular stock trading.

The filthy rich Saudis placed huge investment bets against the stock prices of the two airlines. It was reflected in the stock trajectory of the airlines as they witnessed a downward trend.

This provoked the gullible retail investors to react instantly & hence, sell in panic.

The one-sided bets would not have been unusual if there were negative news about the companies or the aviation sector.

But that was not the case. Apart from American Airlines & United Airlines, no other major airlines (Southwest, US Airways, etc) showed any bearish sentiments.

A normal ratio of bets that a “stock will fall” to “stock will rise” is 1:1. On Sept 6th and Sept 7th, option bets that “United Airlines stock will fall” to that the “stock will rise” were a staggering 12:1.

The next 2 days saw no market activity i.e. on the 8th and 9th September, as the exchange was closed over the weekend

On the last trading day before the fateful day, the option bets that the stock of American Airlines would fall outnumbered the bets that it would rise by 6 to 1.

Finally, on 11 September, 2001, the Al-Qaeda group carried out the most lethal attack against the United States.

Two of the four planes hijacked were flown into the twin towers of the World Trade Center in New York city.

A third plane hit the Pentagon just outside Washington, D.C., and the fourth aircraft, presumably bound for the Capitol building, unfortunately, crashed into the fields of Pennsylvania.

It was the 1st time in the history of the world that the NYSE was closed for a week.

On the 1st trading day after the attacks, the United Airlines & the American Airlines stock fell by a whopping 43% and 40% respectively. The traders made millions of dollars on their positions.

Despite the screaming evidence about insider trading in the option markets, the official 9/11 commission issued a statement that “Their extensive investigation has uncovered no evidence that anyone with advance knowledge of the attacks profited through securities transactions”.

For the next four years, extensive research was carried out in the academic circles to understand the peculiar behaviour of the option markets prior to the terrorist attacks.

The researchers took large sets of data and established the price activity of the stocks under normal circumstances. They called it the ‘baseline activity’.

Then they compare the actual trading in a target period to the baseline activity to ascertain whether the target period represents normal or extreme activity.

For simplification, they arranged the data between 0.0 to 1.0, with 0.0 representing extremely low activity in put options & 1.0 representing extremely high activity.

It was discovered that the average activity over the last four trading sessions prior to 9/11 was around 0.96.

In the absence of any tangible negative news on the stocks, this extreme activity provides an inescapable conclusion that the options were traded based on some inside information.

Ever since 9/11, this strategy has been used by the US intelligence agency to detect terrorism and events of insider trading based on the abnormal fluctuations of the stock market.

9/11, thus, became the terror trade of the century.
A handful of investors made massive private gains at the expense of public loss.

People didn’t just lose their lives but also lost their entire life savings.