TERROR TRADE OF THE CENTURY

TERRORIST ATTACK OR INSIDER TRADING?

The mastermind plan of the Al-Qaeda group was to make billions of dollars in Single-Day Options Trading

The Media Story

September 5, 2001, marked the day when the decision to carry out one of the most heinous terrorist attacks in human history was made. The assault is recognized as 9/11. It wasn't only a terrorist act; it was also an effort to undermine US pride in being the world's superpower. This was accomplished via a string of hijackings of aircraft and suicide bombs in the Twin Towers, two historically significant structures recognized.

Back Story

Now, let’s quickly understand what Insider trading is. Insider trading is an illegal practice of trading on any stock exchange with having access to confidential information that is not public and it puts the investor at an advantage.

In our situation, just a few dealers who were connected to those terrorists knew about the attack four days before it happened. They barely had four days left to profit from the attack they were preparing to conduct. These attacks are typically carried out by oppressed and illiterate people living in developing nations. Al Qaeda's members come from developed countries, though. Osama Bin Laden, the founder of Al Qaeda, was an intelligent guy who was nurtured in a wealthy family in Saudi Arabia.

A few weeks after the 9/11 attacks, Bin Laden made the following comments

Four airplanes were hijacked on 11th September 2001 that belonged to airline companies that were publicly traded on New York Stock Exchange (NYSE)- American Airlines and United Airlines.

The Entry of Insider Trading

An option is a speculative tool in the stock market. Options contracts give the investor a choice-but, not the obligation to buy or sell an underlying asset at a specified price by a specified date. Evidence of multiple insider trading cases showed that ‘options’ are the favorite tools of insider traders as it provides the possibility of tremendous profits with minimum investments.

What? When? Where? And How? Were known to a few elite members of the group.

The obscenely wealthy speculators linked to the Al Qaeda organization made substantial bets against the stock prices of the two airlines. which caused a sharp decline in the price of certain stocks, which in turn caused panicky selling among individual investors who were forced to move out quickly.

The situation took a turn when only American Airlines and United Airlines, the companies who owned the hijacked plane, experienced negative betting, while none of the other major airlines experienced anything comparable. If there had been reports of hijacking or other incidents, it would have been a typical situation, but that was not the case.

The typical ratio of bets that a "stock will fall" to "stock will increase" in options trading is 1:1. However, the odds of "United Airlines stock falling" outweighing "stock rising" skyrocketed to 12:1 on September 6 and September 7. Due to the exchange being closed during the weekend, there was no market action for the next two days. The ratio of option bets on "American Airlines would fall" to "it would rise" on the last trading day before the attacks of 9/11 was 6:1.

On September 11, 2001, the deadliest attack against the United States was finally completed.

Planes 1 and 2: Of the four hijacked aircraft, two crashed into the World Trade Center's twin towers in New York City.

Using a third plane, attack the Pentagon near Washington, D.C.

Plane 4: Destroyed into Pennsylvanian farmland.

This massive incident lead to the events which were seen for the 1st time in the history of the world that the NYSE was closed for a week. Later on, when the trading began again, United Airlines & the American Airlines stock fell by 43% and 40% respectively. The option traders made millions of dollars in their positions.

Weeks later, the official 9/11 commission stated that “Their extensive investigation has uncovered no evidence that anyone with advance knowledge of the attacks profited through securities transactions".

The Outcome

Numerous behavioral studies and research projects have been conducted during the subsequent four years by multiple academic groups in an effort to identify solutions to stop such activities. To establish the relationship of the stock market under typical conditions, they created the idea of "Baseline Activity." It was compared to trading activity on days with elevated activity. The data was organized between 0.0 and 1.0 to make it easier to understand, with 0.0 denoting extremely little activity in put options and 1.0 denoting extremely high activity. The average trade volume over the four trading sessions prior to 9/11 was found to be around 0.96. Since then, US Intelligence has been employing this technology to identify instances of insider trading and terrorism in response to unusual market swings.

This is how 9/11 became the terror trade of the century. The trade created enormous wealth for one and loss of lives for many.