September 11, 2011
This report addresses evidence of insider trading before September 11th, sometimes referred to by a broader phrase, informed trading. Insider trading refers to using private knowledge of an anticipated event in order to profit financially by engaging in financial market transactions. In the first weeks after September 11, 2001 a number of financial publications called attention to substantial insider trading in put-options occurring before the attacks. Some of these early examples have been surveyed in Zarembka (2008, pp. 64-66, 69-71), while this book chapter also commented on certain exaggerations (e.g., an incorrect doubling of the put-option volumes). Quickly, commentary died out.
Purchasing a put option entitles the owner to sell a stock at a contractually stated price, the “strike price”, any time until the contract expires. If the market price of the stock goes down below the “strike price”, the owner of the put-option can buy the stock (if not already owned) and simultaneously sell the same stock at that “strike price”, making a profit if the cost of the option itself does not exceed the net revenue.
This article was posted: Sunday, September 11, 2011 at 9:25 am