Thursday, August 30, 2007

Bin Laden on Wall Street? Puts and Propaganda

Well, now, here's something disconcerting:
As if the mortgage-market meltdown isn't enough to spook investors, some market players are worrying about unusual options bets that some observers have dubbed "Bin Laden Trades."

The blogosphere and options trading desks have been rife with speculation about these trades, which are unusually large bets that the market will make a huge move in the next month. Some entity, or entities, has taken a large position on extremely deep in the money S&P 500 options, both puts and calls, that won't pay off unless the market undergoes an extremely large price move between now and the options' expiration on Sept. 21.

These grafs are the opening salvo in an interesting piece by Steven Smith and Aaron Trask on today's edition of To make a long story short, traders are putting on certain types of stock option* transactions that seem to be hedging their funds/accounts/customers against the possibility that a highly disruptive physical or fiscal disaster will occur sometime prior to the day September option trades expire: September 21.

So? A considerable number of traders seem to be betting that, for a variety of reasons, the Boyz of Al Qaeda, who haven't had a really big win in a long time, are intent on doing something quite spectacular during the 9/11 period. Which, of course, is well within the period covered by the September option expiry date.

After the fact, late in 2001, spooked traders noticed that something interesting had happened in the options market immediately prior to 9/11/01:
Those worrying about the worst-case scenario are recalling that large put contracts[*] were placed on airline stocks, notably American, a unit of AMR and United Airlines, in the weeks leading up to the Sept. 11, 2001 terror attacks.
Hmmm. Did Al Qaeda front groups make this bet, immensely enriching their coffers as a result of the disaster? There's no firm evidence that this is actually true, but this has made for a lively conspiracy theory environment on Wall Street ever since. Which could be leading to the current market action.

We hate to entertain the thought that nervous investors could be onto something here. But you at least have to consider it. Al Qaeda really hasn't whacked us since 2001, although they have certainly been trying. Since they are getting their tails handed to them right now by General Petraeus in Iraq, astute observations by current Congressional leadership aside, you have to figure that they need to do something really big at this point to maintain their credibility on the world stage.

We'd always figured they'd be keeping their powder dry in Iraq until right before Petraeus' upcoming testimony on Capitol Hill next month. But who says they have to blow up all the Shi'ite mosques in Baghdad? After all, the Holland Tunnel, the DC and NYC subways, or every building in the U.S. that's taller than the Washington Monument might be more picturesque fun.

Ultimately, what will be will be. The Feds and our military, no thanks to the Democrats and the MSM, have indeed kept another major attack from transpiring here since that awful day in 2001. You never really know.

But don't think for a moment that Al Qaeda, an astutely evil organization that's played the Democrats, America's Socialist Party, like a fiddle for roughly 6 years in a row now, isn't at least angling for some World Trade Center quality footage in the near future. Footage that they breezily assume will allow Bin Laden's legion of Marxist apologists to take over the entire Federal government next year. One has to consider the possibilities.

On the other hand, Chimpy BushMcHitler is still in the White House, allegedly greatly diminished in effectiveness and authority. More sober elements in Al Qaeda's inner circle, however, may very well remember what happened to their training camps and their Taliban hosts the last time they attacked under a weakened President Bush. A September 2007 surprise, meant to ruin the now clearly positive effects of the Iraqi surge strategy and pave the way for American Socialists in 2008, could backfire. Big time. And ensure 8 more years of the kind of government Al Qaeda desperately needs to get rid of in order to advance its faltering plan for a New Caliphate in our lifetime.

* (For the uninitiated: Options are one of the more difficult investment vehicles to explain to non-traders. To slightly oversimplify for purposes of this blog entry, options are "bets" on the direction a given common stock will take within a certain time period. Note: these are not to be confused with employee or executive stock options which are something entirely different.

In straightforward options transactions, a "call" option on Company X is a "bet" that Company X stock will go up in a certain timeframe. A "put" on Company X is a "bet" that Company X stock will go down in a certain timeframe.

Each option an investor acquires is levered to 100 shares of the given stock and is a lot cheaper than acquiring the stock itself. Hence the attraction of options. However, unlike shares of common stock, options have an expiration date, normally the third Friday of a given month. And on this date, if your options haven't worked for you and if you haven't gotten rid of them, they expire worthless.

The situation described at the outset of this entry illustrates that, right or wrong, a lot of professional money is afraid that something very bad will happen to their portfolios in September. Thus, they are employing various options strategies to hedge against possible near-term disaster. For a more in-depth discussion of options, link here. And HazZzMat issues the usual disclaimers, we're not giving investment advice, etc. You're on your own!)

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