Unusual Options Market Activity with an Application to the Terrorist Attacks of September 11, 2001

Abstract:     
After the terrorist attacks of September 11, 2001 there was a great deal of speculation that the terrorists or their associates had traded in the options market on advanced knowledge of the impending events. It is nearly impossible, however, to assess the options market trading leading up to this or any other event in the absence of systematic information about the characteristics of options market activity. This paper provides this information by computing the distributions of certain options market volume ratios and put and call trading indicators both unconditionally and when conditioning on the overall level of options activity, the return and trading volume on the underlying stocks, and the return on the overall market. When the options market activity in the days leading up to the terrorist attacks is compared to the benchmark distributions, the volume ratios and call volume indicator are seen to be at typical levels but the put volume indicator appears to be unusually high.

Keywords: terrorism, options, unusual trading

JEL Classifications: G10

Working Paper Series