Was There Abnormal Trading in the S&P 500 Index Options Prior to the September 11 Attacks?

46 Pages Posted: 15 Apr 2010 Last revised: 9 Jan 2013

Wing-Keung Wong

Asia University, Department of Finance

Howard E. Thompson

University of Wisconsin - Madison - School of Business

Kweehong Teh

National University of Singapore (NUS)

Multiple version iconThere are 2 versions of this paper

Date Written: April 13, 2010

Abstract

After the September 11 attacks, several major newswires reported that there were insiders who tried to profiteer from the options market in anticipation of the event. We use the Student’s t-statistics and several non-parametric statistics to test whether there was abnormal trading in S&P 500 (SPX) index options prior to the September 11 attacks. Our findings from the out-of-the-money (OTM), at-the-money (ATM) and in-the-money (ITM) SPX index put options and ITM SPX index call options lead us to reject the null hypotheses that there was no abnormal trading in these contracts prior to the September 11 attacks. We also find evidence consistent with three bearish speculation strategies, namely the Put Purchase strategy, the Put Bear Spread strategy, and the Naked ITM Call Write strategy. In addition, we conclude that there is evidence of abnormal trading in the September 2001 OTM, ATM and ITM SPX index put options immediately after the 9-11 attacks. We also employ the CBOE VIX to confirm the conclusion drawn from the call and put options. This, in turn, is consistent with insiders anticipating the 9-11 attacks.

Keywords: 9-11 Attacks, Put Options, Call Options, SPX Index, Student’s T-Statistics, Non-Parametric Statistics

Suggested Citation

Wong, Wing-Keung and Thompson, Howard E. and Teh, Kweehong, Was There Abnormal Trading in the S&P 500 Index Options Prior to the September 11 Attacks? (April 13, 2010). Available at SSRN: https://ssrn.com/abstract=1588523 or http://dx.doi.org/10.2139/ssrn.1588523

Wing-Keung Wong (Contact Author)

Asia University, Department of Finance ( email )

Taiwan
Taiwan

Howard E. Thompson

University of Wisconsin - Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

Kweehong Teh

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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