By Greg Peel9/11 The Mysterious US Option TradeMon Sep 17, 2007 14:36
9/11 The Mysterious US Option Trade
FN Arena News - September 03 2007
By Greg Peel
It has internet chat rooms absolutely abuzz. It has evoked conspiracy theory fears of the most frightening nature. But it has not made news in any of the traditional media outlets. It is, in short, a total mystery.
Last week a transaction was posted in the US SPY options market of an astonishing US$900 million in value. The SPY (or "spyder" as it is called) is an exchange-traded fund which replicates the S&P 500 index. 12 million call options ranging in exercise price from 600 to 950 have been bought/sold (and thus created) by parties unknown. The S&P closed at 1474 on Friday. The options expire on September 21. This represents a three-week bet on the market being 35% to 60% lower in that time.
What has the crazier element of the internet chat room fraternity in a frenzy is a transaction that occurred prior to September, 2001. Somebody came into the market and bought an extensive number of put options on US airline stocks. After September 11, those positions would have booked some US$50 million in profit. Quite sufficient, one would assume, to cover the cost of certain terrorist activities.
But the reality is that there are so many reasons this option trade has been transacted, it's impossible to settle on one conclusive reason. This is why, suggests Keith Fitz-Gerald of Money Morning, the story has not been published at respected media outlets. There are too many unknowns, too many rash conclusions to jump to, and no one to interview.
Among various possibilities, Fitz-Gerald offers four as a cross-section. Two benign, two sinister.
On the benign side, it could just be a dividend play, popular with hedge funds. As option instruments don't receive dividend payments there are plays to be exploited just in the same way traders try to strip dividends out of the banks and other stocks each season in the Australian market. Or it could be a "covered call" play. While such trades usually involve the sale of out-of-the-money calls to enhance returns on long equity positions, some large funds prefer to operate within the safety of in-the-money-calls.
On the sinister side, one theory is that China has been caught up in the subprime mortgage debacle far more extensively than has so far been disclosed. In the meantime, the Chinese stock market has not corrected, but continued to rally blissfully on throughout the turmoil. Could the Chinese government be readying itself to start dumping US dollars? This would cause havoc in the US stock market and a profitable offsetting trade for the Chinese.
Or, of course, it could be Osama Bin Laden.
One thing is for sure - this transaction would not have gone unnoticed by those who should take notice. The US government, amongst many of its clandestine spook outfits, has a unit colloquially known as the Plunge Protection Team.
Whatever the reason, this is an unusually large trade at a surprising level. However, there are just as many simple explanations as there are conspiratorial ones. Should we be worried? No one has any idea.
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9/11 "Money Morning" reports on Mystery Bets
The Euro And The War On Iraq
By Amir Butler
As Mark Twain once noted, prophecy is always difficult, particularly
with regards to the future. However, it is a safe bet that as soon as
Saddam is toppled one of the first tasks of the America-backed regime
will be to restore the US dollar as the nation's oil currency.
In November 2000, Iraq began selling its oil for euros, moving away from
the post-World War II standard of the US dollar as the currency of
international trade. Whilst seen by many at the time as a bizarre act of
political defiance, it has proved beneficial for Iraq, with the euro
gaining almost 25% against the dollar during 2001. It now costs around
USD$1.05 to buy one Euro.
Iraq's move towards the euro is indicative of a growing trend. Iran has
already converted the majority of its central bank reserve funds to the
euro, and has hinted at adopting the euro for all oil sales. On December
7th, 2002, the third member of the axis of evil, North Korea, officially
dropped the dollar and began using euros for trade. Venezuela, not a
member of the axis of evil yet, but a large oil producer nonetheless, is
also considering a switch to the euro. More importantly, at its April
14th, 2002 meeting in Spain, OPEC expressed an interest in leaving the
dollar in favour of the euro.
If OPEC were to switch to the euro as the standard for oil transactions,
it would have serious ramifications for the US economy. Oil-consuming
economies would have to flush the dollars out of their central bank
holdings and convert them to euros. Some economists estimate that with
the market flooded, the US dollar could drop up to 40% in value. As the
currency falls, there would be a monetary evacuation by foreign
investors abandoning the US stock markets and dollar-denominated assets.
Imported products would cost Americans a lot more, and the trade deficit
would be magnified.
It is foreign demand for the US dollar that funds the US federal budget
deficits. Foreign investors flush with dollars typically look to US
treasury securities as a means of secure investment. With a large
reduction in such investment, the country could potentially go into
default. Things could turn very bad, very quickly.
In May 2004 an additional 10 member nations will join the European
Union. At that point, the EU will represent an oil consumer 33% larger
than the United States. In order to mitigate currency risks, the
Europeans will increasingly pressure OPEC to trade in euros, and with
the EU at that stage buying over half of OPEC oil production, such a
change seems likely.
This is a scenario that America cannot afford to see eventuate. The US
will go to any length to fend off an attempt by OPEC to dump greenbacks
as its reserve currency. Attacking Iraq and installing a client regime
in Baghdad may have a preventative effect. It will certainly ensure that
Iraq returns to using dollars and provide a violent example to any other
nation in the region contemplating a migration to the euro.
An American-backed junta in Iraq would also enable the US to smash
OPEC's hold over oil prices. The US or its client regime could increase
Iraqi oil production to levels well beyond OPEC quotas, driving prices
down worldwide and weakening the economies of the oil producing nations,
thus lessening their likelihood of abandoning the dollar. It would have
the short term effect of reducing the profits of domestic oil companies,
but the long term effect of securing America's economic hegemony.
The frequently offered canard of the Left that this war is being fought
to secure oil revenues for American oil companies may have some truth to
it. However, a more plausible explanation may be that the Bush
administration is waging war to protect the dollar and smash the OPEC
hold over international oil prices. It's a war whose purpose is bigger
than Halliburton or Exxon: it's a war being fought to maintain America's
position in the world.
Attending the 1992 Earth Summit in Rio, George Bush Senior told the
world that, "the American way of life is not negotiable". As cruise
missiles rain on Iraq, we are learning just how 'non-negotiable' that
way of life really is.
Amir Butler is executive director of the Australian Muslim Public
Affairs Committee (AMPAC), and writes for ATrueWord.com. He can be
contacted at email@example.com .
Alexander's Gas & Oil Connections - UN agrees to Iraq euro account
... sponsored by: UN agrees to Iraq euro account 30-10-00 A United Nations committee gave Iraq the green light to open a euro-denominated bank account to ... it the go-ahead to create a euro-based account for Iraq, the officials and diplomats ...
- SECRETS OF THE FEDERAL RESERVE Lord Alan Greenspan, Mon Sep 17 12:13
- Greenspan: Euro to replace Dollar in Reserves biz.yahoo.com, Mon Sep 17 14:24
- Dollar vs. Euro - Hegemoney WAKE UP!, Mon Sep 17 14:52
- 9/11 The Mysterious US Option Trade By Greg Peel, Mon Sep 17 14:36
- Phenomenon: The Secret of the Federal Reserve Liberty Int'l Entertainment, Mon Sep 17 12:26
- Venezuela's oil accounts to dump the US dollar Bloomberg News, Mon Sep 17 19:24
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