Market Crash Forecast Suggests New 9/11

[Richard]

Paul Joseph Watson
Prison Planet

A mystery trader risks losing around $1 billion dollars after placing 245,000 put options on the Dow Jones Eurostoxx 50 index, leading many analysts to speculate that a stock market crash preceded by a new 9/11 style catastrophe could take place within the next month.

The anonymous trader only stands to make money if the market crashes by a third to a half before September 21st, which is when the put options expire. A put option is a financial contract between two parties, the buyer and the writer (seller) of the option, in which the buyer stands to benefit only if the price of the asset falls.

"The sales are being referred to by market traders as "bin Laden trades" because only an event on the scale of 9-11 could make these short-sell options valuable," reports financial blogger Marc Parent. Dow Jones Financial News first reported on the story.

The trader stands to make around $2 billion from their investment should an event trigger a market crash before the third week in September. 

Such a cataclysmic jolt could only happen as a result of two factors, China dumping its vast dollar reserves in reaction to the sub-prime mortgage collapse, which it has threatened to do, or a massive terror attack on the same scale or larger than 9/11. 

9/11 itself was foreshadowed by unprecedented put options that were placed on United and American Airlines. Though the Securities and Exchange Commission refused to reveal who placed the options, private researchers traced the investments back to the Deutsche Bank owned Banker’s Trust, which was formerly headed by then Executive Director of the CIA, Buzzy Krongard.

Put options on Morgan Stanley and Merrill Lynch, two of the World Trade Center's most prominent occupants, also spiked in the days before 9/11.

News of the suspicious trades is dovetailed by the comments of Former US Treasury secretary Larry Summers yesterday, who told ABC News that the risk of a recession in the U.S. was greater that at any time since 9/11.

http://www.prisonplanet.com/articles/aug..._crash.htm

[BobbyDigital]

i caught that too.At first no one believed it they thought it was a typing error or something but it was still there the next day not only that they were buying more! Many people called the trading floor and upper management to make sure it wasnt an error or if it was some kind of a less extreme spread/hedging strategy or something coded wrong but nope from all the information i can gather its an all out bet on a crash.IF there isnt a crash someone is gunna eat 10 figures.

[Polly]

Why would this info be publicized?

[Violet]

Ssomething in the numbers in this story doesn't make sense.  The story suggests that someone is betting on a catastrophic event happening and is only getting 2-to-1 odds to do so.  ($1B premium for a potential $2B profit).  For an option that is that far "out of the money" the premium charged would be much lower.

 

[Violet]

I looked at the article this post links to. I was involved in the options world (CBOE, CME) and in particular SPX options for a period of time that included 9/11/01 so I have some interest in this topic. It seems someone is offering to sell a large number of deeply in the money calls for some reason. A deep in the money call behaves essentially the same way as the stock or stock index (in this case the S&P 500) unless there is a huge movement in the stock index. The person buying a call makes money if the index rises; the person selling a call makes money if the index falls but it is NOT necessary for a catastrophic fall to occur before they'd make money--any drop at all and the seller makes money if the call is "in the money".

It is true that it is unusual to see much activity in deeply in the money calls so close to expiration but I see no reason to assume that anyone is betting on a catastrophic drop. More likely there is a tax or other reason for this unusual activity.

As a psychic, I agree that something big is about to happen. But as an options trader, I think there is much in this analysis to be desired.

[Richard]

I read it happened in Europe too. 

Mystery Trader Bets Market Will Crash By a Third Carry trade unwinds as yen hits one-year high

August 16, 2007
by Renée Schultes
Financial News

An anonymous investor has placed a bet on an index of Europe's top 50 stocks falling by a third by the end of September, as world equity markets plunged for a third day and volatility hit a three-year high.

The mystery investor has bought put option contracts on the DJ Eurostoxx 50 index that will result in a profit if it plunges to 2,800 or below by the end of September. Based on the 2,800 strike price, the position covers a notional €6.9bn, and potentially even more using a market price of about 4,100 when the trades were done on Tuesday and Wednesday.

The identity of the investor is unknown but market sources speculated it was either a large hedge fund hedging itself against deepening losses, or a long-only fund manager pressing the panic button to protect its gains.

The investor has bought a total of 245,000 put options on the index. The September put option with a 2,800 strike was the most popular DJ Eurostoxx 50 contract yesterday, according to data from Bloomberg.

Volatility in European equity markets has risen sharply this week as investors cut back on the amount of risk they are taking. The VSTOXX index, which measures the volatility of the DJ Eurostoxx 50 index, hit 34 this morning, which is more than double its three-year average.

Similarly the volatility of the US stock market was trading at almost three times its three-year average, hitting 30 yesterday.

However, both indices continue to trade below their 2002 highs.

European stock markets were trading down almost 3% at by 13:00 GMT today, after large drops in Asia and Australia overnight. The Australian market fell 300 points at one stage when futures trading was suspended for over an hour and traders were forced to hedge positions by selling physical stocks rather than futures.

An analyst at Goldman Sachs JB Were in Australia wrote: "I think I shall remember this day as the day that I saw the market go to hell, look into the abyss - didn't like what it looked like and then came screaming back up as far away from there as it could get. ... It was a truly spooky day and I’ve seen a lot over the last 20 years but today will be one that anyone who saw it will never forget. But this is what market bottoms are made out of."

The rise in volatility and risk aversion has also contributed to a sharp appreciation in the Japanese yen, which has been used to finance the so-called carry trade, where investors borrow in a low-yielding currency to invest in one with a higher-yield.

Analysts' belief that the yen carry trade is set for a major unwinding has intensified today as the Japanese currency continued to rally in morning trade.

The yen strengthened today as it broke through several psychological barriers. The yen hit 113.60 against the dollar by 12:35 GMT, the first time in more than a year it has dropped below 114. The yen was substantially up against the dollar from yesterday, when it traded at above 116.

Simon Derrick, head of currency research at Bank of New York Mellon, said: "With any hope of even a brief bounce emerging in the yen crosses evaporating in the fierce glare of another horrible close in New York, it is clear that the vicious, self-reinforcing, downward spiral we were worrying about is already firmly established."

http://www.financialnews-us.com/?page=ushome&contentid=2448565379