Who bought those options?

Below is a 2001 article from the Los Angeles Times (I saved it and the link, which is now bad), one of the few papers that covered the unusually high options trading on United Airlines (UAL) and American Airlines (AMR) stock that occurred just before 9/11. Three trading days before 9/11, the volume of put options trading on UAL was 285 times the average! 60 times the daily average on American airlines the day before 9/11. 25 times the average on Morgan Stanley, the largest occupant of the WTC on 9/11. Some person or persons knew that American and United jets would be hijacked and slammed into the WTC, and wanted to cash in on it! It would make sense that the buyers would be Al Qaeda operatives, so why haven't the authorities found these people?

How long does it take to find out exactly who made these trades? Does it take more than a week, a month, a year? Harvey Pitt, chairman of the SEC at the time, should have known on 9/12/01 who made those trades. The SEC tracks all securities trading, and they should know. Why did Harvey Pitt resign from the SEC just 15 months into his reign, a year after 9/11? If it was Saudis who bought those options as Anand suggested in the comments, it would fit a trend of stupidity on the part of Arab terrorists, as in 1993, after the WTC was attacked, when one of the terrorists wanted his truck rental deposit back: "On Monday, while FBI special agents were at the Jersey City facility to speak with personnel there, the Ryder clerk received a call from a man identified as Mohamed Salemeh. The latter demanded the return of his $400 deposit for the van in question, and the Ryder clerk arranged for him to return and collect the deposit on March 4, 1993. When Salemeh arrived, he was arrested."

Why do we not know who bought those options, six years after 9/11?

This LA Times article, titled Options Exchange Joins Trading Probe, was published September 18, 2001:

'The Chicago Board Options Exchange, the world's biggest options market, has joined a widening probe of whether terrorists may have profited from bearish trades in airline, insurance and brokerage stocks before the attacks on the World Trade Center and the Pentagon.

Officials with the exchange said Tuesday that they are investigating an unusually high volume of sales of "put" options on stocks such as UAL Corp. and AMR Corp., parent companies of United Airlines and American Airlines, in the days before their jets were used to destroy the World Trade Center and severely damage the Pentagon.

Buyers of put options are guaranteed the right to sell stocks at a targeted price, and they make a profit if the shares' value goes down.

"CBOE is conducting an investigation of trading prior to the news event," said Lynne Howard-Reed, a spokeswoman for the exchange. She declined to give further details.

The U.S. Securities and Exchange Commission and securities regulators in Europe and Japan also are looking into whether shares in particularly vulnerable industries could have been subject to a ghoulish form of insider trading by people with advance knowledge of the attacks.

SEC Chairman Harvey Pitt said the agency's enforcement division "has been looking into a variety of market actions that could be linked to these terrible acts."

In a letter Tuesday, New York Rep. John J. LaFalce, ranking Democrat on the House Committee on Financial Services, urged Pitt to ask Congress "for any additional powers or resources you may require" to get to the bottom of the matter.

"To the extent that individuals or entities may have manipulated the broader markets or have successfully devised schemes to profit from acts of terror, the SEC must use all its resources to find those responsible," the letter said.

But some analysts said they have seen little evidence so far of market manipulation. Given the general weakness of the stock market, it is "not surprising to see that there were people buying puts, basically making bearish bets on these stocks," said Joseph Sunderman, manager of research at Schaeffer's Investment Research in Cincinnati.

Reports of suspicious trading activity began circulating over the weekend in Europe, involving three big reinsurance firms--Munich Reinsurance, Swiss Reinsurance and AXA. Reinsurers sell backup insurance to protect major insurers from big losses.

In the days leading up to the Sept. 11 attacks, the companies' shares were hit hard by "short" selling by investors who were counting on the prices to drop. In short selling, an investor borrows and sells shares, but has a deadline by which to replace them. If the price falls, the seller profits from the difference between the price he got for the shares and what he had to pay for replacement shares.

In a report Tuesday, Bloomberg News said three trading days before the attack, the volume of put option contracts sold for UAL was 285 times higher than average. According to Bloomberg, the day before the two American Airlines jets were hijacked and crashed, the number of option contracts for AMR was 60 times the daily average.

Options volume for some brokerage and insurance firms was also high. Trading in put options for Morgan Stanley Dean Witter & Co., which occupied 22 floors of one of the trade center towers, was 25 times the usual volume, Bloomberg said.

Some analysts said the market moves probably resulted from the economic slump and the fact that market weakness has been accelerating in September. The airline industry was already in the dumps, and brokerage stocks always fall when the market is down, they said.

Others described the short selling of reinsurance stocks as more curious. "The insurance sector . . . was one of the brightest spots in a very difficult market," said Pete Gallo, New York bureau chief of HedgeWorld.com, which tracks hedge funds and other alternative investments.

If, indeed, terrorist groups were involved in market manipulation, it would mean they are trying to finance a campaign of terror against Western capitalism "by using its very core institutions--the markets," said John C. Coffee, a Columbia University law professor.

If terrorists were involved, "I can only speculate on how many entities there could be between the mastermind and the purchase," said James L. Sanders, former regional administrator of the SEC in Los Angeles.

Experts said it would be hard to permanently conceal the identities of those who took part in the trades.

Said a market regulator who would not speak for attribution: "It's very hard to pull something like this off and not leave a paper trail someplace."

Updated Jan. 28, 2011: See Wiki article on Suspected insider trading and CBS News' Profiting From Disaster?