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

Author

Listed:
  • Wing-Keung Wong

    (Hong Kong Baptist University, Hong Kong)

  • Howard Thompson

    (University of Wisconsin-Madison, USA)

  • Kweehong Teh

    (National University of Singapore, Singapore)

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 hypothesis 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.

Suggested Citation

  • Wing-Keung Wong & Howard Thompson & Kweehong Teh, 2011. "Was there Abnormal Trading in the S&P 500 Index Options Prior to the September 11 Attacks?," Multinational Finance Journal, Multinational Finance Journal, vol. 15(1-2), pages 1-46, March - J.
    • Handle: RePEc:mfj:journl:v:15:y:2011:i:1-2:p:1-46
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    References listed on IDEAS

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    Cited by:

    1. Moawia Alghalith & Wing-Keung Wong, 2022. "Option Pricing Under an Abnormal Economy: using the Square Root of the Brownian Motion," Advances in Decision Sciences, Asia University, Taiwan, vol. 26(Special), pages 4-18, December.
    2. Imlak Shaikh, 2019. "Behaviors of Stocks and Fear Index from Terrorist Attacks: Empirical Evidence from SENSEX and NVIX," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(2), pages 195-219, September.

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