by Christian Berthelsen
Chronicle Staff Writer
September 19, 2001
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The Chicago Board Options Exchange said yesterday that it is looking into an unusual spike in trading in two airline stocks in advance of last week's terrorist attacks.
As reported in The Chronicle, options trading in the stocks of the parent companies of American and United airlines was unusually heavy in the three trading days prior to the attack.
That activity is the focus of an international investigation in the United States and several other countries that is trying to determine whether people with advance knowledge of the attacks sought to profit from the trading.
Four American and United planes, along with their crew and passengers, were hijacked on Sept. 11. Three were used in the terrorist attacks against the twin towers of the World Trade Center and against the Pentagon. The fourth crashed in rural Pennsylvania.
Both airlines' stocks fell precipitously when trading resumed on Monday, with shares of UAL, the parent of United, dropping 43 percent, and shares of AMR, the parent of American, dropping 39 percent. Both recovered slightly yesterday, with UAL rising $1.49 to close at $18.99, and AMR rising $2, to close at $20.
The Chicago Exchange, the largest options market in the nation and the board on which United options are officially listed, experienced volume eight times its normal levels in the trading of UAL Corp. put options on the Friday before the attack.
The purchaser of a put contract is guaranteed the right to sell a specific amount of shares at a specified price by a certain date. The purchaser profits from the deal when the share price drops lower than the agreed sale price.
Lynn Howard, the exchange's chief spokeswoman, said, "As is usual, CBOE is conducting an investigation of trading prior to the news event." Howard declined to elaborate on the specific nature of the inquiry. Sources who have agreed to speak on condition of anonymity say government investigators are also looking at the trades.
Exchange officials and market markers in San Francisco refused to discuss the inquiry.
On the day before the terrorist attack there was a spike of 25 times the normal levels in the trading ratio of UAL put options, with larger-than- average volume coming through the Pacific Exchange.
Dale Carlson, a vice president of the Pacific Exchange, refused to comment on whether an inquiry is taking place there in the trading of put options on UAL or any other security.
A floor broker with TFM Investment Group, the market maker in UAL options at the Pacific Exchange, also refused to comment.