October Surprise
October 1, 2006 2:44 PM   Subscribe

Something wicked this way comes. There are a huge number of October 6th put options for the big indexes, just like the massive put options that took place just prior to 911. Fear the "October Surprise."
posted by augustweed (44 comments total) 1 user marked this as a favorite
For those of us who aren't financial professionals, what's a put option?
posted by mai at 2:52 PM on October 1, 2006

Put Option
posted by photoslob at 2:57 PM on October 1, 2006

Wow, three links to basically conspiracy theory sites, to posts by pseudonymous authors. Weak.
posted by delmoi at 2:58 PM on October 1, 2006

The first linked article has several links backing it up but unfortunately you need a Fidelity account to login to them. Augustweed, can you tell us what those links detail?
posted by photoslob at 3:00 PM on October 1, 2006

The third link is a heaping helping of paranoia with a Godwin on top.

On further review: meh.
posted by photoslob at 3:03 PM on October 1, 2006

Surprise, surprise, surprise.
posted by pracowity at 3:11 PM on October 1, 2006

So, then, what is the exact time window of this potential surprise based on these put options?
posted by Brian B. at 3:12 PM on October 1, 2006


I've begun to really believe some of this Inside Job business...
posted by odasaku at 3:13 PM on October 1, 2006

augustweed puts the pot in crackpot.
posted by furtive at 3:13 PM on October 1, 2006

Hmmm, a pretty varied collection of links. I do find the info in the first link interesting, but lack the expertise (and Fidelity account) to analyse it. It seems like it would be easy to compare the options purchased for Oct. 6 to "average" options for those firms and draw some conclusions (or at least some inferences) from that data.

However, the other links really do get into the tin foil hat realm.
posted by mosk at 3:21 PM on October 1, 2006

Before insulting augustweed, maybe some of you could think that while he/she finds it interesting, he/she maybe doesn't believe it.

Sure, attack the crackpot links, but that's no reason to smack down the poster.
posted by Kickstart70 at 3:22 PM on October 1, 2006 [1 favorite]

mosk: yeah, it would be interesting to see a couple years' graph of put options, to see if they have any correlation to certain events.

Also will be interesting to see if the colour-coded terror threat level goes up on Oct. 4 or 5.
posted by Kickstart70 at 3:24 PM on October 1, 2006

October 6th put option or October 06 put option?

From link:
For example, if you have one Mar 07 Taser 10 put, you have the right to sell 100 shares of Taser at $10 until March 2007 (usually the third Friday of the month).

If so, that would be October 19th. Last call for the surprise.
posted by Brian B. at 3:26 PM on October 1, 2006

The fact that the guy doesn't understand that the options expire on the third friday of the month should suggest that maybe he doesn't know what he's talking about.

Anyway, there seem to be more open interests in puts than in calls for October and November. Given that the Dow has been moving up despite some relatively weak economic indicators, it's not surprising to see options traders betting on a slight downturn. Also, most of the trading for October Options is near the current at-the-money price. If you had advance knowledge of big problems in the market, wouldn't you buy puts further out of the money? Finally, there's absolutely no evidence that there is concentrated buying or selling by any of the shadowy unnamed entities the post presumes. This is normal market movement.

In short: bunk.
posted by monju_bosatsu at 3:30 PM on October 1, 2006 [3 favorites]

Pracowity what was that link for?. I saw Amazon.
posted by winks007 at 3:36 PM on October 1, 2006

wait, are you a broker or a lawyer, monju? or just an all-around internet expert? 'cuz i have some botany questions...
posted by Hat Maui at 3:40 PM on October 1, 2006

I just bought some put options for a stock. There are technical reasons to do so. The market over extended itself reaching for a new high during what is typically the worst month of the year. The market is due for a "pull-back" in Oct.
posted by david1016 at 3:40 PM on October 1, 2006

Given the massive downturn in housing sales, new housing starts, the high price of natural gas, interest rates, and the federal deficit, *and* having the markets near record highs, I would expect someone to be betting against.

Aha, data CBOE index options, 10/2003 to present, by day. (csv text file)

Date, Puts, Calls, Total, P:C ratio:

09/01/2006, 339303, 536906, 876209, 1.58
09/05/2006, 261116, 485350, 746466, 1.86
09/06/2006, 330218, 784431, 1114649, 2.38
09/07/2006, 427549, 750009, 1177558, 1.75
09/08/2006, 315715, 523941, 839656, 1.660
09/05/2006, 261116, 485350, 746466, 1.86
09/06/2006, 330218, 784431, 1114649, 2.38
09/07/2006, 427549, 750009, 1177558, 1.75
09/08/2006, 315715, 523941, 839656, 1.66
09/11/2006, 462516, 786319, 1248835, 1.70
09/12/2006, 680473, 940944, 1621417, 1.38
09/13/2006, 819382, 843621, 1663003, 1.03
09/14/2006, 807952, 895207, 1703159, 1.11
09/15/2006, 779926, 981252, 1761178, 1.26
09/18/2006, 349554, 729045, 1078599, 2.09
09/19/2006, 306628, 968721, 1275349, 3.16
09/20/2006, 333388, 591060, 924448, 1.77
09/21/2006, 441566, 627885, 1069451, 1.42
09/22/2006, 356900, 520801, 877701, 1.46
09/25/2006, 275681, 425836, 701517, 1.54
09/26/2006, 372759, 668303, 1041062, 1.79
09/27/2006, 361883, 561557, 923440, 1.55
09/28/2006, 331678, 415026, 746704, 1.25
09/29/2006, 324065, 383435, 707500, 1.18

There are a couple of high days, in particular, 9/19 stands out. A little calculation shows that the August Mean P:C ration was 1.68, while September was (tadum) 1.66. IOW, I'm not really seeing a massive market bet against the indicies. September 19th is interesting, I might go look at the news that day and see what happened.

Besides, if I knew for sure a major October Surprise was coming, I'd be buying short, not puts, and I'd be leveraged just as far as I could get.
posted by eriko at 3:41 PM on October 1, 2006

wait, are you a broker or a lawyer, monju?

Heh. I'm a lawyer, but I have several clients in the financial industry, and in particular, I'm working on an options trading case right now.
posted by monju_bosatsu at 4:18 PM on October 1, 2006

so no help with the botany thing? my hydrangeas are dying.
posted by Hat Maui at 4:39 PM on October 1, 2006

the 9/11 puts on airline stocks were reported soon after 9/11, in the mainstream media ... this is not tin-foil hat territory ... someone did this ... coincidence or something else?

however, as david1016 points out, there are probably less sinister reasons for the october puts ... there are people ... i've read some of them ... who are convinced that the market's likely to crash in october, simply because 1) they think it's long overdue ... 2) october's a likely month for that to happen

i have no idea ... but there's no conspiracy here ... just people making bets on what they think will happen

i also think that the "october surprise" may have to be a good one, the way the foley thing's going ...
posted by pyramid termite at 4:59 PM on October 1, 2006

To answer your question, Hat:
No, your own bum nuggets are not sufficient flowerbed fertilizer. Well, unless composted first. See the Guide to Human Composting. Make your own "October Surprise"!
posted by blastrid at 5:00 PM on October 1, 2006

so no help with the botany thing? my hydrangeas are dying.

Sadly, no. I have enough trouble dealing with the pine beetles in my trees.
posted by monju_bosatsu at 5:01 PM on October 1, 2006

the 9/11 puts on airline stocks were reported soon after 9/11, in the mainstream media.

True enough. But there were lots of things reported in those days that turned out to be inaccurate. Also, although the putting of options was reported, it was not shown that it was government officials who did it. It could just as easily have been the associates and superiors of the hijackers. Obviously, it has not been proven that government officials did not do this, but I've never seen any real evidence to indicate that they did do this.

As for the existance of the fabled october surprise, I'm a bit sceptical. People said the same thing about the last elections, and it never happened. Frankly, considering the shit that the Bush administration has gotten itself into, I think that if they had a real ace up their sleeve they would've already used it.
posted by unreason at 5:09 PM on October 1, 2006

Where can I buy duct tape futures?
posted by dhammond at 5:13 PM on October 1, 2006

From Skeptic:
One popular theory suggests there was a suspiciously high volume of “put” trading of airline stocks in the days just before 9/11. Since “put” trading is effectively a gamble that the price of a stock will decrease, conspiracy theorists surmise that trading “insiders” knew about the coming events of 9/11 and placed their bets accordingly. While this may look suspicious in isolation, the general volume of put trading on these stocks reached similar levels at earlier points in the year. The spike in American Airlines trading was the highest of the all airline companies involved, but that’s hardly surprising considering that the company had just released a major warning about possible losses. Indeed, general bad news about the airline industry prompted investment companies to advise their clients to take the put options, removing any need to blame the trading options on foreknowledge of the attacks.
From the 9/11 Report, page 499:
Highly publicized allegations of insider trading in advance of 9/11 generally rest on reports of unusual pre-9/11 trading activity in companies whose stock plummeted after the attacks. Some unusual trading did in fact occur, but each such trade proved to have an innocuous explanation. For example, the volume of put options – investments that pay off only when a stock drops in price – surged in the parent companies of United Airlines [UAL] on September 6 and American Airlines on September 10 – highly suspicious trading on its face. Yet, further investigation has revealed that the trading had no connection with 9/11. A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10. Similarly, much of the seemingly suspicious trading in American on September 10 was traced to a specific U.S.-based options trading newsletter, faxed to its subscribers on Sunday, September 9, which recommended these trades. These examples typify the evidence examined by the investigation. The SEC [Security and Exchange Commission] and the FBI [Federal Bureau of Investigation], aided by other agencies and the securities industry, devoted enormous resources to investigating this issue, including securing the cooperation of many foreign governments. These investigators have found that the apparently suspicious consistently proved innocuous.
posted by monju_bosatsu at 5:23 PM on October 1, 2006 [2 favorites]

dhammond wrote...
Where can I buy duct tape futures?

Go long on Home Depot.
posted by tkolar at 5:25 PM on October 1, 2006

Tin foil sales are expected to spike between now and the election.
posted by LarryC at 5:32 PM on October 1, 2006

Could it not simply be that investors are betting on a weak market in October? Its coming to the end of the third quarter, which means two things: 1) the third quarter is almost always the weakest one, and especially in this market there are likely to be alot of stocks that don't do well and 2) profit taking. Further, in specific terms, the market is approaching its pre-.com-bust (and thus all-time) highs, and there is likely to be alot of resistance as it tries to break through. All the signs seem to point down, and were I a professional investor, I'd be betting on some pretty big market drops in the near future, and I have no information on upcoming terrorists attacks.

posted by ChasFile at 6:03 PM on October 1, 2006

If we could have an election every two months the cost of gasoline ..... let's just enjoy it while we can.
posted by notreally at 6:08 PM on October 1, 2006

I dont know if I remember this right, but wasxnt there a huge market crash years ago that was named 'black october' or summink? I'm thinking in the UK, but I could be wrong, I smoked a lot of weed...
posted by BadSeamus at 6:14 PM on October 1, 2006

Black Monday.
posted by monju_bosatsu at 6:23 PM on October 1, 2006

The thing to look for, in relation to 2001.09.11 or in relation to 2006.10, would not be a change in overall puts. Rather it would be activity by the people alleged to be insiders, or see who was on it in a big way and check their possible connections to events. These people would not be a large enough group to move the overall statistics.

So the idea can hardly be investigated except by some entity with in-depth knowledge about the events and associated people, and investigative powers to look into individuals' dealings.

So, sure, obviously if you had advance knowledge you would change investments accordingly, but this is not realistically helpful in predicting attacks or identifying insiders unless you have a privileged position in the first place.
posted by jam_pony at 6:38 PM on October 1, 2006

Say we buy all this, wouldn't a lot of election-related shenanigans raise stocks? Doesn't the stock market typically rise related to war activities? What could happen that insiders would know about that wouldn't make call options equally appealing? Can someone with a Fidelity password tell us what that link says?
posted by salvia at 6:44 PM on October 1, 2006

eriko - Septemeber 19th = Amaranth.

Given the massive downturn in housing sales, new housing starts, the high price of natural gas, interest rates,

The housing downtown has shown signs of leveling off. The Philly index has stabilized and the relatively large YoY declines in starts and resales seems less drastic considering they're following records levels last year. Nat Gas is in the crapper, they're burning it off because there's no demand. Just ask the Amaranth boys who bet $5bn on it and lost big time. No hurricanes, a cold summer and a forecast warm winter means prices aren't going to recover any time soon. If there a short term bearish outlook on the market, I'd bet its because people are expecting more announcements of problems with hedge funds and their oil, gold, base metal and nat gas bets.
posted by loquax at 7:22 PM on October 1, 2006

my hydrangeas are dying.
They love sun and lots of water. Don't overfertilize or they might not flower.
I knew that CFA certification would come in handy...
posted by Opposite George at 7:37 PM on October 1, 2006

Am I missing something here? Most of my information on the stock market comes from A Random Walk Down Wall Street, and from what I understand, if October really was a reliably weak month, then anyone could make money by buying index funds in October and selling them in November or January or whatever the reliably strong month is. The resulting rush for stock would actually increase the prices, making October a strong month. It's a self-regulating system, and that's why you can't reliably do better than average on the stock market using an algorithm.

Can anyone point me to something reliable that shows that October really is a down month, and more importantly can anyone explain why every investor in the country wouldn't be buying stocks this month if it were?
posted by L. Fitzgerald Sjoberg at 7:46 PM on October 1, 2006

Am I missing something here?

Just that this is all a bunch of nonsense. Can we get a gif of an elephant or something, I'm getting bored with this thread.
posted by ikkyu2 at 10:35 PM on October 1, 2006

No hurricanes, a cold summer and a forecast warm winter means prices aren't going to recover any time soon.

The first is only true, as you said, in YoY, we're having an average season, and the Gulf Season normally doesn't start until about now. Indeed, a bad sign, warming wise, is that despite El Niño, the hurricane season is still running near average (El Niño years typically have less hurricane activiity in the Atlantic.)

This was a cold summer only to the NE, and even they weren't cold, they ranged from normal to above normal. The rest of the nation was staggeringly warm -- in most states, it was the 2nd or 3rd warmest summer ever recorded, in some, it was the warmest. This followed a very warm spring, where exactly one state (California) showed below normal temps. Summary data available here, and here.

On a national average, 2006 was the warmest summer recorded (graphical map by forecast area here,) and when you average out rainfall, we're within one standard deviation of normal. Of course, that's just national -- when you break it out into regions, most of the US was well below average, except the NE, which was the wettest ever, and the Southwest mountain states, which were wet. The rest of the nation ranged from dry to extremely dry. The only cool month was February, speaking nationally, the temps were near normal when averaged over the nation. Every other month, the temps have ranked well over 100 out of 112 recorded season, with January and April being 112 (that is, the warmest ever recorded) and Jun and July being ranked 111.

The winter is forecast to be warm, but with El Niñ/Southern Osicallation in play (SOI index -1.6, -0.8 from August) I'd be careful of winter forecasts made earlier in the year. The current 3 month climate forecast predictics above average temps for the west (basically, west of the Mississippi) and equal chance of normal/above/below temps in the Eastern US.

IIRC, and I'd check this datapoint because I'm doing this by memory, Natural Gas usage is biased to the Midwest and Northeast. I could be wrong, but that data is out there. If so, the current forecasts are saying that it could be warm or cold this winter in the large NG markets.
posted by eriko at 5:58 AM on October 2, 2006

I dont know if I remember this right, but wasxnt there a huge market crash years ago that was named 'black october' or summink? I'm thinking in the UK, but I could be wrong, I smoked a lot of weed...

You might be thinking of Canada's October Crisis. There was a CBC documentary about it a few years back called "Black October." Nothing to do with the stock market, but ironically it's (kinda) relevant to the discussion.
posted by EarBucket at 7:28 AM on October 2, 2006

The way to identify a conspiracy would be to statistically cluster trading patterns of individual agents around the time period of interest. If "connected persons", that is individuals with potential access to insider information, all cluster together, you can infer that they acted together and differently from the market as a whole. Now, in order to make the link from acting differently from the market as a whole to insider activity, you have to assume that the market as a whole was paying as close attention to publicly available information as they were. Given that "connected persons" are defined as people who have reason to be following the sector or industry more closely than the market as a whole, that's a hard assumption to make, except in cases of behavior way outside the behavior of the market as a whole or in the presence of additional prejudicial information.

Am I wrong about this? Anyone have market analysis supporting a conspiracy that contains p-values?
posted by Mr. Gunn at 9:17 AM on October 2, 2006

Could it not simply be that investors are betting on a weak market in October?

Yeah, it's funny how people are looking for weird convoluted explanations when the answer is smack dabbo obvious.

I just bought some put options to hedge my stocks against a market plunge. Add it up: the slowing housing boom, the massive trade and gov't deficits, the negative spending rates. There are some serious structural weaknesses in the American economy. And remembering that the worst Crashes in stock market history happened in previous Octobers, I don't mind taking on a little insurance with put options.

In 1987, the October crash took the Dow Jones down 23% in one day. Funny how people forget that. Then there was also the 1929 October crash, the October 1997 crash....
posted by storybored at 10:01 AM on October 2, 2006

Oh wait, I forgot to mention - I'm a part of the Big Conspiracy. There. Don't say you weren't warned.
posted by storybored at 10:02 AM on October 2, 2006

eriko - you're right, I was generalizing a little bit, and mostly I was speaking relative to last year which was an absolute boon for natgas traders (Amaranth and Brian Hunter included). Prices today (spot and Winter 06-07 contracts) are down between 50-60% YoY, and the massive inventories (at capacity really) means that it would take not only a massive reduction in inventories (along the lines of Katrina last year) but also record temps this winter to even start moving prices back North. As it is, they are literally burning off gas in Alberta because there's nowhere to put it and it's too expensive to shut off the wells.

Then again, prices can't go much lower, and people will certainly make a lot of money when the market heads back up. It's simply a question of knowing when it will happen. Right now, next summer looks like a much better bet than this winter. Next winter even better. But buying long term contracts is substantially more expensive than buying spot gas.

Anyways, what was this thread about? Calls and puts? Yeah, a wide spread doesn't mean the world is ending, just that the hedge funds and institutions are betting on a short term downturn in the market.
posted by loquax at 5:30 PM on October 2, 2006

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