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A put option can effectively be viewed as a bet that a stock's price is going to

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A put option can effectively be viewed as a "bet" that a stock's price is going to fall. After the September 11, 2001 attack on the World Trade Center, the FBI observed unusual trading activity in put options on certain airline stocks. The investors in these options made large profits from low-probability, short-term bets that airline stock prices would decline precipitously. Substantial evidence suggested that the securities traders made these investments based on their advance knowledge that this terror attack using U.S. airplanes would occur.
The terrorists were guilty of a horrible act. Were they also guilty of insider trading?
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Ali Khawaja
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Ethics in Accounting A Decision Making Approach

Ethics in Accounting A Decision Making Approach

ISBN: 978-1118928332

1st edition

Authors: Gordon Klein

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A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.

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