Did someone make millions in trade with advance knowledge of 7 October Hamas attacks?

Although the world claimed shock and surprise at the 7 October attack on Israel by Hamas, was there someone who profited of the incident? 

A December 2023 paper by Robert Jackson Jr, a former commissioner of America's Securities and Exchange Commission, and Joshua Mitts of Columbia University believes there was insider knowledge.

The authors say there was a surge in short sales – bets that a security's price will fall – of an exchange-traded fund (etf) listed on the New York Stock Exchange under the ticker eis, which tracks an index of Israeli shares. 

In a report by the Economist examining the paper, it said in September an average of 1,581 shares a day of eis were sold short, representing 17% of the daily total trading volume. 

"On October 2nd, five days before the attacks, a whopping 227,820 shares were shorted, representing 99% of total volume. Rather than reflecting a souring of market sentiment, the increase in activity seems to have come from just two trades," the Economist reported. 

Then, immediately on the first trading day after the attack, standard "long" transactions outgrew short sales by a similar number of shares . 

If these trades were made by the same investor, they would correspond to a $1m profit, the report added. 

But this wasn't the only thing that was suspicious.

During the three weeks before the attacks, the number of outstanding options contracts expiring on 13 October on American-traded shares of Israeli firms—the derivatives that would yield the greatest returns if prices moved sharply in the direction a trader expected—rose eightfold. 

In contrast, the number of longer-dated options on such shares, whose value depended on events beyond mid-October, barely changed.

The paper's authors did not just stick to this period. To confirm their suspicions, they also analysed other periods of turmoil in Israel, but did not detect similar behaviour.

The only match was in April—two days before Passover, which according to reporting by an Israeli tv station was the date originally scheduled for the attack.

It is to be noted that the paper was not peer-reviewed. 

Critics said the activity could reflect investors closing positions on the first day of a quarter, or have been a market-maker's response to a trader buying up shares in the fund. 

Yet no surge has occurred at the start of any other quarter since 2009, the Economist reported. 

The authors say that had any large purchases of eis been made to offset the shorts, such transactions would appear in their data. 

Critics also said short sales in such amounts should drive down prices, but the EIS actually rose.

In response, the authors told the Economist that the fund's value was tied to the prices of the shares it contains, and that the shorts of eis were tiny in comparison with the market capitalisation of the firms the fund tracks.

The study, released a month after the attack, prompted an inquiry by Israel's securities authority. 

Although the authors maintained that benign explanations could also explain the trading activity, they argued the most plausible theory was "that whoever made the trades was familiar with Hamas's secrets." 

Of course, many say if such a profit was made, it could have been Hamas themselves.

The Hamas terror group may have gained substantial profits from Israel stock markets, using the knowledge to short sell Israeli companies.