Pelham 123 Movie - How did he turn $2 million into $300 million?

[chris103610]

I just finished watching Pelham 123.

Spoiler Warning!!!


If you haven't seen it;
John Travolta hijacks a subway train in New York. Holds people hostage and demands money. He has 2 million already that he invests into the stock market.

because of the hijacking of the train, the NYC market collapses. Everything drops but for some reason, the commodity Gold increases? so i'm assuming John T knew the market was going to drop and invested his 2 million into gold?

but if the market is crashing why would gold increase?

Thanks. just wondering.
I was going to post in entertainment but i figured you guys would know more.

[240sxer]

Simple, when the markets are unstable due to bad news, people pull out their money, further causing it to drop and then they invest in something more reliable and wanted that doesn't lose its value, like gold or oil.

Proof:
http://i34.tinypic.com/2lbdpwg.jpg
Gold: Blue
DJIA: Red

[matdwyer]

If I recall the movie he did put options, so its like a bet that X will go to $yy by zz (the date) and if it does, you win big

[Donomight25]

It's called bullion.

Gold is literally cold, hard cash. Precious metals always benefit from an upset market. It's a for-sure commodity that would lose it's value if more was found. The more there is, the less expensive.

Thinking on a global scale, there's not much gold on earth compared to other metals. You can clearly exclude ultra-rare metals like mercury and platinum (which is mostly by-product) from argument, but gold is rare.

Gold is considered a safe haven as demand is not driven by industrial uses.

[muchacho_007]

Would platinum hold its value more consistently than gold?

[babysham]

Also - correct me if I'm wrong but the city took the money from the Federal Reserve, therefore they were putting more money into to the economy. Would that decrease the value of the dollar, thus also increasing the price of gold?

I think in the movie, gold was up like 890%. LOL.

[simms]

He bought put options. Huge amounts of leverage.

[Thalo]

Why would markets collapse and gold soar just because of one little subway hijacking in NYC? Subways were bombed, with massive casualties, in London and Madrid and they had little impact on the markets.

[erikr]

:arrowu: Plot device. :cheesygri

[Donomight25]

Would platinum hold its value more consistently than gold?

No. There are industrial uses for platinum, thus driving some form of demand.

Buyer want the lowest price. Sellers want the most amount sold. Prices would fluctuate accordingly.

Gold has very little to no industrial use. Personal demand and currency reserve drives the price of gold up.

[EdLeafs]

Why would markets collapse and gold soar just because of one little subway hijacking in NYC? Subways were bombed, with massive casualties, in London and Madrid and they had little impact on the markets.

It's a movie! It's not supposed to be realistic. If it was, I would see subway hijacking every now and then. :P

Although if you remember what happened to 9-11, the NY market dropped a lot that day and If I remember correctly, the market closed for that whole week to prevent anymore huge dips.

[barking frog]

Also - correct me if I'm wrong but the city took the money from the Federal Reserve, therefore they were putting more money into to the economy. Would that decrease the value of the dollar, thus also increasing the price of gold?

I think in the movie, gold was up like 890%. LOL.IIRC the ransom amount was something like $10million and it would have no effect on a macro scale. Central banks constantly give and take money for such small amounts and it's never reported.

He bought put options. Huge amounts of leverage.Not put options, call options. Put options are the right but not obligation to sell; call options are the right but not obligation to buy at an agreed price within a certain time period.

So he would have spent his 2 million buying all the call options he could, which would be fairly cheap for soon-to-expire far out-of-the-money calls. He could futher increase his leverage by finding a shady broker who would let him write (sell) short-term naked put options. He could then use the option premium collected to buy more call options.

After gold rises all the way to the top, he would immediately sell the call options back on the market, or find the capital to exercise the in-the-money calls, and the put options would expire worthless a couple days/weeks later

Futures are a possibility, but since the expected rise was only short term market frenzy, also unlikely in this case.

Either way, the thing is just a plot device. And if you knew the markets were going to fall drastically you would short sell everything you could borrow.

[kg_canadaka]

Not put options, call options. Put options are the right but not obligation to sell; call options are the right but not obligation to buy at an agreed price within a certain time period.

So he would have spent his 2 million buying all the call options he could, which would be fairly cheap for soon-to-expire far out-of-the-money calls. He could futher increase his leverage by finding a shady broker who would let him write (sell) short-term naked put options. He could then use the option premium collected to buy more call options.


Buying Call Options is bullish. Buying Put Options is bearish. You have yourself confused with writing (selling) an option and buying an option.

[barking frog]

Buying Call Options is bullish. Buying Put Options is bearish. You have yourself confused with writing (selling) an option and buying an option.He expected gold to rise and therefore joined the bulls. Where's the confusion?

[kg_canadaka]

My bad, forgot it was about Gold. Though it was about general stock options.