Create a massive fall in the market large enough to trigger stop-losses typically set up at 5% drop, and then buy blue chip stocks at 30% less price before they recover, sell Put Options at 1000% gain, blame it all on computers and trading algorithms. Some person or some company somewhere has walked away with billions in profits after this event. It looks very well planned. This event was most probably an example of higest form of market manipulation, a bold master stroke, though illegal and unethical.
To find answers, we need to check the money-trail.
Who all bought millions of DOW 10500 Puts for pennies a few days back? Those Put options would have got sold at 10 dollars each, making billions of dollars. It is very unlikely that the organizer is within the US, otherwise the SEC/FBI can find ways to take back the money. The organizers are most probably hedge funds, outside the US, in offshore locations. The sponsors had enough capital, and NYSE/NASDAQ trading algorithm expertise, to make the initial 250 point dent, and then the market forces took over, pushing everything down in free fall.
To those who say that since the prices came back to pre-fall levels, and no real damage was done — they clearly are not traders or have market positions or investors who have put stop losses. Many traders and brokerages got blown out of their positions because their stops were taken out after 5% drop in the Index. Many futures and options traders squared loss making positions, and opened hedging positions, only to be caught in the pull-back few minutes later. It was violent – a financial hurricane. Such extreme movement of stock prices has cascading effects on margin positions which impact other non-related trades, commodity positions and forex, because all these market are inter connected.