When Pit Traders Ruled

[The sun had already begun to set on exchange-floor traders in 1995, when I wrote this essay for Barron’s. Two decades later, open-outcry pits are nearly gone, and with them a simple, honest means of doing business that had brought buyer and seller face-to-face. This tradition, which went largely unchanged since the early 1600s, when the world’s first stock exchange opened in Holland, has since been supplanted by a global computer network whose chief features are infinite capacity and speed-of-light transactions. While some would call this an improvement, others would argue that it has pushed trading itself into the realm of the metaphysical, where the very idea of “honest  markets” has come to lose all meaning. RA]

The job would have sounded too good to be true if it had been advertised in the classifieds: “Be Your Own Boss. Work six hours a day, and in just a few months make the kind of money that plastic surgeons, malpractice lawyers and even movie stars make. Ski Telluride and Gstaad, hunt for seashells in Madagascar, explore the jungles of India in a howdah and perfect your tan in Cabo San Lucas — all while you rake in the big bucks. Just a few thousand dollars will get you started. No experience necessary.”

Word Got Out

While such an ad never appeared in any newspaper, the job itself was real enough. In fact, the guy who came one day to find himself riding in a howdah — an Ivy League biology graduate, as it happens — made about $1.5 million when he was traveling from Jaipur to Agra. He didn’t know he’d struck it rich until he phoned the office the next day. Like all opportunities that sound too good to be true, however, there was a downside: In this job, you could lose more money before breakfast than Marlon Brando gets paid for a walk-on. The business was derivatives — specifically, listed put and call options — and the license to create them out of thin air and sell them to the public was for a while the quickest route to riches since the California Gold Rush. It was possible to start a business for $10,000 that could generate 10 times that in a year. It didn’t take long for the word to get out.

Options mania at first attracted to the Pacific Stock Exchange the kind of fortune-seekers who a century and a half earlier wouldn’t have thought twice about trading an apron for a pickax and heading West. Like the Forty-Niners, the new speculators on the PSE were a remarkably diverse bunch — real-estate developer, trucker, Marine, electrician, cab driver, physicist, movie maker, policeman, dry cleaner, ad man, bartender, lawyer, sport fisherman, potter, lifeguard, restaurateur, engineer, guitarist, physician, card counter, stockbroker, tow-truck operator, hod carrier, ski bum, fireman, architect and chess master. They were all down there, plus a few drug dealers to buffer the mix.

Trader’s Personal Spittoon

It was hard to stand out in such a crowd, but a few did. One trader of legend, whose net worth caromed spectacularly— and frequently—between negative and positive seven figures, had begun his professional life as a catcher for the Washington Senators. His spittoon was a fixture on the options floor and was avoided as though it contained some recombinant mixture of smallpox and plutonium. Another trader was said to have been a mercenary — a soldier of fortune who’d seen action in some equatorial sweat box where war had raged for 50 years.

There were also a few women traders. On the exchange floor, where shrewdness and guts were all that counted, women could play as equals, and did. Chivalry existed only to the extent it was considered bad form for a male market-maker to challenge a female to step into the alley. It was considered good sport to cuss them, though—at least until a notorious 10-letter word was misapplied to a female broker who evidently did not take herself to be one of the guys. After that, too-salty language became a fineable offense.

Occupational Hazard

Male or female, most successful floor traders have a few traits in common. They possess the steel-trap mental reflexes that one associates with the best gin and backgammon players, which quite a few of them are. The skilled trader can also hear as a conductor hears, filtering out extraneous noise and tuning in only the relevant voices when necessary. After a few months’ practice, traders can read price monitors from a distance that would cause a fighter pilot to squint. They have the stamina to stand for six hours without a break and the vocal cords to shout all day long, 200 days a year. Predictable occupational hazards include hemorrhoids, mild deafness, failing eyesight, ulcers and fallen arches. A few traders in their 40s have died of “natural” causes. A few committed suicide. And another was driven by financial adversity to attempt the robbery of an Alameda bank, neglecting to consider that all conceivable escape routes from this island community crossed bridges.

A few who struck it rich on the floor of the Pacific seemed to possess neither brains nor stamina. One story that made the rounds concerned the novice who, first time out, sold 200 contracts, thinking the transaction had left him short the equivalent of 200 shares. Actually, it left him short the equivalent of 20,000 shares, but by the time he learned of his stupidity, the stock had dropped just enough in his favor to make him a quick $15 thou.

Predators and Prey

When the PSE Options Exchange opened for business in 1976, it was not difficult to make lots of money. It was a seller’s game then, and the risk premium that professionals received, mostly from public customers, for their puts and calls was in retrospect exorbitant.

Those were the days when floor traders were predators, the public their prey. Ten years later, when the retail trade had largely abandoned an almost unwinnable game, the floor traders themselves became the prey of institutional sharpies—the “big boys.” The floor brokers who handle their business are as subtle as belled cats but, surprisingly, the mice still want to play. If you’ve ever laid out more than five bucks trying to knock the milk cartons over, you know the temptation the market-makers face each time Morgan’s broker walks into the pit with an offer that sounds too good to be true.

Of course, it’s still possible to make plenty of money on the options floor. But it’s a very different sort of game. During the 1980s, success slowly began to skew toward the rocket scientists. Now, being a rocket scientist isn’t enough; you need to be a rocket scientist with megabuck backers merely to play even-up with the big boys. Ultimately, the days of floor trading are probably numbered. The rocket scientists are taking their action upstairs, where they can better apply certain refinements of the information superhighway to the business of picking off their old buddies still in the pits. Moreover, federal regulators are giving a strong push to new technologies, in the belief that quickening and broadening the dissemination of price information will create better put and call markets. Perhaps. But it is worth considering that even though traders shouting and spitting in each others’ faces to effect commerce may seem like a bottleneck in the otherwise cybernetic loop of securities trading, it is also one of the last reality checks left against the ethereal drift of global finance. When the cowboys have all hung up their guns and retired to computer rooms, the Code of the West may have breathed its last.

  • EVIL VLAD June 15, 2014, 2:15 am

    amazingly, read link today, that actually ties to current esoteric ‘when pit traders ruled’ blog.
    it’s based on a new book, that calls you oldtime nasty savvy commodity ussa pit traders,
    ‘The Secret Club that Runs the World: Inside the Fraternity of Commodity Traders.”
    http://www.ft.com/cms/s/2/204c04d8-f0d1-11e3-9e26-00144feabdc0.html#axzz34dfi1BLh
    (it’s 30 bucks, expensive, but you nasty old pit traders are all rich, so it’s a penny to you)

    a few quotes–

    “In April 2011 Delta hired Jon Ruggles, a cocksure veteran energy trader, as vice-president of fuel. Facing a shortfall in an employee bonus pool, managers authorised Ruggles to pursue a “purely speculative trade” in heating oil that would make Delta $100m.”

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/2/204c04d8-f0d1-11e3-9e26-00144feabdc0.html#ixzz34etPEiZO

    “Alex Beard, global head of oil at Glencore, the giant commodities trading house. While few names will be secret to readers of the financial press, Kelly digs up vivid details of their behaviour during times of extreme market stress. We learn how Beard “put on a massive speculative bet” that oil prices would fall in 2008 – as they did, decisively. ”

    “We are told how Gary Cohn – now president of Goldman Sachs – built “enormous caches” of aluminium in the early 1990s that drove up prices, foreshadowing Goldman’s controversial entry into metals warehousing.”

    “The Secret Club feels a bit breathless. Traders are cast as “shrewd and indomitable” representatives of a world in which “a relatively small circle of powerful players take enormous risks gambling on the future price of physical raw materials like oil, corn, and copper”. ”

    $$$$$$$$$$$$$$$$$

    more interesting stuff I read today, re ussa’s middleclass downfall, and deflation, all over world.

    “Empty wallets explain new levels of partisan hatred”
    http://finance.yahoo.com/blogs/daily-ticker/empty-wallets-explain-why-democrats-and-republicans-hate-each-other-191155158.html
    ubers have set up a perfect just-2-party system for the ussa sheep, reps vs. dems,
    hate each other but, they both bend, to ubers.
    and funniest thing is,
    that lib house dem pelosi, is wealthier than almost all hous reps, COMBINED. haha.
    hypocrisy, at it’s ussa finest.
    ‘lord, what fools these mortals be.’
    http://www.bloomberg.com/news/2014-06-14/nancy-pelosi-keeps-title-as-wealthiest-u-s-house-leader.html?cmpid=yhoo

    so let’s move away from that always most corrupt ussa for a second (lost your attention now),
    but, let’s look at worlwide deflation. china. home prices dropping FAST. here is link. BAD.
    http://finance.yahoo.com/news/china-housing-slump-sparks-fears-economy-065619966.html
    and spain. my spain.
    recovery? bull. spain is mired in 25% unemployment. depression.
    and all they get now, from their ‘leaders’ is not even bread, but just, circuses. soccer.
    the most idiotic sport of all, soccer, that does not even use hands, as all other sports do.
    yep. spain, swollen in 1%er corruption (like ussa, and most others), finances soccer for free,
    so spaniard village-idiotas, match ussa joe-sixpack, to focus on just foot-basket-base-BALLS.
    http://finance.yahoo.com/news/spain-props-soccer-amid-crushing-austerity-070508477–spt.html

    don’t think this is important? yet, it is.
    because ‘formula’ of ubers, never changes.
    so, it’s ‘bread and circuses,’ for the ever idiot-masses.
    and if they get too unruly, then– prison, torture, death.

    now here is a ussa fun one. and list it under ‘they never learn’ dept. for shirkers, are shirkers.
    and they ain’t gonna change. so, got your home ‘foreclosed’, for lack of payment?
    no worry, BORROW FOR ANOTHER!
    hey, we don’t care that you never paid. since we are forced by gov. to TRUST YOU to pay!
    hahaha.
    http://finance.yahoo.com/news/lost-home-foreclosure-just-buy-155943739.html

    yet, I heard somewhere you got to ‘leave them laughing’, so here is a link, into the surreal!
    http://finance.yahoo.com/news/roll-royce-open-luxury-car-showroom-cambodia-110230045–finance.html
    cambodia, one of the poorest countries in the world, has been chosen, by legendary rolls-royce
    (legendarily EXPENSIVE), to open a new showroom there, so the peasants can buy royces!
    hahaha.
    i shit you not.
    http://finance.yahoo.com/news/roll-royce-open-luxury-car-showroom-cambodia-110230045–finance.html

    “it’s a strange strange world we live in…”

  • EVIL VLAD June 12, 2014, 5:11 am

    2 more months, and current ussa bullmarket, is greatest bullmarket, since 1929. oh boy.
    is day of reckoning gonna be, mighty big. biggest of all ussa time. make 1930, seem puny.
    and I can’t wait. for there are no more worthy to pay, big time, than ussa scumbag ‘superiors.’

    http://finance.yahoo.com/blogs/talking-numbers/we-are-about-to-enter-the-greatest-bull-market-in-85-years-225051152.html

    can’t wait to see you’ll in koncentration kamps. via yutube. but wait–you’re already there.

    &&&&&&

    All bet are off on 17622, Vlad. I’ve got a BIG story to break. RA

    • VILE VLAD June 13, 2014, 5:29 am

      ackerman, you rarely state something that blatant, of a ‘BIG STORY TO BREAK,’
      so I hope you don’t croak, before you break it. maybe it’ll match, your poison pill case.

      but here is further evidence, that ussa market ‘bull’ is winnowing to a spear’s sharp point,
      in unique constrictions, beyond probably anything ever seen, in ussa market’s, alltime.

      tiny buying volume, says goldman and jp morgan.
      individuals are buying. hedge funds are selling.
      greatest aaii bullish/bear spread, of alltime.
      smallest ratio of huge stocks holding up,
      while smaller stocks keep on dropping.
      and junk bonds, ever MORE desired.
      while debt– going to stratosphere.
      so borrow? WORLD’S MOTTO.

      the current ussa stockmarket makes the hindenberg appear to be a fine, safe airship.
      and what is most amazing of all, is that ussa market, is what is holding up the world!
      hahaha.

      ok. here are the links to back up what I say above.

      current bull-bear spread, a FORTY point differential, is the greatest of all time, year to year,
      easily surpassing 2000, and 2007, and probably also 1987, and also, importantly, 1929.
      so buy buy buy, no fear here! haha.
      http://finance.yahoo.com/blogs/talking-numbers/this-chart-shows-the-market-to-be–a-ticking-time-bomb-213658733.html

      s0 who’s holding up this utter fake market, beyond the totally corrupt, ussa fed reserve?
      well, it’s 2 folks. it’s corps., buying up their own stock, to hold up their stock prices,
      since their income has been dropping, for a few quarters; plus, those ever
      late suckers, individuals, the last to enter the party, and the first to be wiped out.
      http://wallstcheatsheet.com/business/whos-still-buying-stocks-near-record-highs.html/2/
      and do note big hedge funds have been major net stock sellers, for an entire year.

      now here is data amerikans ain’t as stupid as I thought—’cause they ain’t buying stocks.
      http://www.marketwatch.com/story/not-even-a-bull-market-can-interest-people-in-stocks-2014-06-05?dist=lcountdown/?link=instory

      and here is an utter young fool, praising the new ‘nifty fifty’, which are alone
      holding up this fool’s market, with ever narrowing leaders, and ever growing losers.
      “There is a massive divergence going on between the haves and have-nots, or the largest capitalization stocks and the rest of the equity market. As the table below indicates, the 50 largest stocks in the Russell 3000 are up 4.1% in 2014 while the average return for the rest of Index (51-3000) is -1.1%. Since the small cap index (Russell 2000) peaked back on March 4, the divergence has been starker, with the 50 largest stocks up 3.8% while the rest of the index is down -4.9%.”
      http://pensionpartners.com/blog/?p=360

      and here is goldman, jp morgan, shittybank (er, citibank), saying there will be
      many layoffs soon, since profits are falling bigtime, since near no one, is buying–
      http://www.bloomberg.com/news/2014-05-28/goldman-s-cohn-says-inactive-trading-environment-is-abnormal-.html?cmpid=yhoo.bottomline
      and–
      ‘thousands of jobs will be lost on wall street’
      http://blogs.marketwatch.com/thetell/2014/06/05/thousands-of-jobs-will-be-lost-on-wall-street-and-more-banking-reads/

      meanwhile, looks like cold weather, was not the sign of weak OVERpriced home sales–
      http://finance.yahoo.com/news/weak-home-sales-may-show-164300660.html

      and 60 yr market vet richard russell, now 90, sounds like me, except I call it, the ussa–
      “Richard Russell – Damn The U.S. Lies, Bullshit & Propaganda”
      http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/3/6_Richard_Russell_-_Damn_The_U.S._Lies,_Bullshit_%26_Propaganda.html

      and for humor, to warm cockles of host’s heart, here is a major, obamination refutation–
      http://www.marketoracle.co.uk/Article46032.html
      “Obamacare Obamination: This One-Act Tragedy Is Nothing But a Bill of Goods”

      &&&&&&&&&&&&&&&&&

      A pretty good round-up of timely. relevant stories, thanks. RA

      • Chuck June 13, 2014, 3:57 pm

        I have come to realize that the PTB can keep this system afloat as long as the USA is the innovator in technology and science, keeps being the country EVERYONE wants to live in (and or go to college), and the FED keeps up the ‘man behind the curtain’ act. The gullible American mind cannot fathom the truth on most things anyhow. Unless WE are attacked I don’t see much stopping the dog and pony show from continuing.

        Gold just sits there and looks at you, but stocks are the fuel behind getting people back to work and are truly an investment in civilization. Even Russian oligarchs have their money invested in our market.

        &&&&&&&&&

        You’re not using your imagination, Chuck, not at all. The truth will out no matter how stupid and gullible Americans are. As for Pax Americana, the jihadis have the ability to bring the day-to-day operations of American multinationals to a wrenching halt in a day. Or to stop the flow of Suez oil with one Stinger missile. Or to perpetrate another 9/11 with a radiological bomb.

        Meanwhile, the stock market and financial system are a house of cards, and the U.S. economy is relapsing back into The Great Recession as credit stimulus loses it ability to do much more than stimulate car sales.

        As to where the Russian oligarchs have parked their money, you know no more about this than the rest of. My guess is that it’s mostly in Switzerland, in the form of ingots. Or do we think these billionaires so stupid that Dow 17000 looks like good value to them? RA

      • VILE VLAD June 14, 2014, 1:56 am

        chuck,
        do not agree on most of the few things you say.

        1.
        “…can keep this system afloat as long as the USA is the innovator in technology and science…”

        ussa is not what it used to be, in terms of technical/scientific innovation.
        but I grant, it is still tops; yet, it is slipping further down, with each new generation,
        due to WORST H.S. education (drugged criminal ‘students’), of all 1st-world nations.

        2.
        “…can keep this system afloat as long as the USA… keeps being the country EVERYONE wants to live in…”

        you must be doing some serious peyote on this one, you live near new mejico?
        or, in rick’s state, mariguanero legal-weed colorado?

        haven’t you read that ussa citizens worlwide, are dumping their citizenship, in droves?
        and the only ones that want to move to you, are totally broke illegals, or big$ criminals?
        just ask mario (a.k.a. mickey), he knows all about how ussa offshore citizens, are GONE.

        3.
        “…can keep this system afloat as long as the USA… keeps being the country EVERYONE wants to… go to college)…”

        this one is even funnier. do you know WHY smart foreigners want a ussa univ. ‘education?’
        not because the ussa colleges provide better knowledge. they don’t. so thank liberals.
        it’s because of that framed PAPER on their wall. when they go back to their own country.

        for a degree from the ussa, still means something, in new world order, up-and-comer nations.
        besides, they are also going to the ussa, to steal all the already established, old ideas they can,
        plis to learn ‘the IN culture’, so when they get back home, they can pretend to be ‘inside.’

        I can go on and on, on this subject. like H.S. scores, worldwide, come in, year in year out,
        ussa h.s. punks, can’t remotely compete, with #1 asian nations, and #2 northern e.u.
        (of course, you do have that handicap in your scores, from those that only speak ‘ebonics’).

        4.
        “The gullible American mind cannot fathom the truth on most things anyhow.”

        now here I totally agree with you.

        5.
        “…stocks are the fuel behind getting people back to work and are truly an investment in civilization…”

        it’s definitely peyote, for there is no marijuana strong enough, for your hallucination above.

        “…stocks getting people back to work?” but wait, did you learn that in a ussa lib university?
        and buying OVERvalued, OVERleveraged, ussa stocks, “an investment in civilization?”
        damn, I gotta get me some of that great mayan peyote you are taking, does give great ideas.

        6.
        “Even Russian oligarchs have their money invested in our market.”

        and I see you like to leave them laughing, like a great standup comedian, deadpan style.
        hum. have you been reading about that little matter in the ukraine, going on for months?
        damn. must be greatest peyote ever. miss those day.

    • VILE VLAD June 14, 2014, 4:28 am

      just realized tonight, that greatest scam of all ussa time, is roosevelt denying ussa citizens,
      of owning gold. you had to turn it in, in 1933, or ten years in prison, if they found you out.
      and that decision was worse, than anything the fed has ever done, to you sucker citizens.
      watching ‘the sting’ now in worldwide tmc; best thing living about amerika, is turner’s tmc.
      4 greatest amerikans ever—jefferson, edison, poe—and dastarly turner, for creating tmc.
      but no doubt about it—greatest crime to ussa constitution, was roosevelt killing gold.
      why. because back then, in depression time, men would kill their mother, for ussa 10k$.
      but now, 10k$, are just pocket money, in ussa. still, 3rd world countries, will kill for them.
      so, moral of story—ussa’s fdr, killed the world. why. because he could. and ‘could,’ is all.
      and ever has been. and ever will be.
      and the movie stinks, not ‘stings.’ a 1-dimensional mickey mouse story. but, fdr’s crime,
      is all over the story, subliminally. and that’s where it’s inflationary greatness lies, in 1973.

  • Stephen G June 11, 2014, 5:15 am

    Anyone else agree that 16,970 was the DOW top? I suspected it would get oh so close to 17,000 without actually crossing. That would be a tragedy for the pumping airheads at CNBC wouldn’t it. Perhaps a double-top at 16,970-80 soon to really get them in a tizzy.

    • Troll June 11, 2014, 6:50 am

      How about Dow 19051.85 going back to the low in 1987? The pattern is a beauty and the midpoint activity confirms as much.

    • mario June 11, 2014, 12:37 pm

      The wry counter argument might be, “You don’t really think the Dow is going to get THAT close to 17000 one time without trying at least a couple more times before giving it up?”

      Cheers, Mario

  • mava June 10, 2014, 5:13 pm

    Actually, the High Frequency trading and algorithms, while they did remove the “old world” that Rick had drawn such a vivid picture of for us, are not all that bad.

    We might recall that the whole point of stock market is not in providing a whole lot of traders with income, but to allocate the available saved capital in the most efficient way possible. If , say, only one computer can do it, then why not funnel all the associated profit to whoever controls that one computer? What is that profit, by the way?

    I remember way way back in USSR, how the press, the government, and the “upright” citizenry hunted for the speculators. In their red-draped, vodka-burned brains the word speculator meant something dirty. The profit that the speculator was making, merely by buying in city A and selling in city B, was something that speculator had stolen from the people. What were they selling? let’s see, everything from nails to shoes. Nails, for instance, were in huge demand in city A, because the government sent all nails to city B, while the shoes were all sitting in city A store warehouse. In the absence of a free market pricing mechanism, there was no way to measure demand or allocate resources. The speculators were using their common sense and anecdotal information, to risk their own capital and right those imbalances. The total cost to the market, of doing the balancing act could be expressed as the profit of the speculator. Where the speculator was wrong, careless, or late, he paid immediate market fine and took losses. Some believe that it was not Leo Wanta in any case other than on coast-to-coast scene, nor Ronald Reagan, but the partial success of the police hunting down speculators that resulted in removing the only one feedback loop that the soviet non-market had, which brought it to a complete halt, just as Ludwig Von Mises predicted in his work, due to the absence of free market pricing resulting in absolute inefficiency.

    The problem that I see with big banks doing the efficient allocation of capital instead of bunch of small traders, is that I don’t think the banks will do it for real. What I mean by that is for the speculator to do his work, there must not only be a possibility of profit, but also a possibility of loss. Losses of a speculator have a dampening effect on economy, where future price development is hard to predict. Somebody has to take the risk, and usually, the producer does not want to take the risk, and generally, we do not want the producer to take the risk, because if he does, the we are all risking the productive capital the producer is risking, and that means we are risking the future output. So, many speculators will take parts of that risk, and some of them will turn out to be wrong. They will pay with their previous profits.

    Will the big banks pay with their capital if they are wrong? Or will the people be made to pay thru bailing out those big banks? Remember, the whole point of offering those quick profits to the traders is that they are easy money (when the trader is right), and they are GONE money when the trader is wrong! The trader is never bailed out. He is destroyed, or at least back to where he started. His previous profits or otherwise saved or borrowed capital is now spent, and that means that the economy had just used a little bit of it’s previously generated output to get over a particularly tough spot.

    But with the big banks, I worry that they will collect the easy money when they are right, but make the economy pay again when they are wrong.

    &&&&&&

    Even as they come under increasing scrutiny from the regulators, high frequency traders are slowly killing their own game, winnowing spreads down to the vanishing point and impelling the creation of alternative exchanges by firms like Fidelity who don’t fancy giving up a gazillion nickels and dimes to the algos. Meanwhile, the trade desks of even the biggest, savviest firms are no longer profitable.

    The defenders of high frequency trading (HFT) came out in droves in an attempt to rebut Michael Lewis’ withering criticism. Some of them are pretty smart, but their arguments still fall flat because 1) it cannot be claimed with a straight face that HFT improves liquidity if HFT constitutes (far) more than half of the total trading volume; and 2) the trades are not subject to risk. (High frequency traders can in fact move their orders out of harm’s way in the same zillionths of a second it takes to enter the orders.) Considering these facts, it surprises me that HFTs have not been shut down already. They eventually will be, but because they have friends in high places it will take time. RA

  • mario June 10, 2014, 3:59 pm

    Well, Best Buy is “doing well” and just increased its dividend by 12%, Spanish bond yields just dropped below U.S. bond yields while China land sales came to a standstill though its exports increased nicely and I hear copper dropped below key support…

    All’s right with the world, eh?

    Cheers, Mario

    • Rick Ackerman June 10, 2014, 4:31 pm

      I’ll fade all of those bets, Mario.

  • Rich June 10, 2014, 3:54 pm

    SPY JUN 21 2014 196.00 C – 09:49:55
    Bought to Open @ $0.74

    • Rich June 10, 2014, 10:13 pm

      SPY JUN 21 2014 196.00 C
      – 04:07:35

      Sold to Close @ $0.77

      QQQ JUN 13 2014 92.50 P – 04:09:18
      Bought to Open @ $0.25

      • Rich June 12, 2014, 6:58 pm

        QQQ JUN 13 2014 92.50 P – 12:53:12
        Sold to Close @ $0.39

      • Rich June 12, 2014, 7:04 pm

        High Reward/Risk Trade

        QQQ JUN 13 2014 92.50 C – 01:02:10
        Bought to Open @ $0.19

  • Stephen G June 10, 2014, 2:11 am

    And today…algos trading with other algos while Homo sapiens looks on, open-mouthed and catatonic, collecting a bonus for doing nothing.

  • Rich June 9, 2014, 11:26 pm

    Brings back the glory gory PCoast days, thanks Rick.
    Marvin used to guest lecture at our Stanford Options course.
    After training with a Big City wirehouse stockbroker on the institutional side in ’76, then moving to Silicon Valley for VC clients and deals, impressed by Blair’s and Roland’s Greeks, had the opportunity in ’87 to go to the CBOE with a successful market maker who was moving upstairs and hiring floor traders with his big bank.
    My wife did not want to move from Palo Alto noblesse oblige to Chicago freeze, so that did not happen.
    The rest was history, as 19 Oct 1987 Black Swan wiped most models out and one went to law school for solace if not recompense.
    Regulatory capture of unaudited/unregulated/unpunished algobot High Phreaque trading keeps most retail traders out of the markets nowadays, just
    like unenforced immigration laws keep many Americans un- or underemployed and endless warfare welfare sink the USS.
    A generation of traders burned in 2008-9 will not come back to play, even with free credit.
    How do you survive a hidden opponent who knows your book (positions) and has more capital?
    It’s like the alleged takedown of the Russian economy by Leo Wanta, using a rigged game.
    Firms are trading against their clients. The clients who figured it out bolted.
    LT value investors may survive until the next market plunge, but 99% of the biz will likely not return until the SEC cracks down on the Big Bad Boy CEOs with prison and someone writes another How to Buy Stocks bestseller.
    It may take a lot more CPI inflation, a lot less volume and more people willing to put bad guys away out of power.
    Obviously our Las Vegas campaign aims to hasten that day by returning accountable Constitutional government, not an easy task.
    In the meantime, we just switched our small caps for Treasuries today, still have XOM and RPMGF and will post any put trades here if no one objects.
    Regards All

  • Grebitus June 9, 2014, 8:33 pm

    Yes!
    Howie was a tour de force – –
    While I did discover my ‘hammer’ I knew the psychotic band of thieves in the DIA pit required more honey than hammering, hence my description of the game being ‘politics … and intimidation’.

    Love to know where all the market makers are now – –

    Yes, Lee M. was quite a personality, as were all the office booth managers . . . I didn’t know he held that grudge against you but it’s not a surprise.

    I left the floor in ’94 and oversaw risk upstairs. I bet I went back to the floor only 10 times after that before I retired in ’03. Don’t miss it – – but the memories are still fresh and fond as a step in my personal growth and ultimate career.

    Crazy MF’s – – reminded me of the old Raider’s.

    Ahhhh the old PSE – another gold mine of old fashion Americana, discovered and usurped by financial engineers – – relegating the original pioneers to the scraps!

  • Grebitus June 9, 2014, 6:10 pm

    That was fun to read Rick –

    I always wanted someone to chronicle the option floors during the early years.

    The PSE pits were the wild west back in the day. It was a game of politics and intimidation. Very few people played the game consistently well or made a career out of the business because of the difficulty of overcoming ego and keeping one’s initial success from going to their head. There was a large faction of traders who got caught up with the macho competition of carrying large deltas (large long / short psns). It was like a revolving door – – one day the trader was standing there, the next he was gone, having blown out and becoming another notch in the annals of the PSE of traders who thought carrying huge positions in the PSE’s wild west was the path to fame and fortune.

    I arrived at the PSE in ’78 with Merrill Lynch. I knew nothing – zilch – I was recruited by the options floor manager (Marvin Breen), who needed more floor brokers to handle the growth of the new option exchange in SF. I was tossed to the wolves – literally – to sink or swim with my new trading badge with little training in the wild, raucous trading pits. I had no clue and the market makers verbally abused me as I bounced from pit to pit trying to execute buy & sell retail orders for Merrill. I hit bottom when one market maker (Shill) called me an idiot and said ‘I hope your new kid dies before Christmas’. Whoaa – –

    I went back to my booth wondering what I had got myself into and a market maker friend and future partner (Brookshire) came up to me and said I needed to know that I ‘had the hammer’ and to use it . . . He meant, if I had the option order flow the market makers needed and I chose to ‘hear or not hear’ a market maker’s market response when I called for a market that in essence, I had the power if I had the balls to ignore a market maker who was going off on me. That changed everything – –

    I traded for Merrill for 4 years and finally jumped over to the market making side. It took me a year + to figure it out but when it clicked I was on my way. I had the luxury of sitting in the coffee room for countless mornings listening to the traders talk about their trading successes and issues and took great interest in the ‘theoretical’ traders who kept their greeks in line. Instead of swinging for the fences they hit singles and doubles every day and made bank. That was what I copied and went on to teach the traders we hired at our future trading firm.

    We just celebrated our 25th anniversary in Vegas of all places. The game has completely changed with electronic trading. We hire ‘math chips’ now – – 95% of our older traders are gone because of the demands in this new quantitative / algorithm based electronic trading environment. Instead of 80 traders we have 24 traders; one trader used to trade 12 issues back in the day – our traders on average trade 300+ issues today.

    The old days were great times for me and many others who learned discipline and control of your ‘greeks’ was the key to survival and great income if you were patient.
    I remember Rick Ackerman well – – he was disciplined, smart, patient and one of the few gentlemen on the floor. I think all that still comes thru in the work and market writing he does on this site.

    Thank you for the memories Rick – – we had it pretty good back in the day. I wouldn’t ‘trade’ those days for anything even though I’ll need a hearing aid sooner than most.

    &&&&&&

    And thank you, Bill, for refreshing my own memories and for your kind words. Concerning use of ‘the hammer,’ do you remember what happened when your then boss, Marvin, tried using it on a very tough new rookie, Howie Cousins. Howie returned the blow with a 50-pound sledgehammer — and pounded Marvin for months until he came to see things Howie’s way.

    I had a problem myself with a 350-pound, 6’4″ floor broker whose identity you’ll know. He came into my trading pit one Friday afternoon, three minutes before the final bell, to front-run an order for RTA calls placed by his employer, the late, great scumballs at Bear Stearns. Because Bear also happened to be Resorts International’s investment banker, I ratted them out to a friend at Barron’s, who wrote up this skullduggery for the edition out that weekend.

    Thereafter, whenever I was headed down an aisle where The Hulk was standing or waddling, he would try to block my path — and on one occasion tried to stab me with a sharpened pencil wielded surreptitiously at hip height. RA

  • J June 9, 2014, 9:14 am

    Nice one Rick. As Bacon points out in his book, profitable cycles will inevitably erode to unprofitable due to their own popularity.

  • mava June 9, 2014, 8:13 am

    Nice, Rick. I don’t know and/or understand the exact meaning of most of what you had mentioned here, because it is so trading specific, but I surely did enjoy your way with words. Brings up this strange feeling of quaint and old brown, yet deafening loud.

    Definitely enjoyed reading this. Thanks!