The following is another story as originally posted over at “Where Is Beeks?“, a new venture from our friend Kevin Muir, who writes the popular “Macro Tourist” daily letter.
As a reminder, these are stories from a time when trading was done by carbon-based lifeforms (i.e. humans), as opposed to T-800s that may or may not become self-aware and kill us all one day in a fit of flash crashing madness.
Via WIB, by Tony and republished here with permission
It was one of Lirty’s first few weeks in the trading pits as a local. He had spent six months on the phone for Goldman Sachs in natural gas. They moved him upstairs. He wanted to be a floor guy so badly, he left the firm to go trade his own account. Lirty did his time as a clerk and learned how the big boys did it. He knew who all the big paper brokers and locals were if he needed liquidity, and more importantly, they all knew and liked Lirty. If you weren’t known and liked on the floor, you didn’t get the same liquidity as everyone else. It was that simple.
Lirty had been punting around a 5 or 10 lot (futures contract) position in the ring. A 10-contract position in natural gas was easy to manage, costing or making you $500 from your average cost. If God forbid your position got away from you and you lost a dime, that was $5,000. It’s not to say $5,000 grand wasn’t a lot of money, but you could lose $5,000 grand and come back and trade the next day. If you had a 100 lot on and lost a dime, that was $50,000. Your prime broker might have you take a knee or worse, they could shut you down until you wrote another margin check.
Lirty came in on a Friday morning and did his usual market homework over an onion bagel with cream cheese and a coffee. He’d been out the night before and was feeling partially loose, partially nauseous, and partially reckless. He was loose because his pickup basketball team at Chelsea Piers ran the table of 5 games the night before, nauseous because he went out for Mexican and tequila shots afterward and reckless because he did 9 of them and got in a fight with his girlfriend because he wreaked of tacos and cigarettes when he got home. Another day in the life of a local…except on this particular morning a big trade lined up.
Lirty said he was staying out of trouble and not trading anything bigger than a 10 lot until natural gas got to $2.50 or $2.80. Anything in between was No Man’s Land. Before he knew it that morning, the bell had rung, he was getting pushed around and frustrated at missing eye contact trades with other brokers and suddenly, his LEAST favorite broker walked into the fray and bid:
“$2.7900 for 100!”
“SOLD 100!” Lirty couldn’t take it anymore. He had to do something meaningful to let the demons out and now he was short 100 lots at $2.79 and the whole ring leaning on huge resistance and a JP Morgan sell order at $2.8000. With a 100-lot position he was risking $5,000 every penny. When he calculated how expensive it would be to cover the short at $2.8100 or $2.8200, he started sweating Anejo bullets.
And just as the hectic trading frenzy cooled down and the ring settled into a prolonged bubbling period.
$2.7850 bid at $2.7900. $2.7900 bid at $2.7950. Back and forth for what seemed like hours, but it was only 10 minutes. Lirty was sweating and belching. Using the toilet was not an option with a 100-lot position on so he had to sit tight.
Finally, Dukey, a 6’6” Irish broker for EDF Mann, one of the biggest trading shops in the ring, stepped up to the top step and used his 11’ wingspan to ask, “HOW’S DEC!?!?” with his arms out wide.
JP Morgan jumped up and offered his 500 contracts at “0”, or $2.8000. Dean Witter bid $2.7800 for 100 and Morgan Stanley was bidding $2.7700 behind him for 200 lots. Lirty was thinking, if Dukey takes the $2.80’s, I cover immediately. If Dukey hits the 2.7800’s, Lirty would bid Dukey that price for his contracts, hope Dukey sold them to him, and Lirty would book the $5,000 profit.
Dukey used his 11’ wingspan to start wrecking bids and taking names. Lirty was infinitely relieved and just started bidding the bid for 100 contracts right in Dukey’s face so Dukey would hit him and flatten out the position. Only Dukey ignored him and kept selling.
He sold the 100 at $2.7800 to Dean Witter, he sold the 200 at $2.7700 to Morgan Stanley with Lirty bidding $2.7700 and he just kept selling.
The market was going lower, but Lirty couldn’t get hit by the seller. “AT SIX!”, or $2.7600, Dukey shouted, looking around the ring for another bid to smash, ignoring Lirty. At this point, if Dukey’s selling dried up, natural gas could float back up to 2.7900 and he would give back the $15,000 paper profit dangling in his face.
As Dukey smashed another round of bids at $2.7500, he started doing obvious quick math on his cards. He coolly leaned into the ring sold 100 lots to Lirty at $2.7500, 47 to Pete Columbia, 36 to Nutsy Ryan, 18 to Paulie Short, a dozen to Kevin Llewellyn, and even remembered to sell a 3-lot to the options clerk Karen. That was Dukey doing the right thing, saving the last and cheapest of his sell order to feed the locals and take them out of their positions in unbelievably cool, calculated style.
Lirty was so ecstatic and flabbergasted he couldn’t see straight. He was sweating a potential $10K or $15K loss above $2.800. Dukey walked the order down and filled him in at $2.7500 for a nice round $20,000 profit and everything worked out beautifully.
Lirty couldn’t wait until the day was over to thank Dukey profusely for what he did.
“You’re the MAN Dukey, I don’t know how you didn’t see me bidding $2.7700…or $2.7600! Good GOD that was hairy.”
“I saw ya.” Dukey tipped out the door of the exchange for two tall cool Bud cans on the train home. Just like every night.
