Dear Trader,
The day they put me on a badge at the American Stock Exchange (AMEX), floor slang for officially becoming a member who can trade on the exchange floor, still ranks as one of the coolest moments of my life. It was also completely crazy, in the best way possible.
Before you could become a member, you had to pass a physical. They had to make sure you were fit enough to stand in a pit all day. Mind you, I was a 23-year-old kid who had done Army ROTC, so I could knock out 80 push-ups in two minutes.
But the AMEX needed to be sure I was healthy. So I went to the physical, and magically, the one clinic every budding member had to use was the only place in the STATE of New York that took nothing but cash. I am sure there were others, but it sure felt that way.
Two hundred dollars and an hour later, cleared and healthy, I walked into the AMEX. They brought me up to a room they called the library. If this was a library, it was the world's smallest, about the size of a closet.
In the middle of the room sat a desk. On that desk was a book that looked about as old as the Book of Kells. The woman guiding me flipped to a page loaded with signatures, with just a few blank spaces left.
My friend and co-worker Tim Colby, now the head of Macro Trading at Option Pit, had signed the left side of that page. My spot was on the right. (Tim LOVES to remind me he got on a badge before I did.)
Then someone told me what that book actually was. Every member of the AMEX who ever traded, going all the way back to the beginning, had signed it. At its start the place was called the Curb Exchange, because the traders met on street corners to buy and sell shares.
That's when the gravity of it hit me. I was no longer a trainee or a clerk. I was a trader.
I headed down to the floor to get ready to enter my pit. I found the guy in charge of my training at Group 1's trading post, Ossama Fayek, though we all called him Saki. He gave me a couple pieces of advice.
- If someone challenges you on your markets, look at your screen and quote another exchange. (You do not need to know what that means.)
- This is the one that matters. If The Widow Maker, real first name Artie and one of the nicest guys off the floor you could ever meet, comes running into your pit wanting to trade, DON'T.
I was never once challenged on my markets. But I sure got to know Artie running into my pit to do a trade.
Early on, I sold him the bare minimum I was required to. And I never had a problem getting my hedge on afterward, buying or selling stock to cancel out the risk from the options I just traded.
Then I got bold. Artie came running in and yelled that he needed to sell the 60 dollar puts on Merck (MRK), contracts that pay off when the stock falls. Merck was trading around 52 dollars a share at the time.
Feeling VERY confident about a year in, I sold him 100 of them.
Before I could even look at my screen, the stock rallied over a dollar. The puts I figured I would make 10 cents on, which would have been about 1,000 bucks in my account, were suddenly losing 70 cents a contract. I had just blown 7,000 dollars.
That is when I learned something about the truly huge money. Goldman, Citigroup, and JP Morgan don't just think a stock is going to move. They know.
The next time he came in, I was ready. He ran in looking to sell deep in the money puts again, puts with a strike far above the stock price that move almost dollar for dollar with the shares. Before I even said "I'll buy 25," I had already bought 10,000 shares of the stock.
I lost on the put buy, sure. But the stock paid me a cool 5,000 dollars.
I never knew exactly what the traders he represented were sitting on. But they had it. And Artie's run-ins turned from a threat into an opportunity for me.
Cheating has been around a very long time. People who could take advantage of that cheating, without cheating themselves, did not exist until I built Wiretap. It's my service that trades WITH Artie instead of against him.
Voz and I are going live on Tuesday to show you exactly what we're doing.
Or you can join me right now and get in on my next trade Monday.
Your only option,
Mark Sebastian