PIT STORIES – A FOOL AND HIS (someone else’s) MONEY

PIT STORIES by Lewis Borsellino, is a collection of real-life experiences from the height of the CME trading-pits, during the time when the pit traders ruled the marketplace and directly managed orders from such customers as Merrill Lynch, Goldman Sachs, Bear Stearns, E.F. Hutton. Lewis Borsellino accounted for 10 percent of the average trading volume in the S&P contract, just for himself. Known as one of the “biggest and best” traders in S&P futures, these stories are being re-told exactly as they happened. *Disclaimer, if you are sensitive to language, this post isn’t for you.

It was a slow trading day and I was standing in the S&P 500 pit, not particularly busy. Mark, a phone clerk who worked for RB&H clearing firm popped his head into the pit and tapped me on the shoulder. I could sense he was nervous and hesitant to distract me from trading, but having known him for years, I knew if it wasn’t important, he wouldn’t bother me.

Mark: Hey Lew, you have a phone call at the desk.

Lewis: Is something wrong?

Mark signaled to come out of the pit so we could talk in private. I ducked under the top step trading post and walked out of the pit towards Mark.

Lewis: What’s up?

Mark: There is a detective from the Chicago police on the phone, he has called twice. The first time you weren’t in the pit and I told him I didn’t see you.

Lewis: Chicago police? I wonder what the fuck this is about. Did he say?

Mark: No but he said he was going to keep calling until he talks to you.

Lewis: Fuck it, is he on the phone now?

Mark: yes

I walked over the RB&H trading booth and picked up the phone…  hello…

The cop had the typical Chicago south-side Irish accent, a combination of detective and tough guy attitude.

Detective McMahon: Is this Mr. Lewis Borsellino?

Lewis: Yes, how can I help you?

Detective McMahon: This is detective John McMahon with the Chicago Police Area 1 Financial Crimes Division. Do you mind if I ask you a few questions?

Lewis: Sure, go ahead.

Detective McMahon: Mr. Borsellino, have you been in a terrible car accident in the last year?

Lewis: No I haven’t been in a car accident since prom, my senior year, 20 years ago.

Detective McMahon: Were you in the hospital more importantly, did you have a head trauma which caused you to be in a coma?

Lewis: No, no head trauma, no hospital, no coma.

Detective McMahon: Do you have a trading relationship with a company named Short Term capital management out of Tampa Bay Florida?

Lewis: That doesn’t ring a bell.

Detective McMahon: How about a gentleman by the name, Mark Thorsen? Do you know him?

Lewis: No, I never heard of the guy, Detective should I get an attorney? How many more questions do you have?

Detective McMahon: No, you’re ok, look do me a favor and call detective Charlie Stone at the Tampa Bay Police department, let me give you his number.

Lewis: Hold on, let me get a pen. (I put the phone on my shoulder to take out a trading card and prepared to write the number down.) Go ahead; I’m ready… what’s the number?

Detective McMahon: 555-555-5555 Detective Charlie Stone, Tampa Bay police, he’s waiting for your call.

Lewis: Ok, I got it, thanks.

Detective McMahon: No problem, thank you.

I hung up the phone and looked at Mark.

Mark: Everything OK?

Lewis: Yes, he wanted to know if I was in a car accident and in a coma for the last year.

Mark: Wow, that’s fuckin’ weird!!

Lewis: The way I have been trading lately, I wish I was in a fuckin’ coma. At least I wouldn’t be losing money!!!

Mark: The market has been so slow we aren’t doing any business, more and more on the fuckin’ e-mini machine. I will be looking for a new job soon.

Lewis: So will I! Let me call this guy and see what’s up.

Mark dialed the phone and stepped aside so I could sit at the desk and talk privately…

Voice on phone: Hello Detective Stone speaking.

Lewis: Detective Stone, this is Lewis Borsellino calling from Chicago. What can I do for you?

Detective Stone: Mr. Borsellino, thank you for calling, would you mind if I ask you a few questions?

Lewis: No, go ahead…

Detective Stone: (Starts with the same line of questioning as the Chicago police) Mr. Borsellino, have you been in a car accident and suffered trauma to your head which caused you to be in a coma for the last six months?

Lewis: I told the Chicago Detective no. No accident. No coma!

Detective Stone: I am sorry; I have just a few more questions…

Lewis: OK

Detective Stone: Do you know a Mark Thorsen who runs a trading company named Short Term Capital Management:

Lewis: No. Like I told the Chicago police the company and the owners name does not ring a bell. What do they trade? Stocks or commodities?

Detective Stone: I am not sure, could be both, but I am not sure.

Lewis: Well all I trade are stock futures not individual stocks.

Detective Stone: Ok Mr. Borsellino. You wrote a book: The Day Trader from the Pit to the PC?

Lewis: Yes, I wrote that book.

Detective Stone: Do you know how Mark Thorsen would have a signed copy of your book addressed to him?

Lewis: Addressed to him? What do you mean by that? Like I mailed it to him?

Detective Stone: No no, inside the cover, you signed the book… hold on, let me read what it says…( I can hear tussling of the papers…) Mr. Borsellino, can you hear me?

Lewis: yes, I can hear you detective.

Detective Stone: Ok, it reads the following… Mark, Good Luck with your trading, nice meeting you. Best wishes, Lewis Borsellino

Lewis: Detective, how do you know if I signed the book? Not to be difficult but that book sold 75 thousand copies! Anyone could have signed that book.

Detective Stone: Yes, of course you’re right but we have to check out his story.

Lewis: Detective let’s assume I did sign the book, in the last 5 years I have been to 50 trade shows. Seriously I could have signed a thousand books with the same sort of wording. I have no idea who this guy is.

Detective Stone: That’s what we figured but we have to check out all the leads!!!

Lewis: Can you tell me what is going on? Maybe I can help you.

Detective Stone: Apparently, Mark Thorsen started a company called Short Term Capital Management. He was showing your book to potential investors and implying you were the trader and he and you were partners.

Lewis: You’re kidding! I don’t remember this guy… how much money did he raise?

Detective Stone: It appears to be like $600,000.

Lewis: Wow! $600,000!!! Can I ask you a question?

Detective Stone: Sure

Lewis: Why are you asking me about being in a car accident and a coma?

Detective Stone: Oh well, several of the investors started asking for their money back. He said he goes to Chicago once a month to meet with you but six months ago you had a bad car accident and you’re in a coma and all the accounts are frozen.

Lewis: You have to be kidding me! That’s telling me all the money’s gone! He either lost it or spent it!!!

Detective Stone: I think you’re correct. We’ve been tracing the money… looks like he bought a new boat, a new car and at least $50,000 went to the strip clubs!!!

Lewis: That’s terrible! Well I definitely don’t know this guy. I hope I helped you!

Detective Stone: Mr. Borsellino, you were a big help, thanks for calling me! Sorry to have bothered you.

Lewis: No problem, if you need me, you know where to find me!

Detective Stone: I don’t think we need to talk to you anymore! Bye.

Lewis: Bye.

PIT STORIES – THE FRIDAY BEFORE BLACK MONDAY

New Series! PIT STORIES by Lewis Borsellino, is a collection of real-life experiences from the height of the CME trading-pits, during the time when the pit traders ruled the marketplace and directly managed orders from such customers as Merrill Lynch, Goldman Sachs, Bear Stearns, E.F. Hutton. Lewis Borsellino accounted for 10 percent of the average trading volume in the S&P contract, just for himself. Known as one of the “biggest and best” traders in S&P futures, these stories are being re-told exactly as they happened. *Disclaimer, if you are sensitive to language or political correctness, this post isn’t for you.

On October 16, 1987, the Friday before Black Monday, I was waiting to board a plane headed for Europe with 7 friends and business colleagues. I had been to the CME trading floor and traded until noon.  I left the exchange short 20 big S&P contracts with profits of $125,000.  A limousine drove me to O’Hare International Airport terminal…

The following conversation took place at the gate and was between my clerk, Joan Weber and myself, as I explained how to manage my position. Keep in mind, not many people had cell phones and they certainly were not used to the language or volume coming out of my mouth… yet I was oblivious to my surroundings… nor did I give a fuck.

Lewis:  Joanie, where is the market at? Did I get stopped out of the shorts?

Joanie:  You’re not going to fucking believe it, since you left for the airport the market is down another 1000 points, 500 points from limit down.

Lewis:  You’re fucking kidding!!!!! What’s limit down, 2500?

Joanie:  Yes, 2500… it’s fucking crazy!!!!

Lewis:  How much money am I up?

Joanie:  $200,000

Lewis:  If I get out at limit down, how much?

Joanie: $250,000

Lewis: Did the two numb nuts and Jap check all our trades?

Joanie: Yes everything is checked, the first out trade run came out we have a few price outs but no strait outs.

Lewis:  You’re sure?

Joanie:  Yes

Lewis:   Ok, I will be on the plane and I fucking can’t call you. Put a buy stop at 2400.00 OCO limit down or market on close.  I don’t want to hold them over the weekend. Market will probably bounce back big on Monday!!!! When we land in New York I will call you.

Joanie:  Ok limit down or MOC? Or 2400?

Lewis:  Yea, worst case scenario we make $75,000K.  Make sure I am flat… anything can happen over the weekend, probably big bounce on Monday!!!

Joanie:  Yea, I think your right. Ok what should I do with you’re Euro dollar options?

Lewis:   Fuck those options, they aren’t worth dick!!  I am long the 1000/ 94.00 calls the market is trading 92.50.  They’re going to expire next week worthless!!  I am going to lose 25k on that Maury Kravitz play!!!

Joanie:  They’re worth a $1,000… You get a grand back.

Lewis:  Fuck it, let them expire. Maury and his bright fucking ideas, I love him!!! But I think he is cracking up, he is fucking nuts.  Yesterday he told me he is going to fucking Mongolia and look for Genghis Khans’ fucking tomb with Chuck Connors.

Joanie:  Who is Chuck Connors?

Lewis:  You know the big fuckin’ goofy actor with the big jaw who played the Riflemen on TV.

Joanie:  How does he know him?

Lewis:  Fuck if I know.  Look, make sure you cover the shorts… I think the market can have a big rally Monday.

Joanie:  Don’t worry I got it!! How many fucking times you going to tell Me!!!

Lewis:  I know. I know  Well  it’s not like I’m going around the fucking corner,  I will be in fucking Europe!!! Maybe I should cancel this fucking trip… the market is crazy? The fucking market is getting killed it’s down almost 10% on the week.

Joanie:  Let me know I have to cancel my plans.

Lewis:  Ah, fuck it!!  I’m up 2 million on the year I’m going to Switzerland and Italy, I’ve never been to Europe.  Where you going?

Joanie:  Going to see my parents in Arizona.

Lewis:  Ok enjoy yourself.

Joanie:  What should I do with the clerks?

Lewis:  Pay them and give them the week off.

Joanie:  Have fun and be a good boy!!!

Lewis:  You know me I am always good!!!

Joanie:  Yea, I know you…

Lewis:  Love you Joanie

Joanie:  Love you too!!!

Danny:  Hey Lewis the plane is boarding

Lewis:  Ok I’m coming

Lewis:   Joanie, you have you cell phone in case I have to find you?

Joanie: Yea

Lewis:  Ok bye

Danny:  Everything ok?

Lewis:  The fucking stock market is getting killed again today.

Danny:  Is that bad for you?

Lewis:  Fuck no! I am up 200,000k… its going to be a great trip.

Danny: Fuck it… let’s have some fun!!!

 

FOLLOWING THE AUCTION – Supply and Demand

This week in Following the Auction we’re taking an interesting look at Supply and Demand and how it affects the auction.

Valentine’s Day weekend deserves a little attention as it drives sales at Hallmark, 1-800-flowers, and Godiva Chocolate, traditionally. This year however, there’s a new trend that’s driving sales and it’s not for chocolate unless it’s in the form of body paint. This Valentine’s Day saw the release of the long… hotly awaited… Fifty Shades of Grey. The movie is notable for its explicitly erotic scenes featuring elements of sexual practices involving bondage/discipline, dominance/submission, and sadism/masochism. Hollywood, like the market is a profit machine. The book got Hollywood’s attention due to it’s erotic nature yet ever growing popularity with public audiences.  The book came out in June of 2012, 2 months later it had grossed almost half a billion in sales.

So it should come as no surprise that demand is up! Leading into this Valentine’s Day, the movie primed the pump, so to speak and sex-toy sales have skyrocketed! Britain’s sex toy sales are up 25% coming into this traditional ‘candy / flower’ day. Surprise or no  Mississippi led the way in U.S. presales of the “Fifty Shades of Grey” film. So these much talked about books turned popular movie has opened the door to mainstreets  roaring demand for sex toys… even Target, the store that boasts ‘Our mission is to make Target the preferred shopping destination… by consistently fulfilling our… Expect More… brand promise. Ah, thank you Target for making my Valentine’s Day shopping easier!

Much like Hollywood… the Market had an exciting day last Friday when the bulls showed the bears who holds the riding crop. The candlestick day-session-only chart below shows all of 2014 and ends Friday 2/13/15. Each triangle shows a swing high/swing low move starting from the low of the year, 1702.75 to 2088.75, the high of the year. Several Fibonacci extensions from these swings intersect as shown on the chart, click to enlarge.

Notice what happened each time the market made a new high. Not many days go by before there’s some long liquidation and a new swing low eventually is created. I would never suggest getting in front of an auction that’s trending that doesn’t show excess and additionally has just broken out of a 6-week balance . However, successful day-traders carry forward poor structure below current price, so they can recognize early in a session that an uptrend reversal can lead to extreme long liquidation, perhaps not today but in a future session.  It is important to recognize so that the trader positions himself with the liquidation instead of waiting at support levels to jump in front of the knife. Put those handcuffs on!

With the value of the dollar also at highs there’s speculation that US stocks are under pressure.  Lower crude oil prices have also taken a toll, not yet complete, on energy stocks and other sectors too.  Yet Apple’s on new highs with lots of attention on – going solar and creating a car to compete with Tesla! To add a broader perspective,  Ana Patricia Botin,  chairman of the board of Banco Santander, representing the banking world globally, made a pretty bullish statement during the 2015 World Economic Forum that ended last weekend. At the same time discussing reaching parity between the USD and the EU currency, she also said, “America is an emerging market in terms of growth and has strong institutions and that’s quite unbeatable.”  So bullish even with the dollar at current prices.

So here we are at New Highs and we’re all pretty excited about giving the bears a good whipping. I’m just suggesting, now that we’ve made the higher high… don’t forget to watch your backside.  As futures traders we’re loving it. New Highs? Yeah baby!     WAAAAPISHHHHHH!!!

Don’t forget President’s Day has the market closing early at 12:00 pm CT on Monday, 2/16/15. Join us for Free, sign-up, or else! We promise to provide you with our best toys… the Bull/Bear line and the MOM bias, Lewis’s MOM twitter feed…  are in Demand so don’t get left out of the excitment. Pat Tabet, Charles Cochran and Lewis Borsellino will lube your market day with actionable updates!

As always, i want you to be a smarter trader…  or else… WAAAAPISHHHHHH!!!

 

 

 

Following the Auction – Institutional

This week in Following the Auction, we’ll take a look at recent price decline in crude oil and some of the reasons why economists believe it’s happening. Additionally it’s a great way to show the results of Institutional trading.

From our Glossary, Institutional: We often refer to institutional trading as trading activity directed by large commercial players. Institutions make large trades that can affect the markets. Institutional trading is sometimes termed “smart money” trading.

So why has ‘smart money’ been selling oil and oils stocks? Looking at recent articles concerning the decline, economists point to several factors.

• Cars are becoming more fuel efficient.
• More baby-boomers retire and drive less.
• Millennials are migrating to cities and using public transportation more.
• Americans are increasing usage of wind and solar power.
• U.S. production is up.

All these long-term factors have had crude on the decline since June of this year when price topped $100 a barrel so why has it suddenly become so important? Let’s look at the weekly crude chart going back to the middle of 2006, just to get some perspective.

Below is a closer look at the same chart. Note price has blown past the 200% extension at 59.45. The week of 11/21 held some promise with a doji and possible reversal, however the last 3 weeks have seen crude violate some critical support levels, reaching new lows.

 And finally, what effect has this had on the S&P? Below see crude and the S&P last week, the insert is the S&P 500  Finviz.com Heat map focused on the Basic Materials sector. This is a good example of how the week progressed.

What’s on deck next week leading into Christmas while traders are expecting the Christmas Rally? Oh Santa… where are you???

Check in early Monday for all the news and updates from Man Over Market! And remember…. trade smarter, not more often!