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Trading the end of the world: The ’87 Crash by those who were there

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  • Trading the end of the world: The ’87 Crash by those who were there



    Trading the end of the world: The ’87 Crash by those who were there

    While the rest of the world sat back, the trading floor of the CME Group was bursting with trade. The big drop in the S&P helped push up the volume not only on the CME floor but also over at the NYSE, where volume leapt to 604 million shares from an average of 185 million shares a day.

    The VIX rallied from 18 to almost 155 and bonds jumped higher and gold jumped to almost $500. The floor and its inhabitants were being tested.
    The risk takers: floor locals and order fillers

    AACE James Charles Place


    Jimmy (James) C Place was either the largest or one of the largest order
    fillers in the S&P 500 futures’ history. I know, Brian and I worked the desk next to the pit and used AACE. It was wild times back then and Jimmy is right in what he said below; had some traders and order fillers not stepped up to the plate the ‘87 Crash could have been way worse.

    AACE-The crash of ‘87 was something not seen since 1929 … The sheer fright, pandemonium, and uncertainty of that day will forever be in the corners of my mind.

    While it seemed like the world was falling apart, a few of us brokers (many brokers refused to step in the pit during the chaos) in the S&P 500 pit kept the order as well as we could and kept filling the customers’ orders as they rolled in. To go along with us brokers were the handful of brave order desk employees & locals brave enough to take the other side of our orders as we frantically sought both the buy & sell side.

    We in the S&P handled it great..and soon order was restored in our markets. Looking back on it, we really didn’t have any idea of the magnitude of the situation in those few days, especially the crash. The personal risk and clearing firm risk was gigantic, could have ruined the lives of many forever, but we just did our job. That’s what we did & still do today.

    And the exchanges never gave us our credit or our due. If no one had stepped foot in that S&P pit that infamous day and taken care of business, the results would have been much more devastating. The S&P pit brokers, traders and order desks were the unheralded part of the business that John Q. Public never appreciated, nor did the exchange . “Danger was no stranger to the S&P Ranger, baby!”

    Most exciting day of my career, part of history. The crux of it [happened] the way I wrote it. Leo & the boys crucified us after that and tried to lay so much blame on us. We saved their ass.
    CMP Patrick Cambell


    CMP- I was 6 months fresh in the pits, still fighting to get a spot closer to a filling broker. I would arrive an hour before anyone else and stay in the pit all day, making sure my presence was noticed. There were more experienced, better funded traders in the pit.

    More established traders had their spots. Others would walk in and drop one of their trading cards on the floor, claiming their spot. This was where they intended to stand all day and those spots meant the probable difference of getting on a trade or not. It was against the Code of a Trader to move another guy’s card, but you could stand right next to the guy’s card.

    On the Friday before the famous Black Monday, the pit starting emptying earlier than usual. Markets were insanely crazy and getting closer to a broker was surprisingly easy that day. It was the 1st day I did more than a 1-lot.

    Back then the brokers had huge stacks of paper tickets, “decks” that they held in their hands. Most of the time they needed their clerks to hold the overflow and keep them in order.

    A broker named Bobby Toyama (TEE) sold me a 5-lot and looked away. My first thought was, did he trade with me? I asked everyone around me if they got the 5-lot. In my excitement I grabbed Bobby by his jacket and yelled, “Was it mine? Was it me – Was it me?”

    As I was shaking him and yelling, the deck flew out of his hand and spread on the floor between all the people crammed together. Immediately we got on our hands and knees, finding all the stray orders as the clerks were busy putting them back in order. Bobby was yelling, “Why did you do that?”

    Then Bobby said, “Yes, you were the 5-lot,” and told me to cover it.

    That was the only trade I made on the Friday before Black Monday. After I sold 5 and got flat I waited to find out what price I bought. Three hours after the the pit closed, Bobby asked where I sold my 5 lot.

    With the price I told him to the price he gave me, I made 10 ticks, $250. The next work day was Monday and because of my Friday experience I stood right in the middle of the lowest part of the pit.

    My 1st trade, I sold a 2 lot. It seemed like a no-brainer because the market was crashing. I sold a low and the market started racing higher and I scrambled to cover. When I wrote the price down, it took me a few minutes to figure out how bad it was. Three times all the same. Down 10k.

    My next trade, I bought a 2-lot and from the time it took to look at my card, write it down, then look up again, I was up 20k. I covered my trade and walked out of the pit and up to my office. There I ordered 5k cash, took a week off and went golfing in Scotland.

    The guy I stood next to started the same month I did. He stayed and made $80k …
    LID Joe Liddy


    [pullquote]After the close, I went to a restaurant on Randolph Street that I had an interest in and all the people there were drinking and partying like crazy and all I could think was, the world was ending—why didn’t they know about it?[/pullquote]LID – I had just started on the floor in August 1987, so I stood on the bottom step. It was packed that morning. As a new guy I was making about 3 trades a day.

    I came in short and there was a lot of fear in the eyes of fellow traders that morning. As the day wore on people were leaving the pit or being ordered to leave. It didn’t matter as it appeared that few were trading.

    By two o’clock, I was on the top step as no one was left in the middle. It didn’t matter because no one would trade with me. They didn’t know me and feared an out-trade or that I was with the FBI. Just as well, as I didn’t know whether to bid or offer.

    The bid/ask was one to two handles wide and even 5 handles at the extremes. The S&P contract at time was worth $500 per handle, so the spread was between $500 to $2,500 per contract and the price action was changing in the blink of an eye. For me, the risk management was impossible with such extreme volatility.

    I didn’t make a trade the whole day, which turned out to be an excellent strategy. There was so much risk that order fillers raised their rates to $10 per contract from $2.

    After the close, I went to a restaurant on Randolph Street that I had an interest in and all the people there were drinking and partying like crazy and all I could think was, the world was ending—why didn’t they know about it?

    Then came the finger-pointing as the New York Stock Exchange blamed the Chicago Mercantile Exchange futures traders for the market crashing and vice versa.

    Shortly after the stock market crash the portfolio insurance business fell off as the volume picked up in the treasuries. All the big traders went to trade the Eurodollars and would come back to trade the S&P following the Eurodollar close.
    DFL Danny Levin


    DFL- Being a new trader of only 2 years I was a little shocked, to say the least! A lot of selling started on Thursday and then tremendous selling on what is now termed Black Friday. In hindsight, I really did not have the experience to react.

    The weekend news sent shocks around the globe! If I’m correct there were no circuit breakers in effect, which is scary for all. I think the markets were then closed for days for all imbalances to be worked out!

    The market lost a lot of value but eventually recouped & all was good until 9/11.

    Adjectives best describing this 1987 crash are “scary, at a loss, amazement, & let’s get back to normal soon.”

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