The Day Trader: From the Pit to the PC - Softcover

Über die Autorin bzw. den Autor

LEWIS J. BORSELLINO is the top S&P futures trader in the United States, with a career that has spanned nearly twenty years. His long-term success puts him into the trading pantheon that features such luminaries as Paul Tudor Jones, Victor Niederhoffer, and bond trader Tom Baldwin. Borsellino is a frequent guest commentator on CNN-FN and CNBC, where he is regarded as the "biggest and best trader" in S&Ps. He is also the founder of www.TeachTrade.com, a Web site that provides education and dynamic market commentary for traders.
PATRICIA CRISAFULLI COMMINS is a freelance business writer and former correspondent for Reuters America Inc. She has also written for the Christian Science Monitor and the Wall Street Journal.

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Praise for The Day Trader

"A legendary S&P floor trader has written a powerful, brutally honest chronicle of his determined rise to the top of his profession. Touching and insightful, this riveting account is one of the best trading memoirs ever."--NELSON FREEBURG, PUBLISHER, FORMULA RESEARCH

"The Day Trader provides a rare look into the events that shaped the extraordinary character of one of the most unique people to ever put on a trading jacket . . . it comes as no surprise that Borsellino places himself at the center of the maelstrom surrounding electronic trading versus open outcry and provides a truly balanced, intelligent, and unemotional view of the momentous transformation occurring in the financial markets. It is imperative that anyone involved in trading the markets--either traditionally or electronically--read this story and benefit from the insights of one of the great traders of our lifetime."--MARIO ALBERICO, FORMER SENIOR VICE PRESIDENT, ELECTRONIC TRADING, CHICAGO MERCANTILE EXCHANGE

"The Day Trader is must reading for anyone in the market. Lewis Borsellino is an Italian American hero who climbed the mountain with guts and honor. The neighborhood kid will always remember where he came from."--DOMINIC DI FRISCO, PRESIDENT EMERITUS, JOINT CIVIC COMMITTEE OF ITALIAN AMERICANS

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Praise for The Day Trader

"A legendary S&P floor trader has written a powerful, brutally honest chronicle of his determined rise to the top of his profession. Touching and insightful, this riveting account is one of the best trading memoirs ever."--NELSON FREEBURG, PUBLISHER, FORMULA RESEARCH

"The Day Trader provides a rare look into the events that shaped the extraordinary character of one of the most unique people to ever put on a trading jacket . . . it comes as no surprise that Borsellino places himself at the center of the maelstrom surrounding electronic trading versus open outcry and provides a truly balanced, intelligent, and unemotional view of the momentous transformation occurring in the financial markets. It is imperative that anyone involved in trading the markets--either traditionally or electronically--read this story and benefit from the insights of one of the great traders of our lifetime."--MARIO ALBERICO, FORMER SENIOR VICE PRESIDENT, ELECTRONIC TRADING, CHICAGO MERCANTILE EXCHANGE

"The Day Trader is must reading for anyone in the market. Lewis Borsellino is an Italian American hero who climbed the mountain with guts and honor. The neighborhood kid will always remember where he came from."--DOMINIC DI FRISCO, PRESIDENT EMERITUS, JOINT CIVIC COMMITTEE OF ITALIAN AMERICANS

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Chapter 1: High Times

I was nowhere near the trading pit on Black Monday. I was out of Chicago, out of the country and, at that moment, out of touch with the market. It was late in the afternoon on October 19, 1987, when I stepped into the Piaget store in Zurich, Switzerland, to buy a watch. The salesman behind the counter was a middle-aged Swiss man, as conservatively dressed as any banker I had seen on the Bahnhofstrasse in Zurich's financial district. He laid four watches on a black velvet cushion and waited while I looked them over. I glanced up from the watches at an electronic sign outside a bank. I don't read German, but could still figure out what the sign said. The Dow Jones Industrial Average was off 500 points.

"That must be broken," I said to the salesman, gesturing toward the sign on the bank. I picked up one of the watches for a closer look.

"No, sir," the salesman said quietly in his clipped Swiss accent. "The U. S. stock market crashed today."

All the color drained out of my face. I threw the watch at the salesman and ran for the door. "Sir, don't you want the watch?" he asked, confused by my behavior.

"Forget the watch," I yelled back. "I've got to get back to Chicago."

Back at my hotel, the message light on my telephone flashed ominously. There were messages from my wife and my brother, repeating what the clerk in the watch store had told me. The stock market had crashed.

My first trip to Europe was cut short. There were seven of us-all businessmen, and I was the youngest at 30-on a 10-day excursion to Europe for rest and a little relaxation. We had left the previous Friday afternoon bound for Italy then Switzerland. I was short 25 Standard &Poor's 500 Stock Index futures (S&P) contracts when I got on a plane from Chicago to New York on Friday afternoon, but had left an order to fill them at the close. By the time I arrived in New York for my trans-Atlantic flight, I had made $250,000 on that trade. I was already up $2 million for the year. It was going to be a great trip.

After a weekend in Italy, we arrived in Zurich. I was staying in the Beau Rivage Hotel, the best of the five-star hotels in Zurich. My mind was admittedly on leisure and not on business when I walked into that watch store. When I left moments later, all I could think about was getting back into the trading pit as fast as I could. On Tuesday morning, I caught a flight to London where I hoped to get the Concorde to New York. To my amazement, the flight was full and I had to go standby-to the tune of $5,000 for a one-way ticket. But even that sky-high price was worth the investment to get me back to the trading pits where, in the wake of the biggest single-day decline in the stock market, opportunity awaited me.

I was so antsy on that three-hour flight to New York that I couldn't even enjoy the fact that I was on the Concorde for the first time. My focus was getting back to that trading pit where, I imagined, the S&Ps would probably rebound after Monday's sharp drop. But there was another pressing issue on my mind-something that only I could handle. I had 1,000 eurodollar call options, giving me the right to be long eurodollars at 94.00, which I had bought for $25,000 about two and a half months before. My reasons for buying the options were twofold: I wanted to become more familiar with options, which were fairly new to me. And, in this instance, the 94 calls would be very valuable should there be a cut in short-term interest rates.

As a futures trader, specializing in the Standard &Poor's 500 Stock Index contract at the Chicago Mercantile Exchange, I wanted to learn more about options. The interesting thing about options is that they give the holder the right-but not the obligation-to take a position in the futures market in return from a premium. Options carry a particular exercise, or strike, price. The closer the strike price is to the market, the more valuable the option (and the higher the premium). The farther away the strike price is from the market, the less valuable the option.

There are several diverse and complex strategies to trade futures and options together, and I had begun to dabble in them. The first time was in cattle options. I had the idea that cattle prices were going up, based in part on what I heard from a friend in the wholesale meat business. I decided to buy calls-2,000 of them-for about $25,000, gaining the right to be long cattle futures at 65.00 cents. Just as I had hoped, the market rose steadily until cattle prices were just 0.20 cent away from my strike price. If only I knew then what I know now. I would have sold futures when the market was at 64.80. If I pursued that strategy then, if prices rose, I'd be long cattle at 65 by exercising the call options. If prices fell, I'd be short from 64.80. My only risk was that 20-point differential between the call options and the futures price. That amounted to about a $61,000 investment-the cost of the options and my exposure on the futures trade-which would have been more than offset by the money I could have made on the trade.

Instead, I held onto my options, thinking that my 65 strike price was going to be hit. Then, the U. S. Department of Agriculture came out with a report that indicated a larger supply of cattle than previously estimated. Cattle price went limit down for five days, and my options expired worthless. If only...