Hey Guys, What's Here?

A Blog About A Pit And A Trade, And Learning A Lesson

When I was perusing Twitter I saw this video put up by Matt Kenah (PAX). He traded on the floors too. Yours truly makes an appearance at around 5:24. This was when everyone started to leave the financial pits and come to the agriculture pits since the financial pits went to the screen. If I had to guess in this video I probably had 200-500ish spreads on and probably had an outright position of 10-100 contracts. I was a midsize hog trader.

People seem to like old trading pit stories so I thought I would start to sprinkle in a few. It’s good for my memory and it helps my writing.

Living daily in the pits meant that you had to get along with people. If you look at that video, there are guys in it that are worth $50MM or more standing right next to guys that are worth less than $500k. Liberals, conservatives, and all types. All ages. Educated and uneducated. Some were born with a silver spoon in their mouth and others were not. Some were born with a horseshoe firmly implanted up their ass.

The only real commonality is no one could be employed by a traditional employer. No corporate people down there.

There were some HUGE traders in that pit that took a lot of risk. Every pit had its big traders, but in the hogs, it was just different. I had known one of them since my first day on the floor. He went from runner to phone clerk and built a fantastic business. We were not friends in the end but I respected him immensely.

When I say huge, I mean huge. Some of these guys had balls bigger than Manhattan. We’d read about traders and hedgies doing some crazy stuff but it was always with other people’s money. OPM existed on the Chicago floors but mostly it didn’t.

Imagine trading an illiquid market with a couple of thousand spreads on. Your risk was only a meager $4 per tick. Just a mere bag of shells right? Of course, the market could easily move 100 points in a day so it was big money. By the way, no customers. It was our own money like you have in your checking account.

I always joked somedays my wife shopped shamelessly at Hermes but sometimes she went to Walmart. How’d you like to be on the hook for a potential $100k swing every day? Could you sleep at night?

You can see from the headsets in the video that the CME was paying guys to take liquidity out of the pits and put it on the screen. Eventually, the Ags would have gone to the screen but the liquidity sappers made it go faster. The corporate suits didn’t really want to let the market speak.

The video reminded me of a pit trading story. I won’t mention names or badges to protect the innocent and the jerks. In one case, I do mention a badge and some names but I don’t think he will mind. If he reads this, he might even put a story of his own in the comments.

My first foray into the Hog Pit ($HE_F) was around the summer of 1996. The Eurodollars were flat dead and I had to find something to do. I think that year the Euros ($GE_F) had a 50-point range for the entire year. That’s hard on a spreader which I was. No volatility means we are eating beans and not beef at home.

I’d go to the Euros on the open and try and eek out a living then go to the Hogs on the open and trade there. Brett Carl (BRC) gave me the idea. He was a second-generation member. His uncle was Howie Carl and had been in the Hogs. Howie played for Ray Meyer and still has the record for most points scored at DePaul. If you have ever heard of the amusement park Riverview, Howie would go there and swish all kinds of shots through the rigged baskets they had there driving the carnival barkers nuts. I think he was so good they offered him a job there. Brett’s dad was a nice guy named Sam Carl. Sam played at Iowa.

If you were never on a trading floor it is hard to describe but I will try. There was nuance everywhere.

The opening in the hogs was significantly different than financial futures contracts. The financial complex traded 24/7. In those days, London would trade Eurodollars and the book would get passed to Chicago and then to Singapore. We’d walk in around 6 AM for a 7:20 AM open but we had a very very good idea where the market would trade on the open.

In the hogs, they traded from 9:10 AM to 1 PM. No overnight. That’s it. When the market closed you were wearing whatever position you had on. Oh, and another thing that was unique. In financial markets, market-moving numbers came out while we were trading. In Ag markets, everything meaningful that could move the market would come out after the close and you couldn’t do a thing about it.

One time the pig crop number came out when I was on the golf course. It wasn’t good for my position.

When I was moonlighting in the hogs I’d stand in the second option of the hogs and listen mostly. I’d trade one lots and up to five lots since I had no idea what the hell was going on. Little did I know seven years later in 2003 I would go there and make it my home. That’s a different story.

In the hogs, every order filler would build their deck before the open. Everyone would know what happened in the cash and slaughter the day before. They had customer orders to fill on the open, and locals like me would try to push the market one way or another to help our positions. Not everyone would have the same position, so there was a lot of jockeying on the open, and even more on the close.

There were a lot of whisper numbers in the agriculture contracts. Big traders would chatter amongst themselves but they’d never let the information out.

Smaller traders were the grease in those markets. They’d make markets all day long looking to make $200 here and $200 there. Eventually, they’d get so they could make a thou a day or more and they’d be there every single day rarely taking a vacation. Hey, make $1000 per day for 220 days of trading and the math is pretty easy to figure your income.

Right before the open, the pit would assemble. Guys would have their spots. They might have stood in the same spot for years. By years, I mean 20 or more. Some inherited a spot from their father. Some fought for theirs. If Satan tried to come to the floor and take somebody’s spot, they’d kick him back to hell.

Once the pit assembled, there was a lot of chatter. Questions fired back and forth with quick no bullshit answers. All this would take place in about 10 seconds.
”Do you have some to sell"? “Ya, I gotta number to sell here maybe 10 lower.”

“Are there any buyers?”
”What? I didn’t hear you did you ask for buyers?” “Yes, I spoke fucking English not Yiddish you putz. Are you a buyer or not?”

“I could buy some, but I will buy ‘em 10 lower.”

“Wait, HOLD ON. I got a big number to buy.”

“Okay, I am a seller.”

A broker might whisper, “I have some to buy and some to sell. Hang close to me.” That meant you were going to buy/sell, and make a quick buck but you’d be left with a position that might work out or go against you. Thank you very much, or little….

DING DING DING

And they are off. A roar. Orders trade back and forth. There is nothing like an opening bell to get your juices going.

I shut my mouth and watch. The market is open for a bit and then I start trading. I am buying and selling small and up a few hundred bucks. That buys a few things but it’s not going to pay bills. After a bit, I am long 4 contracts and the market goes against me. At $4 per tick, the market was probably 10 to 20 ticks against me. Simple arithmetic would tell you 4x4x20=$320. It was sort of slow and I had no feel nor did I have an idea of what I was doing.

When it’s slow. Stuff happens. One old trader's adage is “never sell a quiet market”. Quiet markets don’t attract bears.

All of a sudden an order filler got an order. He stomped up to the top step and screamed “WHAT’S HERE?” It was like your mother calling you home after the streetlights went on when you were little. The scream was shocking enough to take you out of concentrating on whatever you were doing, and had enough push so you know you had to take some sort of action.

If you were a good local, you would immediately make a two-sided market within a second. “Half bid at Sixty” or something like that. You didn’t care if you bought ‘em or sold ‘em since you were technically “getting the edge”. Getting the edge was all you cared about because you could turn that into money.

If you were an order filler and had an order to fill that was on the market, you’d shout it out and hope to get a fill for your customer. Order fillers could trade their own account but they got paid $1 per contract or more to fill.

Different pits have different cultures. The cattle pit wasn’t like the hog pit which wasn’t like the S+P pit or Eurodollar pit. In the CME Rulebook, Rule 514 illustrated the ten mechanical steps to make a trade. Each pit interpreted that rule a bit differently. It wasn’t illegal, just the way the people in their pit wanted it to run.

In the Eurodollars, if an order filler yelled, “What’s here?” locals would make a market and NOT put a number on it. “Double bid at 56”! Then, the order filler might ask, “How many?” or he’d just hit them on 100 contracts or so. If you had a reputation as a big trader, they might hit you with 500-1000 and you could tell them how many you really wanted. The math was $25 per tick per contract. Sell 100 and buy them a tick lower, make $2500.

In the Hogs, they didn’t do business that way.

You’d have to put a number on it. If you made a market “Half bid at 60”, you really needed to say “Half on 10, 10 at 60”. That meant you were willing to buy ten contracts at XX.50, or sell ten contracts at XX.60. If you asked someone “How many?”, you got a cold stare like you just walked in to meet a dignitary with your zipper down.

The order filler yelled, “What’s Here?”

I said, “At A Half”, and held my palms outward away from my body which meant I wanted to sell. I wanted to scratch my four lot.

Another local that had come over from the D-Marks came running ferociously like a sprinter in the gold medal race of the 100-yard dash and yelled as loud as he could in full-throat with a high ping in his voice that could break glass, “At a Half”. No one else said a thing…….

The order filler looked at each of us and said, “50 and 50” and began scrawling our badges on his order ticket. This meant that I immediately was short 46 contracts. Yea! I scratched my four longs!

Immediately, my stomach was deciding whether it would shoot what I had for breakfast into my esophageal chamber, or use a lot of force to push it down into my small intestine.

I turned my head to see the board and all the different markets. Another local who filled some orders but mostly traded against his deck said, “Hey, what’s here guys?” He said it in kind of a laughing tone. Kind of a laughing condescending tone. Sort of like Niedermeier in “Animal House”.

Silence. When there is silence in a boisterously loud and energetic trading pit, that’s not a good sign after a big trade has gone down. The broker smiled and chuckled at the silence. He acted like a cat that was holding a mouse.

First, he screamed, “60 bid on 10”

then, “70 bid on 10” then, “80 bid on 10”

The last print on the board was now 80B and I was short 46 at 50. That whole one-act play took less than five seconds. I turned to an old old hog broker and asked, “How much am I out?”

“Dunno”, he said, “maybe ten thou.”

46x50x4=$9200. The market didn’t move and there was very little trading.

I laughed out loud as the sweat ran cold down the middle of my spine and muttered that this is an expensive lesson to learn how to bid and offer. But I was going to take my medicine and learn it. The old broker and I chuckled, but just a little bit. I was still out money and the market wasn’t really trading.

I didn’t know what to do but I wasn’t going to panic.

I turned to a guy I knew who had traded hogs for a very long time. His father had been a pork belly trader and this guy was a great trader and just as nice a person. I asked, “What should I do?” He said, “Spread ‘em off.”

I had no idea how to trade hogs let alone spread them. So on the suggestion of the trader, I walked over to my firm’s trading desk and time-stamped two blank orders for him. I gave it to him. Understand, it was like giving someone a blank check with your account number on it. However, we trusted each other. There was a code.

He immediately spun around faster than St. Nick in “Twas The Night Before Christmas” and bought 46 contracts in another option so now I was in fact a “hog spreader”. I told him if he got me out of these things I would take him golfing at my club. I’d even give him all the putts.

My old old broker friend said, “You know, a guy came down here once and got caught, spread ‘em off, and never left for twenty years.” Heh. I was just looking for some entertainment, to meet people, and to learn. I wasn’t planning on making it a career! I didn’t even know how to read a slaughter report.

I think it was around 10 AM when all this went down. I left the pit to take care of some stuff in the Eurodollars and to just breathe and get away from it all. I came back to the hogs around noon. My trading buddy was still working the spread order.

We sat there and chatted. I would laugh nervously. There was always nervous humor and laughter in the pits. Sometimes it sounded like an insane asylum. If you ever saw the movie “One Flew Over the Cuckoo’s Nest”, it’s that kind of laughter. Guys would talk about anything so they didn’t have to think about their positions or the potential to lose money. Or, if you were down money, maybe you just didn’t want to think about it. Back deep in your mind, you were plotting and scheming about how to get even on the day.

The market moved around but, it never ever went above 90. It came close a couple of times but as soon as it did, a huge local would come in and sell it off. He was a Sox fan and had a big booming voice. Drove a monster beautiful black Mercedes S sedan. Turns out, that guy had a short position in that month and had drawn a line in the sand at that price and it wasn’t going above it. Plus, technical analysis said that it shouldn’t and by God, but really that local, made sure it wasn’t.

The “What’s Here” guy who deliberately pushed the market against me was trying to set off stops so he could sell into them. It’s an old floor trader trick and it is also borderline unethical. He also wanted to test my mettle to see if I’d puke out of my position and set off the stops myself. I was born at night but not last night so I just swallowed my bile.

There was a reason we chewed toothpicks, sunflower seeds, gum, and anything else we could get our hands on. If your mouth was chomping on something then it made it easier to sit with stuff as the nervous energy was consumed by your jaw muscles. This was also the reason that there was a haze of human-manufactured methane gas that emanated from 5000 anal orifices which meant that you were breathing potentially toxic air at all times. It was nothing to walk on the floor at the end of the day and see trading cards fashioned as spittoons filled with used Skoal scattered about. Sunflower shells and peanut shells littered everywhere which would put a major league baseball dugout to shame. Some trading cards were planted mischievously like land mines which we called “gum bombs” and they’d stick to your shoes and be impossible to get off.

Oh and by the way the other guy that got hit on 50 quietly begged off them and the broker let him out of the trade. I found that out later. Grrrr.

Anyhoo, it was tick-tocking second after second down to the close. The big traders were filtering back into the pit and the order fillers were getting active. Orders were coming in and getting filled. Spread brokers would come in and move the market 50 points with big orders.

Sweat started beading on everyone’s temples. Smiles that were there just an hour ago were gone and poker-faced locals would just idly chat and occasionally scream. Some faces were red as blood ran into their cheeks. Some people fumbled with things in their pockets. I used to shuffle my trading cards in my hand like a Vegas dealer handling a deck. Everyone was focused.

With less than a minute to trade, things would get hot and really heavy. Big orders would come in and move markets looking to get a settlement print for overnight margin and positions. Small locals would try to scalp in and out. Big spread traders would either find ways to add to positions or cover. A market that would trade one lot to ten lots all day suddenly would see thousands of contracts fly back and forth in seconds amid a frenzied roar of large animated bodies banging into each other.

The closing bell rang. Ding ding ding. Sheer panic set in. Guys’ hands would shake. That meant you had 30 seconds to get out of everything you had if you wanted to go home flat. It also meant all orders which were “market on close” orders had to get filled. Order fillers knew exactly where the stop orders were in their deck and they guarded them closely in case they got hit. Locals would really try and push the market in the last thirty seconds.

Remember, no electronics and no calling Singapore to get out. You were sleeping with them.

Ding ding ding ding ding ding ding. Market closed.

You called it a day. You checked some trades and went over your count. You handed your cards to your firm’s runner so they could be time-stamped and keypunched. You hoped you didn’t have any outtrades. You did the mental mathematical profit/loss minus commissions gymnastics in your head so you wouldn’t be surprised when you opened your statement in the morning.

That’s it. Over.

I walked over to my buddy to see how “we” did. “We” made $1200. An amazing save. I was grateful forever. With the help of someone, and the luck of the market I survived a sort of baptism by fire. But, I never forgot the “What’s Here?” guy and how he treated me. I didn’t appreciate the hazing. Nor did I ever trade in the hogs again without putting a real number on it.

Like I said, I was there to learn.