The tales of the tape

I've been called a bunch of stuff during my tenure as a trader (most of which are not postable due to the explicit nature of the floor). I have a thick shell and frankly nothing really stuck...with one exception. I've been told that I gossip like a school girl and can not pass up a good story, especial when it involves trading.

Today was my lucky day, I got to hear two fantastic tales from fellow traders.

1. Chicago is the home of some of the industry's powerhouse operations. Some you know because of their reputations, others you might have seen advertising on TV, and others you know only because of their secrecy . This is a story about one of those kind of firms. These guys swing a big stick, have an ultra cryptic black box, and have been having a really rough go of things lately. In fact, through February these guys were down a whopping 16.5% on their flagship fund. Suddenly, the stars lined up (quite literally, as it has been rumored that they use employee's astrological information in their black box calculations). In the first 13 trading days of March they rebounded a shocking 29% including a 5% move TODAY. Seriously? You made 5%, today? ON WHAT?!? And wait a second, what is the beta on this portfolio: +8? Yet this trader was lamenting that even though they have just slaughtered the market (and their competitors) they are liquidating all non-essential assets. The house out west, the satellite offices around the 'burbs, even the gorgeous tropical fish aquarium in their high-rise loop office have been sold, closed, or flushed... The returns might be rosy today, but his fear (and mine too if I was an investor) is that: any thing that can appreciate 5% in one day, can depreciate equally fast. I casually asked him what sort of risk parameters they were using, if they were incorporating options in their strategies, and whether or not they (the traders) actually had any autonomy in what they were trading. His answers were baffling: No real idea (risk), No they're too costly (options), Not really--we just trade what we're told. Wow. The moral of this tale is: be careful where you invest even if the shop is local.

2. Today was St. Patty's Day and as I was enjoying a beer with some of the neighborhood folk I ran into a kindred spirit: an option trader. He trades for one of the largest, highly respected, money-making firms in the industry. They have traders on all continents, in every major trading location, and in almost every pit where there's money to be made. He admitted that 2009 was a very difficult year for him as well as the firm's floor operations. Supposedly, it was so bad that Christmas bonuses were scrapped. However, a majority of 'W2' traders are paid a relatively low base salary and receive between 33-50% of their total compensation via a year-end discretionary bonus. Yet this firm is spending millions to upgrade their office facilities. MILLIONS! The trader I spoke with said that he felt his meager bonus was negated in favor of the company's lavish new digs. In fact, he claimed that they lost over a dozen pit traders when ALL bonuses were canceled, even though some of those traders made the company so serious money (I'm guessing that some people must have been negative too if it was a difficult year for the floor ops).

These stories tell tales from two different ends of spectrum, but there's a twisted humor in both of them. Hopefully, both my acquaintances will manage to trade out of their current spots.

~LH