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War Stories


You were "that" close!


Note: This is the first installment in a series that will discuss actual trades that have been impactful in my career.

Things were finally starting to come together. After joining Morgan Stanley as a wet nosed kid in '91, I was doing the type of things that earn you stripes. I arrived each morning by 5:00 am to "write up" positions for Chuck Feldman (this was before there were such things as risk management software) and spent most of my time clerkin', quotin' and fetchin'. I didn't mind, actually, as I had my eye on the prize and it was there for the taking.

Five years later, a single 2000 share order in Chemical Bank somehow morphed into a small set of positions. Nobody on the desk had been focusing on the banking sector and I inherited the group by default. I wasn't allowed to facilitate at first (take the other side of customer order flow) but I slowly started to get more aggressive. In time, I was taking floor markets of "2 1/4-5/8 50 up" and offering the customer "2 3/8-1/2 5000 up--whataya wanna do?" I "caught" their orders and customers lined up to do business as word spread through the Street. And all the while, I was putting money in mother Morgan's till. Beauteous.

Keefe Bruyette was the biggest bank player on the Street and I would do most anything to impress their head trader. Before long, we had secured the majority of their flow and things were hummin'. NationsBank, Manny Hanny, name it and I made it. I was only 26 years old but I had established myself as an aggressive producer and was extremely customer friendly. If you wanted to trade a bank, you came to Morgan and you knew you would get taken care of.

The First Interstate position began like any other. The stock was trading somewhere around 70ish when Keefe's head trader asked Kim Dispigna (the Morgan salesperson) for a market in the Jan par leaps (January 100 calls that expired the following January). I checked the floor and the options were three dollars wide and 50 up (meaning that the customer could buy or sell 50 contracts on either side of the market). Odd lotters! I tightened it up and increased the size tenfold. "Whatever he needs," I remember telling Kim, "just get the order."

After a few days of steady accumulation, I now had a pretty sizable Letter I position. I was short the leaps to my customer and bought stock (along with any other option series I could get my hands on) to hedge that short side risk. Keefe was getting increasingly aggressive on the buy side and I was having trouble keeping up. The floor simply wouldn't sell any paper and it was all me, all the time. Finally, after several weeks, we fielded a question from the account regarding the position limit. "8500 contracts," I replied, "that's as big as they're allowed to get." We were almost there.

To say that I was involved in Letter I is like saying that Barry Bonds is involved in baseball. I was the "ax" and if somebody had something to do in the name, Morgan Stanley was the call. I was short almost all of the long dated calls to the customer and long a truck load of stock (and assorted options) against them. To add spice to the mix, there was all kinds of chatter floating around that the bank was ripe for a takeover. The sharpest financial trader around was loaded to the gills and I wasn't gonna be left in his wake. This was my chance to make a statement--a BIG statement--and I was diggin' in right beside him.

I traded around this monster for months. When I liked the market, I pressed my long bet. When I didn't like the tape, I shorted other banks against my book or looked for an index hedge. At no point did I waver from my conviction or abandon the position. Everyone in the room knew the story--heck, everyone in the Street knew the story--and I was sitting atop the train waiting for it to pull into the promised land. Stress? Sure, but I had an edge and it was razor sharp.

It was a slow afternoon when Kim's distinct voice cut through the quiet room. "How'ya makin' Letter I?" I looked at her and smiled, figuring that she was toying with me as we were apt to do on a trading desk. Still, as I'm a professional, I looked at my screen and cuffed a market (I didn't bother checking the floor anymore as they simply got in the way). "The floor is showing 50 at 23 1/2, I'll make it 500. Whataya wanna do?" I said, calling her bluff.

"He needs a two-sided market."



I looked her in the eye, my smile long gone, still trying to figure out if she was playing me. "21 1/2-23 1/2 500 up." I offered, trying to sound brave despite the slight crack in my voice. "He'll sell ya' 500 at 1/2" she shot back, "and you're working 8000 behind it." I'm not sure if I breathed for the next several minutes but I took the order to the floor, slapped 500 on the tape and then called my NYSE broker to sell some of my underlying exposure. Unfortunately, every option lemming knew I had inventory behind it and had already knocked the stock for a buck. And you wonder why option traders get a bad rap?

The closing bell was an hour away and an uneventful day suddenly became the most important session of my career. I got my stock off--in the hole--and bid the customer (lower) for more calls. He didn't wanna break his original price but wanted to be kept up. "Keep reflecting bids," Kim said, "He wants to get done today." The stock stabilized and I continued to parcel out of exposure (I had told the customer that I needed to make sales and he wanted me to "get in shape.") Finally, with about 15 minutes left in the session, I stood up and yelled to Kim "Figure bid for the balance!" (meaning that I would pay $21/contract for the entire balance of his order). Kim was talking on the phone and I was schvitzing out of every orifice. "GREAT bid," she said, "but he's gonna hold tight and finish up in the morning." Gulp.

It wasn't the first time that I had "legged" out of a position but it was certainly the most sizable. I got to work extra early the next day for no other reason than I hadn't been able to sleep. It was about 6:00 am when the listed bank trader walked over to me and said with a smile "You're still involved in Letter I, right?" My heart froze. "Yeah...?" His face hardened. "You''re still long it, right?" "Why?!?" "Please tell me you're still long it." My mouth opened but nothing came out. Bobby, who was as good a friend as I had at the firm, turned and walked away without saying a word.

I didn't know what to do so I grabbed the Journal and went to the men's room. About three minutes later, the entire floor erupted as traders screamed and hollered with sheer joy. I'm not sure how long I sat in that stall but it didn't matter--I desperately wanted to stay there. I knew I couldn't, however, so I took several deep, drawn breaths, left the Journal on the floor, splashed some water on my face and entered the eminent domain.

You would have thought that I hit a walk-off home run and my teammates were waiting for me at home plate. Salesmen patted me on the back, traders gave me the thumbs up and friends around the Street had already left messages to congratulate me. The head of the department walked up to me with a spark in his eye and almost hugged me. "Way to go, Toddo, way to stick it out!" There was only one small problem--I was short. Very short. And the stock was trading up 35 points.

I won't get into actual numbers but the loses were of the multiple seven figure variety. Wells Fargo had evidently been in talks with First Interstate and the deal fell through. That may or may not be the reason for the "out order"--I don't know and it really didn't matter. The fact was that Wells Fargo turned around and made a hostile bid which, at the time, was almost unheard of. To add insult to injury, Morgan Stanley was the banker and I immediately became restricted in the name. That meant that the position was taken from me at the opening print and I was no longer allowed to trade it. In other words, I was screwed.

I don't think I moved from my turret all day. I didn't go to the bathroom, I didn't eat lunch, I didn't make outgoing calls, I didn't do anything but stare at this flickering "I" that continued to wink and blink. Somewhere around 7:00 pm, the head of my department called me into his office. Here we go, I thought to myself, the end of my world as I know it. I was so close yet after a single trade, my career was over.

As I explained the sequence of events to my managing director, he stared intently into my eyes. I was still "up" on the year but I was certain that it wouldn't matter. Forget, for a moment, that I prolly woulda banked five to seven million dollars if the deal was announced a day earlier. I had taken a major hit and my confidence, moral and self-esteem was shattered. His response? "Go home, get some rest and come ready to play the next day." It was his view that my actions were warranted and the mechanics of the swing out outweighed the results of the at-bat.

Ironically enough, I was promoted that year and became one of the youngest vice-presidents in the firm. I share this not to champion my personal achievements but rather to make a very important point. There are immense pressures in our business and all too often they're self-induced. And while it's true that we're judged daily and measured by the size of our bottom line, there will be other trades and better tomorrows. Loosen the grip on the bat, relax when you step to the plate and look to hit for average rather than power. For if you swing for the fences, odds are that you'll find yourself striking out a lot.

Good luck.


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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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