Memoirs of a Minyan: Let the Games Begin!
The purpose of the journey is the journey itself.
Chapter 3: Let the Games Begin!
I remember my first day on the derivative desk at Morgan Stanley's (MS) New York office. There I was-6'1", 215 lbs of muscle, straight A's in my back pocket and so scared I could hardly move.
It was precisely where I wanted to be, rubbing elbows with the hitters and holding my own in the big leagues. Armani suits, wing tip shoes, fat pockets-I remember thinking that one day, that would be me. At whatever the cost and no matter the sacrifice, that was professional nirvana.
There was one small flaw in my master plan-I was utterly and absolutely clueless.
I was placed at a turret in the middle of the trading desk, a nervous dingy in a sea of testosterone. They gave me a computer, two phones, a few pages of positions and told me to pick up blinking lights and relay messages. Easy enough, I thought. Piece of cake.
The red light-one of hundreds of lines to various exchanges, brokers and offices around the world-began to blink.
"Twoandthreeeitgths threequarters fivehundredup!"
I sat there staring at the green, silent light wondering if the person was speaking English. I looked around to see if someone could help me translate but everyone had a phone on each ear.
"WHO THE F**K TOOK A MARKET FROM THE AMEX?"
The words sliced through the room in a high-pitched voice and everyone-everyone-stopped what they were doing. I swallowed hard and slid down in my chair as Chuck screamed at the clerk on the Amex, calling him a liar and threatening to fire everyone in his family.
Thank God I never said a word when I picked up the phone. Thank God nobody knew it was the new kid in the cheap suit.
The Boston Bruin
The Morgan Stanley trading room was a massive labyrinth that occupied the entire floor of 1251 Avenue of the America's. The equity derivative desk was nestled against the far, center window with the listed stock desk, over-the-counter trading, convertibles and international department strategically situated around it. If trading was the bloodline of Morgan Stanley, options were the heartbeat and the fervor of each day's flow seemed to center on our desk.
I noticed one of the traders on the over-the-counter desk made more noise than the rest of them. He barked orders and everyone followed his lead. He was the alpha trader. When he laughed, the mood lightened; when he yelled, everyone tensed up.
David Slaine ran OTC trading for Morgan Stanley. When one of his customers had business to do, he walked over to the option desk to set the price. During one of my first days, David was standing behind my chair haggling over an order and when I turned my head to catch a glance, he looked down and introduced himself.
"You look like you work out," he said in a thick Boston accent, "You should come to the gym with us after the close."
Bingo. I couldn't relay an order to save my life. I didn't understand most of what was being said around me. I had no idea the US economy just emerged from a deep recession and the seeds of a bubble were being planted. But I knew how to lift weights. If nothing else, I knew how to lift weights.
That afternoon, I joined David and Tommy Carden, a trader on the option desk, for a workout near our midtown digs. There was camaraderie between them, a bond forged by long days in the trenches. They were warriors that waged a vicious battle each day, side by side, one for all and all for one.
It reminded me of my pledge class after a semester of hell, a feeling few folks understood from the outside looking in. It was very much a fraternity I wanted to join.
Engine Room, More Steam!
It was all happening so fast. I graduated magna cum laude surrounded by family and friends, worked in a bar where everyone knew my name and landed a coveted job at one of the world's most prestigious financial institutions.
One week later, I lived in the den of my grandparent's apartment, got up at the crack of dawn and worked in a place where I was so intimidated that I didn't get up to go to the bathroom. I had to earn my stripes all over again in a strange, new world. What I lacked in experience, I was determined to make up with effort and energy.
Unfortunately, despite four years of rigorous studies and the debt to prove it, I didn't have a practical working knowledge of the business. When I asked one of my professors how to better prepare for life as an options trader, he told me to read The Wall Street Journal and study Black-Scholes models. Neither did much good.
I was overwhelmed by the speed and intensity on the trading floor. I attempted to mask my ignorance by keeping my head down and not speaking unless spoken to. I later learned that other traders, many of whom took the traditional path, thought I was cocky. Still others worked in the back office, toiling in operations control, waiting years for their shot to grasp the brass ring. I was oblivious to the competition, animosity and resentment.
There was an exclusive fraternity and it was up to me to gain respect and earn the right to wear Morgan Stanley across my chest. I extended myself, picking up more phones and relaying bigger orders. The harder I tried, the more mistakes I made and self-doubt morphed into a complete lack of confidence.
I couldn't seem to grasp the business but committed myself to doing whatever it took to lend value to the operation. I was going to do whatever anyone else didn't have the time to do.
During a hectic morning with wild market swings, I offered to grab lunch for Jack Skiba, the second-in-command behind Chuck Feldman. I told him with a hint of humor that I made a mean salad, watching closely for a response. He grumbled something I couldn't understand before reaching for his wallet.
"I got it." I said, slowly reaching towards my pocket. "Stop it!" he responded, seeing through my empty gesture.
I must have spent 20 minutes making that salad. The tomatoes and onions were perfectly aligned. Grilled chicken danced across the center. A drizzle of dressing tied a bow around the top. It was a masterpiece and I was ready to present it.
I dropped it off on Jack's desk and took my seat next to him, pretending to focus as he passively glanced at my work of art. A few hours later, long after he finished eating, he turned to me and said "Nice salad, kid."
It was my first victory at Morgan Stanley, a ray of light in my otherwise dark days. I realized at that moment that Wall Street was a relationship business. Slaino, Tommy and then Jackson. Slowly but surely, I was gaining sponsorship.
Now, all I needed to do was produce.
As Fate Would Have It
While I was the second or third person on the trading floor each morning, I was the first person on the derivative desk. It was my responsibility to "write up" Chuck's positions and "pare them off" against each another.
Slowly, I was learning. Long stock and short call options were a "buy-write." Long calls and short stock were a "synthetic put." Long put and long stock were a "married put"
With the benefit of hindsight, it seems silly that the world's largest derivative desk had a clueless kid writing up the head trader's risk profile in T-accounts each morning. It's all the more ironic that despite fancy modern day risk management, the derivative machination would eventually implode under its own weight.
One morning while laboring through my daily ritual, a single red blinking light sprung to life. I wasn't supposed to pick up the Cramer wire as he was a customer. I looked at the clock; it was 6:00 AM. The blinking stopped. I was off the hook. And then it began again, and it didn't stop.
The frenetic voice on the other end of the line didn't seem to notice that it was still dark outside.
"Heeeeeeey, what's going on?!?"
"This is Todd," I said, "Nobody's here yet."
"You new?" he asked, friendly enough but in a quickened pace, "We haven't met yet, I'm Cramer. Whataya think here? What's going on overseas? Do you like 'em? So… Whataya think?"
I looked toward the elevator banks but there weren't any traders around. I swallowed hard and offered an honest take. "I saw better buyers on the desk yesterday. The smarter accounts were getting long for a trade."
"So, do you like 'em?" he again asked, this time in a slightly less friendly tone. I didn't miss a beat. "Yeah, I like 'em."
"I like 'em too!!!" he shot back. Evidently, I had given him the answer he wanted to hear. "I gotta hop-they're gonna rip 'em today. Rip 'em!"
The line went dead while I the receiver was still nestled against my ear. I'll never forget the tension I felt as the markets opened. I had skin in the game-not money, but my reputation.
One of the first things my grandfather Ruby taught me was that all you have is my name and my word and both were on the line. After meandering on both sides of the flat line, the markets rallied hard into the close and finished on their highs.
I was hooked.
Holiday season approached after I had been there eight months and it was bonus time at Morgan Stanley. As other traders received word on their multiple six or seven figure bonuses, I nervously awaited my turn. When nobody was left on the desk, Jack called me into the back offices.
When I started, I was given a base salary of $28,000. Wall Street professionals earn the bulk of their compensation through bonuses so I wasn't all that worried.
"You need to step it up," he told me as the color drained from my face. "If you want to be around next year, you have to find a way to contribute to the bottom line."
I nodded my head in agreement. I knew he was right but somewhere deep within me, I secretly hoped they would throw me a bone. I quickly discovered nothing would come for free. Wall Street was notorious for fat payouts but there wouldn't be one year throughout the rest of my career when I felt I was paid enough for the blood, sweat and tears left behind.
I committed myself to earn my keep the next twelve months. I wanted to be in that room again and walk out with the big bucks. I continued to be the first person to arrive each day and the last to leave. I studied books on option pricing. I read The Wall Street Journal religiously. I established a dialogue with traders on the desk, waiting for lulls in their day to lob an occasional question.
I had the shot of a lifetime and the clock was ticking. I grew more comfortable in my ability to relay markets to the sales force and take reports.
"General Motors, symbol GM, October 40 calls. 1 ¼- ½, 500 up!"
"International Business, symbol IBM, January 20 puts, 2 ½- ¾, 250 up!"
"Citigroup, you bought 1000 calls at 2 even. ¾- ¼ 250 up coming out!"
I hadn't made the team but I was clearly on the field. I knew, however, that spring training would soon come to an end.
When Chuck tossed an odd-lot 1000 share order of Pet Industries on the desk of Harry Silver, a trader on the desk, he passed it to me. "Go sell this," he said quietly so nobody could hear. It was my first order on Wall Street and I wasn't going to just hit a bid. I played trader and offered the shares higher than the market.
I picked up the phone and cleared my voice. "Pet Industries, ticker P-E-T. Offer 500 shares at ¾."
The stock immediately began to drop. The entire world stopped with the exception of the red, flickering symbol as sweat began to form on my brow. I never sold a share and the stock was down a dollar. A few hours later, Chuck screamed to Harry "Did I sell my Pet?" Harry knew I hadn't as soon as he saw the look of pure horror on my face. "Just tell him you sold it-I'll take care of it."
The Morgan Stanley derivative desk had hundreds of millions of dollars in exposure at any given time. 1000 shares of Pet was a pimple on an elephant's ass. It didn't matter and nobody would have known. For me, it was the single biggest moment of my professional life.
My grandfather's advice rang loudly in my ear. I dropped the ball but I wasn't about to lie. "No," I said carefully,"I didn't sell it." Harry closed his eyes.
"WHAT THE F**K! JACK, FIRE THE F**KING KID!" He threw down his pen, kicked his chair from under him and stormed off the desk shaking his head.
After the close, Tommy asked me what happened. "I didn't sell it. Harry told me to tell Chuck that I did but I don't lie."
That was a mistake-and it was a lesson I would never, ever forget. When you're in a war, you never give up the man watching your flank. I committed the cardinal sin, biting one of the only hands that tried to feed me.
It would be two years before Harry said another word to me.
The Great Lawn
While spending a day Central Park that summer, I ran into a friend who was sitting with a group of people, most of whom I didn't recognize. She asked me to join them so I sat down on the grass and introduced myself to her friends.
One of them was Jeff Berkowitz, who was an analyst at Jim Cramer's hedge fund. Jeff and I quickly connected, not because of where he worked but because of who he was. We related to each other on a variety of topics, from the markets to sports to women. We were both die-hard Yankee fans and would enjoy many games and many beers.
We spoke throughout the trading day, sharing information and swapping insights. He was a sharp guy who looked at the markets through an entirely different lens. It was a different approach than what I practiced and I began to absorb a new skill-set.
Jeff was a brilliant fundamental analyst, breaking down the balance sheets and business prospects of a company. I leaned towards technical analysis and studied chart patterns and historical price data. I studied structural influences; the underlying dynamics that moved asset classes as a whole. And I became in tune with market psychology, the perception that dictated reality when pricing financial assets.
I began to assimilate those four metrics as legs under the trading table. When they were sturdy, the odds of profitability skewed heavily in my favor. It was an approach that defined my career until the government changed the rules of engagement and altered the capital market construct.
Click here for the next chapter of Memoirs, "War Stories."
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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 email@example.com.
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