Tuesday, July 29, 2014

Equity index futures contract launch buttons

click photo to enlarge

I'm not sure when the tradition started, but it was widespread amongst futures exchanges by the 1980's to commemorate the launch of a new contract through buttons which could be pinned on a trading jacket.  These buttons would be handed out in the morning of the launch day at the entrance to the trading floor and generally be worn maybe for a day before being discarded pretty quickly thereafter.  Exchanges used these buttons to market, or at the very least to simply remind the finite amount of members on the trading floor of a new contract launch in hopes that they might step into that pit to trade it.  Illiquidity could doom a contract from the start so anything that would encourage bodies to trade something new would help a nascent contract gain momentum. 

In the past I've showcased various buttons from my collection w/individual photos but recently got a chance to categorize them into various groups like the equity index buttons shown above.  I'll try to put up other categories eventually, such as grains or fixed income, and provide the background on them as time allows.

1 - Probably the best of my collection is the S&P 500 button from 1982 whose graphic was based upon the STP fuels logo.  When the Spoos began trading, I don't think anyone could've expected the contract to be as hugely successful for the exchange as it has.  I actually have an extra one of these buttons, so if someone has an amazing memorabilia trade to offer I'd consider it but the bar is very high.  

2 - This button celebrated a decade of success for the S&P 500 contract in 1992 and incorporated that original button style into it.

3 - From 2007, this button also celebrates a milestone for the Spoos at 25 years.

4 - Just before celebrating a decade with the S&P 500, the CME launched the S&P 400 Midcap contract.

5 & 6 -This is a pair of buttons from the CME to celebrate the launch of options on the S&P 500 futures in 1983, a year after the futures contract proved successful.  One button has Pac-Man rebranded as Option Man eating his enemy Risk on the other button.

7 - I'm not 100% certain of this button as it represents the launch or expectation of launch for the S&P 100 in July 1983 and what confuses me is that the CBOE launched OEX options a few months earlier in March 1983.  Since I'm far away from various reference books I have, I'm not sure if there was an attempt by the CME for instance to launch S&P 100 futures around this time.

8 - Another button I'm not exactly sure on the background of because Value Line was the first stock index ever traded, predating the S&P 500 by a short period of time, and it traded at the KCBT but this button regarding options on the index also lists CBOT.  Perhaps there was a mutual offset agreement between the exchanges where it had dual listing, the closest guess I can come up with.

Line three, which has buttons 9 - 13, moves from the S&P suite to the interesting attempts surrounding the NASDAQ contract at both the CME and CBOT.  It's probably surprising to see, in button 13, that the CBOT actually licensed the original rights to list the NASDAQ-100 index in 1985.  To compete, the CME created the SPOC contract (S&P Over the Counter index) which was a broader listing of 250 nonfinancial contracts compared to 100 in the NASDAQ contract.  Button 9 is the original launch button for the SPOC and to encourage trading in the SPOC, button 10 asked for "15 minutes please" from traders to stand in the pit at least that much each day and try trading it.  A 15 minute button was also used for the launch of the S&P 500 and, from what I read, traders learned that 15 represented losses in thousands of dollars more so than minutes trading it as the true measure of their commitment.  Button 11 was distributed at the CBOT to take a jab against the SPOC contract, Lenoard Nimoy, aka "Spock" from Star Trek, is pictured with a red circle and backslash on top.  Both the CME's SPOC and CBOT's NASDAQ-100 contracts eventually failed but the relaunch of the NASDAQ-100 at the CME in 1996 is shown with button 12 and it continues to be a success.

14 - Nikkei 225 index futures were launched in 1990 with this button at the CME just as the Japanese stock market bubble collapsed.

15 & 16 - The AMEX Major Market Index, consisting of 20 blue chip stocks that closely followed the Dow Industrials, had futures traded at the CBOT starting in 1984.   Eventually the index was rebranded as the MAXI and then delisted after moving over to the CME.  Most notably, the MMI contract is famous for Blair Hull buying a large amount of MMI futures at the bottom of the market on the day following Black Monday in 1987. 

17 - Institutional Index button from the CBOT which I don't know anything about except it traded briefly and was doomed from inception since the launch preceded the 1987 crash by a month.  As even the S&Ps traded thinly following the crash, there was too much career risk to have anyone trade a new and narrower contract like the IX.

18 - Although I'm not sure if this CBOE OEX button was from the launch, it likely would've been given out not too long after because there is no need to promote what was the dominant index option listing.

Friday, July 18, 2014

Life in the Pits (1981 tv news program)

Thanks to G.D. for pointing out this multi part, evening news story entitled "Life in the Pits" as it is an interesting snapshot of trading at the CME in 1981.  The uploader of the 19 minute vid was the main subject profiled and I thought the whole vid was great, not just for the look back at the trading floor 33 years ago, but also for some parts which would be considered politically incorrect now. 

To set the scene a bit, one year T-bill rates in 1981 were around 14% and because of raging inflation, all commodity markets traded w/extreme volatility.  Must've been one hell of a time to be a trader (right Hillary Clinton?) and this golden era was also profiled in the 1985 book The New Gatsbys which I highly recommend reading.  The newscaster mentions that at the time of taping, volumes had doubled from a few years prior so the trading industry easily captured the nation's attention.

The video intro is certainly an attention grabber:  before dawn, a trader wearing a fur coat gets into his Cadillac, vanity plate UP TICK, and speeds off to the Merc.  The ensuing stories relate the velocity which money was made/lost trading, likely due to pyramiding positions as that was a popular, yet often financially fatal, strategy back then. 

One of the funnier segments was dedicated entirely to how life is lived after hours to showcase the trader's lifestyle including his condo (Lakepoint Towers?), blonde European wife, sipping Champagne at a club w/a toast "to free enterprise" and then grooving on the tiles.  His wife says the following in the third segment, "He always call me and say I'm gonna play racquetball tonight, and oh I say Thank God.  He's gonna beat the ball instead of me."  LOL WUT

Another politically incorrect thing which stood out was the newscaster mentioning that most of the Merc "successes are white, Jewish, and male" which was generally true and somewhat obvious.  To contrast that perception while simultaneously doubling down on political incorrectness, the last segment is on a black, female broker from Detroit and they profile her arriving in a Mercedes with 14k gold rims.

Tuesday, July 8, 2014

Smug Trader

(click for bigger detail and sorry about the fatty watermark on it)

Behold the greatest piece of trading art ever created.  The piece is untitled, undated (likely from early 1970s) and by an unknown artist (Alfred Marshall), yet like the Mona Lisa it can be admired for it's simplicity, intriguing facial expression and style which reflects upon it's subject.  I hereby entitle it Smug Trader.

I can admit to being at a total loss when it comes to highbrow art conversations but this piece speaks to me like no other piece of art ever created, and I've been to most of the top art museums around the world.  The artist's style and text is very crude like futures industry always has been so Smug Trader is a very appropriate mirror not just of the public perception but even of the industry upon itself.  In 2014 it remains a bit of an eccentric occupation to be a commodities futures trader but it was significantly more unconventional when this piece was likely created around 1970.

The most fascinating aspect of the piece is his smirk combined with the beer chalice which has runneth over.  I've traded millions of futures contracts in my career and never felt anywhere near that good at the end of a trading session so it's very intriguing as to why he feels so good about himself.  My theories behind Smug Trader's emotion are widely divergent in that he's either a drunk in between trading blowups or is actually that good.  His scruff is also a nice touch because I used to say that the easiest way to identify a trader in Chicago was simply to see a guy on Thursday who hasn't shaved in a few days.

Trading has a large culture based around alcohol and it was never a surprise to see various drunks trade the open and then head to the exchange club for drinks around 9 or 10am.  When I look at this piece, I do observe some of that devil-may-care attitude which I'd see others celebrate a short term victory whilst succumbing to long term attrition.  There were always traders who'd blow up and then find a backer to stake them for another chance and more than anything, this is the type of person who would exhibit such a (temporarily) smug look in a highly volatile industry like futures trading where the odds eventually even out.  In the NHL playoffs, the boilerplate saying is "don't get too high, don't get too low" and amongst the great traders I've been around, that's how they carry themselves as the anthesis of Smug Trader.  Coupled w/a gin blossom on his nose, what looks like an OTB ticket behind the newspaper quotation sheet also leads me to see him as a degenerate. 

Before moving to the other extreme, it is noted "Commodity Brokers - Chicago Mercantile Exchange" at the top of the piece so perhaps this gentleman isn't a trader and is a broker.  Because the sweat factor isn't anywhere near as high for a broker as it is a trader (unless IMHO they operate a clearing firm), this could be a pretty standard look for a broker.  In terms of sloppy drunks my observation from worst to best were:  pit brokers, desk/upstairs brokers, scalper style locals, position carrying locals and then prop firm locals....not hating on any group, just one man's observations largely based upon oversight and accountability.

So that brings me to the other extreme, perhaps he is as good to justify that look.  Because this art is CME centric and from the early 1970's, it must've been some meat contract he was operating in (a zoom on the quote sheet shows Hogs and 'Bellies as the only CME products on it).  Again, having never been around a legitimate trader w/that look on his face makes me recall stories from the '60s and '70s I read of large operators, such as REFCO, who'd move their livestock across the Rio Grande to Mexico so the USDA reports like cattle on feed would be manipulated in their favor.  Smug Trader looks like just the type of guy who'd be raising a frothy glass after a report came in just as he helped to arrange.

Later in the '70's, the CME would use the Friedmanesque saying "Free Markets for Free Men" and in the meat pits, it would jokingly be changed to "Wide Markets for Wide Men" so it's not too far a stretch to imagine Smug Trader easily amongst those wide men quoting wide bid/ask spreads.

I purchased Smug Trader quite randomly many years ago and had it recently undergo scanning and light revitalization at Chicago's finest art restoration service.  There are prints I made of it but I'm reserving them as a type of diplomatic gift to contributors of the historical project, like Cohibas once were. 
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