My Life Was The Pits – Reflecting On Trading
Author – Sid Jacobson 7/10/2015
This week the CME closed the open outcry trading pits forgo electronic trading. The trading floors that shaped the movie Trading Places.The home I grew up in.
This is my story.
In the summer between Sophomore and Junior year of college I made a mistake that shaped the rest of my life. Instead of turning right, I turned left.
I opened the door, spoke to the receptionist and said, “Hi, I am here to interview for the summer internship.” She asked if I had an appointment. I said, “Yes I am here to see Mark.” After a bit of scurrying, I was led into a chaotic conference room filled with analog computer screens, digital stock tickers and piles of scratch pads. Mark was introduced. Speaking in tongues, Mark explained their business of trading in a language only he could understand, asked a few questions about school, then told me there must be some confusion. There was no summer internship.
I was supposed to meet a different Mark. An executive recruiter with an office suite on the same floor.
Mark politely walked me across the hall. The Marks whispered to each other a bit. Within an hour, I was offered a summer trading floor clerk internship with one of the pioneers in exchange traded options market-making, Chicago Research and Trade (CRT). I did not know what that meant.
I was introduced to “the pits”.
The following Monday I was fitted for a trading jacket down to my knees, shoulders over my elbows – and shuttled to the American Stock Exchange with a bunch of blue collar rocket scientists in shirt, ties and similar butcher jackets – Mark Elardo, Heidi Belle, Dave Butler, Tommy Tarangelo, John Butler, Ritchie Kudlak, McCabe Hurley, Dwight Nelson, Craig Cechini, Erick Hine, Steve Compitello and later joined by Tom Demaio, Doug Smoot, Mark Hayden, Mark Frost and many others I apologize for forgetting to mention. They became my first professional family. Have not seen most in many years. (Thank you Linked-in for re-connecting.)
My job was simple. Every morning I had to ensure everyone had six sharp pencils and that all transactions from the day before were confirmed and cleared. Every fifteen minutes I was to run through the crowded chaotic trading pits and collect trading pads, (sometimes getting my tie cut off!), then run the trades up five flights of stairs for immediate data entry. Every hour I was to call Chicago and derive an intra-day risk exposure summary. Occasionally someone needed an ice coffee or a chicken cutlet in a pita – they usually let me keep the change. I was never in better physical shape and I had a pocket full of coins!
During this time, I learned to speak with our hand signals in full paragraphs. I was mentored and taught the tools of the trade by many of the floor traders. Eventually I was empowered to work the arbitrage phone line where we offset options trades with futures transactions in real-time… finally got to use those hand signals! I was invited to shadow our company’s options trading training and performed better than many of the top university grads. I was too naive not too. The company asked me to stay on – for a year I did before returning to finish school at Syracuse University. The best, best decision of my life was to earn my degree.
I was soon trading in “the pits”.
After school I returned where I put in my time with CRT relearning options trading, settling positions and volatility arbitrage. At 22, I was given the opportunity to trade and became a member of the American Stock Exchange. At 23, I was one of the youngest traders on the New York Mercantile Exchange in the Crude Oil and Refined Products trading pits. A small guy (at that time) in a crowd of large men, with larger egos and loud voices, carrying sheets and sheets of formulaic tables. calculating math in my head, being larger than life and screaming to be heard. BUY! SELL! BUY! BUY! BUY! SELL ME 100! HEEYYYYYYYYYY!
I saw it all over those years. I missed the crash of 1987, and helped from afar. I sold 1000 when I was supposed to buy 1000 and almost got fired even though the market moved exceptionally in our favor overnight. I designed controls so no one ever made that communication mistake again. (I also cried and didn’t sleep for a week). I watched Crude Oil hit new highs and sink to new lows within 12 hours when the Gulf War started. I moved back into the arbitrage role, working our global crude phone to coordinate arbitrage across markets and geographies. I helped launch Natural Gas futures and options and sat on many committees. And, I made a lot of professional friends – remembering close to 40 lost during 9/11.
I had actually learned to manage risk.
What I didn’t know then is that I was learning how to measure, assess and manage both market and operational risks long before the term “Risk Management” was expropriated as a checklist of governance policies, mid-office controls and software products. When I left CRT and went into “the real world” I was astonished that not everyone had the tools, disciplines, processes and know-how that were now in my DNA. There was not a job I took where I did not spend an equal or greater amount of time improving our operational strategy, controls and reporting, as I did my day job of leading teams who manage risk. I found a leadership skill I didn’t know I had.
I was trained to help others.
Now, I am no longer that baby faced, naive boy with six sharp pencils who can calculate delta/gamma convexity in my head; nor am I screaming in a pit full of football player sized traders maintaining liquid and orderly markets. After a stint in risk management for hedge funds and corporations, I have spent the past 15 years as an Energy and related Financial Markets, Risk Management and Compliance consultant and am in the process of launching a boutique consultancy – Pivotal Risk Advisors – helping organizations exposed to commodity prices though organizational change and transaction support.
The trading pits made me who I am. They gave me a career. They taught me to think fast. They taught me the value of a dime. They embedded a value system of disciplined, controlled and informed decision making. And they helped me develop a unique specialized and thoughtful professional edge over those who did not learn and live the math of risk management, have accountability for daily profit and loss and know the commodity life cycle before learning an audit, quant, accounting or programming role.
The trading pits are closed now… but we are still just beginning. We have a lot of work to do to mature this industry and a lot of new risks to be managed.
Thank you everyone in the pits who helped make me who I am. You are missed.