From MarketWatch, June 26, 2006:
Editor's note: Todd Harrison is founder and CEO of Minyanville. [2002 - 2019 R.I.P.]
NEW YORK (MarketWatch) -- Things were finally starting to come together. After joining the Morgan Stanley Equity Derivative desk as a wet-nosed kid in 1991, I did the types of things that earn a young man stripes. I arrived each morning at 5 a.m. to "write up" positions for the head of the desk, Chuck Feldman, and spent the rest of my day clerking, quoting, fetching and running. It was modern day pledging minus the niceties of the college experience or the rewards of young co-eds. I didn't mind as I had my eye on the prize and knew that if I was gonna play, I had to pay.
A few years later, a random order in Chemical Bank morphed into a small set of positions. None of the seasoned traders on the desk followed the banking sector and I inherited the group by default. I wasn't allowed to facilitate customer order flow at first (take the other side of client transactions) but I slowly earned the respect of my peers and the latitude of management. In time, I was taking "floor markets" and expanding the size to capture customer order flow. I "caught" orders from all over the street as institutions lined up to do business with the aggressive kid from Mother Morgan.
Keefe Bruyette was the biggest bank player on Wall Street and the crown jewel of my fledgling treasure chest. It didn't take long for the relationship to gain traction -- I took a ton of risk through my aggressive facilitation and they rewarded me with a slew of new business. NationsBank. Manny Hanny. Mellon Financial. You name it, I made it and we traded it. I was only 26 years old but had suddenly established myself as a customer friendly producer with nerves of steel. If you wanted to traffic in a bank, you came to Morgan and left with a smile on your puss and some jingle in your jeans.
The First Interstate position began like any other. The stock was trading around $70 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 year). I checked the floor and found a market that was three dollars wide and fifty up (meaning that the customer could buy or sell 50 contracts on either side of the market). "Man, what odd-lots," I whispered to myself as I tightened the market and increased the size tenfold. "Whatever he needs," I yelled across the crowded floor "just get the order."
After a few days of steady accumulation and my attendant facilitation, I had a pretty sizable Letter I (for First Interstate) position. I was short the leaps to my customer and bought stock (along with any other options I could get my hands on) to hedge my short-side risk. Keefe became increasingly aggressive on the buy side and I was having trouble keeping up. The floor wouldn't stand up to their offers and it was all me, all the time. Finally, after several weeks, they asked me how big the position limit was. "8,500 contracts," I replied, "that's as big as you're allowed to get."...MORE
We were almost there.
To say that I was involved in Letter I is like saying that Google is involved in the internet. I was the "ax" and if somebody had something to do in the name, Morgan Stanley was the call. I was short massive amounts of the long dated calls and long a truck load of stock and assorted options against them. To add spice to the mix, all sorts of chatter began floating around that the stock was a takeover play. The sharpest bank trader on the street -- my customer -- was position limit and I wasn't going to miss the party. This was my chance to make a big statement and the size of my risk was matched only by my bravado.
I traded this monster for months. When I liked the market in general or the banks in particular, I pressed my bet on the long side. When I didn't like the tape, I shorted other banks against my book or slapped on an index hedge. Through it all, I never wavered from my conviction or abandoned the position. Everyone in the room knew the story -- heck, everyone on the street knew the story -- and I was sitting on top of the train, patiently waiting for it to pull into Salvation Station. Stress? Sure, but I had an edge and it was razor sharp.
It was a slow afternoon when Kim's Brooklyn accent cut through the quiet room. "How'ya makin' Letter I?" I looked at her and smiled, figuring that she was toying with me as she was known to do. Without missing a beat, I looked at my screen and cuffed the market. "The floor is showing 50 at 1/2, I'll make it 500. What do YOU want to do?"
"He needs a two-sided market."
"Really?"
"Yep."
I looked her in the eye, my smile now gone, and played the game. "21 1/2-23 1/2 500 up," I screamed, trying to sound confident despite the slight crack in my voice. "He'll sell ya' 500 at 1/2" she shot back, "and I've got 8000 behind it." I'm not sure if I breathed for the next several minutes but I took the order, slapped 500 on the tape and asked Kim if I could "get in shape." "Sure," she said, "lemme know when you can play." I called my NYSE broker to sell some of my underlying stock but by the time he got the order, every option lemming was already hitting bids. They knew the size of my position and before I blinked, they had already knocked the stock for a buck. And you wonder why option traders get a bad rap?
