Hempel Amy - Pit bull: lessons from wall streets champion trad

I would like to thank my family for their universal support and encouragement throughout my life. To my parents, who oftentimes sacrificed greatly to give me the best education and a loving and honest home. To my brother, Gerry, who spent many hours teaching me to be a better athlete and a better person. To Pappy Snyder, who represented the epitome of optimism and left me with the legacy of his journal to continue the story. To my wife, Audrey, who is the rock of the family and able to demonstrate great humanity and wisdom. To my children, Stacy and Bowie, who teach me how rewarding and challenging it is to be a good parent.

To Dave Morine who had the vision and skill to bring me through this project. To Ruth Morine for her constant cheerful encouragement. To Paul Flint for his marvelous intellect and good humoronce a Marine, always a Marine. Semper Fi. To Jim Levine, my agent, Amherst classmate, and friend, for his patient guidance and professional skills. To Morgan McKenney, my superb assistant, for her energy and drive in helping me finish the last chapter, The Pit Bulls Guide to Successful Trading.

To all of the people at HarperBusiness for their help in bringing this project homeyou are all first-class. To Adrian Zackheim for gambling on a first-time author and seeing the project through. To Dave Conti for his superb editorial skillsyour suggestions made the book much better. To Lisa Berkowitz for her marketing skills and promotional contacts. To Janet Dery, Maureen Kelly, and Amy Lambo for making this project easier.

To all of those unnamed people who have taught me so much both good and bad along this journey that is called life.

Thanks,
Buzzy

Three Bid for Ten, Three Bid for Ten, Three Bid for Ten. I kept saying it over and over in my mind like a mantra. If Mesa Petroleum hit 625/8, I was going to try and buy ten October 65 call options at $300 per option. Each option would give me the right to buy one hundred shares of Mesa stock at a strike price of $65 per share any time up until the third Friday in October, the expiration date of the call option. This was going to be my first trade from the floor of the American Stock Exchange and I was scared to death that I was going to screw it up, that I wasnt going to be able to hack it as a trader.

It was Monday morning, August 13, 1979, and Trinity Place was bustling with men in business suits heading to work. New Yorks financial world was preparing to start another day. I stopped outside the entrance of the building marked 86, took a deep breath, pulled out my badge, and for the first time walked through the door that said Members Only. The guard looked at my badge, saw that it said Martin Schwartz & Co., 945, nodded a good morning, and let me in.

I turned left down the stairs to the coatroom. Members were lined up at the counter, exchanging their sport jackets for their blue smocks, the official garb of the American Stock Exchange. Since it was my first day, I didnt have a blue smock, so I had to introduce myself to Joey Dee, the attendant, and give him my badge number, 945. I put on my smock, pinned on my badge, and checked to make sure that I had my pen. Men in blue smocks were sitting on benches all around me changing their shoes, putting on crepe soles and shoving their leather ones into the cubbyholes that lined the walls. I couldnt find a seat so I decided to change my shoes later. Having crepe soles was the least of my worries.

I went upstairs to the members lounge to await the opening. Walking into the members lounge of the American Stock Exchange was not like walking into the Harvard or Yale Club. The cloud of smoke that hung over the room came from cigarettes, not pipes; the furniture was covered in Naugahyde, not leather; and the members were mostly Irish, Italians, and Jews, not WASPs, or at least WASPs who had gone to the right schools. These guys were the B team of finance, the direct descendants of the Curb Exchange, the group of bootleg traders who ran their books on the streets outside the New York Exchange from the 1890s until 1921.

I made myself a cup of tea and walked out onto the floor. The morning light streamed through the enormous windows that take up almost the entire wall on the far side of the Exchange. Its a huge room, about three-quarters the size of a football field and easily five stories high. The floor was set up a lot like an indoor flea market. Specialists, guys named Chickie and Frannie and Donnie, the people who made the market on specific stocks and options, were perched on metal stools in front of horseshoe-shaped racks of pigeonholes going through their orders. There were different pigeonholes for different stocks, options, expiration dates, strike prices, day orders, market orders, whatever. The other members, the traders and brokers, were wandering around, pens and tickets in hand, getting ready to buy and sell.

Above, in the balcony, which was suspended over three sides of the floor, representatives from the brokerage houses sat in tiers, checking their phones and spotting their runners on the floor. Between them, on the near wall, spectators were beginning to file into the visitors gallery. Holding everything up were huge Roman columns with bulls and bears sculpted on either side and binding it all together, like the ribbon around a huge box of candy, was the big Trans Lux ticker tape. The tape ran along the walls blinking out the prices of all the stocks while just above it the Dow Jones wire flashed the latest news. Even though the Exchange had yet to open, all eyes were darting around searching for quotes and other bits of information that might give them an edge.

Precisely at ten, the bell rang and everyone started moving. They reminded me of horses breaking from the gate, except now I was part of the race. I galloped over to the far corner where Mesa options were traded. A noisy little crowd of blue smocks was gathering around Louis Chickie Miceli, the specialist. The specialists for stocks and options on the Amex were responsible for maintaining orderly markets. As the specialist for Mesa options, it was Chickies job to facilitate buy and sell orders for other brokers and to trade for his own account, constantly adjusting the market price so that the supply matched the demand.

Chickie! shouted a broker from Merrill, How are the Oct 65 Mesa calls, Chickie? He was coming in from the edge of the crowd with a public order.

Three to a quarter, fifty up, Chickie said. I had to work through in my mind just what they were saying. Chickie would buy up to fifty October 65 Mesa options at a price of 3 and sell up to fifty at a price of 3. Since an option represented one hundred shares of stock, that meant that at this moment I could buy up to fifty options for $325 per option. Each option would give me the right to buy one hundred shares of Mesa stock at a price of $65 per share at any time between now and the third Friday in October. I was betting that before then the price of Mesa would go up, making my options more valuable. But 3 was too much. I was willing to buy ten options at 3, for a total of $3,000. The mantra kept ringing in my head, Three Bid for Ten, Three Bid for Ten.

Three and an eighth bid for ten, barked Merrill.

Sold, yelled a guy from Hutton. The Hutton broker had hit the bid from the floor. If he hadnt, Chickie, as the specialist for Mesa options, could have hit the bid at 31/8, or could have placed it on his book. I wished that my ear was attuned to the language of the floor. That would come with time, I hoped.