Dazed and Confused

Back in October of 1987 I was making markets in the Eurodollar options pit at the Chicago Merc.
To go through a market crash of that magnitude was an incredible experience. People "blew out", were forcibly removed from the trading floor (just like on Trading Places--"turn on those machines...."). But also, people made so much money, some of them retired in their 20s, and were never heard from again.

I was not trading S&Ps at the time. Rather, I was trading options on Eurodollar futures. A Eurodollar CD (as opposed to a yankee CD) is a dollar denominated 90 day discount instrument that is deposited in a foreign bank (normally a London bank). And of course, the Eurodollar futures contract is a promise to make or take delivery of a 1 million dollar CD. And an option is the promise, not the obligation to make or take delivery of these futures contracts. It all sounds rather confusing, but are very straightforward concepts once you've dealt in them.

The notion of what caused the crash is not important to a trader. What is important is how a person responds to the markets in a reactive and proactive way. The trader is reactive by anticipating, but proactive by keeeping risk/rewards at their optimal levels. In the case of the Euros, the locals in that pit had all made bloody fortunes being "premium sellers". But with the S&Ps being down 8,000 ponts the day of the crash, one had to assume a BIG flight to quality in the short end of the yield curve. And in that respect, money was there for the taking, just by properly butterflying your position and properly managing the position "legs". (More Tomorrow)