Dazed and Confused

Unless market makers are "rich" or come from such families, they don't always trade with their own money. A typical trader deal be 50% of the profits, and no risk, with some allowance for a draw. Back in 1987, it required about $100,000 in an equity account please a seat lease on the exchange. Of course, the seat lease cost, trading fees and basically any other cost associated with trading was part of the "nut" (breakeven).

Most traders I know, figure out their "nut" in terms of ticks. So, if your IOM seat lease is $1500 per month, your "draw" is $3,000 and your monthly exchange fees are $400 per month, this
means that the draw postion really requires you to make $6000 per month to cover it. The other
expenses come from the "top" of the account. Of course the numbers now have changed radically,
but in principal, this is how it works today. And of course, on top of this, running a premium
debit requires you to finance a position, mostly at the broker loan rate +1.

So, a trader with a deal like that needs to make $6000 + $400 + $1500 = $7900. Now there are about 25 trading days per month, so your "nut" is $316 and that comes to about twelve ticks. So you know you have to make at least 12 ticks per day just to break even. If your account goes debit (you lose money) you have to make that up, too. You run it like a business. If you "blow out" (go belly-up), you work a deal with the clearing house to earn back the money by doing "order filling".

In my case, my deal was with a stock arbitrage firm. I traded with people who knew every tiny detail about the stock market and they were a NYSE specialist firm, But, the firm had no expertise and the firm hired me because of my programming and mathematical knowledge of the options market.

Of course, any specialist firm "caught" in the crash of 1987 would take a very skeptical view of
"eliminating" risk by "boxing up" an options position. And herein, were some of the seeds of "defeat" because I was forced to completely liquidate a hugely profitable position and "clear the books".

Moreover, I was not so sure that their NYSE losses would make me forfeit what I'd made. Overshadowing this problem was the fact that Continental Bank itself might be "in trouble".