It might be interesting to the reader
at this point, after reading so much of the techniques of the option
business, to know something of "years ago." When I first came into
the option business forty years ago, and up until about the time
of the "big break" in 1929, the holder of an option could trade
against it with no margin. His broker had to have coverage for just
the commissions and interest and any market difference. Often I
had Puts on 500 shares against which I would trade, back and forth,
as many times as the swings in the market would allow; margin was
not necessary because the option, guaranteed by a member firm of
the New York Stock Exchange, was sufficient margin. Not so today,
however. Today all stock commitments must be covered by the required
margin and the option is not a substitute for such margin.
"Years ago," Spreads and Straddles were sold so that the exercise
of one side of the option, before expiration, voided the other side
of the contract. The Straddle was made out as one contract and the
contract was surrendered to exercise one side.
"Years ago," there were no tax stamps required on either the Put
or the Call option.
"Years ago," contracts were made out in 500 or 1,000 shares, or
even in 5,000-share pieces, instead of in single 100-share pieces
as they are today. The largest trades I ever made were some 25,000-share
pieces, but 5,000-share trades were common. The largest trade I
remember was an order I had for Call options on 5,000 shares each
on 22 different stocks. The order was filled without too much trouble
in about 3 days.
"Years ago," very few option-dealers had their own offices. The
"market" was in a restaurant in New Street, New York City, where
most of the option-dealers congregated, and many large writers and
buyers of options would come to meet with their special option-dealers
and give an order. There were telephone booths and a ticker in the
restaurant, and the telephone booths were our offices. All the dealers
walked around with a pocketful of nickels, ready to use a phone
to call a customer and try to make a trade. (A phone call was still
a nickel in those days). Of course, we all ate in that restaurant—we
had to, for a customer might call and this was our "office."
"Years ago," we did a very large business in "2-day options." We
bought them for $25 or $30 per hundred and sold them for $35 or
$37.50. They ran from, say, Monday— that would be at any time Monday
that we traded—until Wednesday at 2:45 P.M.—the Exchange closed
at 3:00 P.M. in those days. We would buy Calls on some stock 2,
3, 5, 10, or 20 points above the market for 2 days. But the number
of points demanded for a Call was in proportion to the way the stocks
were moving. And if you knew which pool was going to move which
stock in the next 2 days, you could do well. There was a broker
in the business who would sell a Call on 100 shares of stock good,
for the next day only, for one dollar's worth of cigars (which were
seven for a dollar, then). The idea was to buy one of those "seven-cigar
Calls" and about noon the next day, if the stock had had a run,
to sell it for $25 or more—just for the rest of the day. I saw one
of my colleagues make $1,200 on a call like that.
All of the brokers would congregate in the restaurant after the
close of the market to "chew the rag." There was one fellow who
would sell lists—100-share Calls on, say, seven different stocks
at a price above the close with the Calls good for the next day—and
he might offer the whole list for $25 or $50, according to the list
of stocks. Very often, before noon the next day, the buyer of the
list sold one of the Calls for $100. Fluctuations were wide in those
days and stocks weren't split so quickly. Some of the leading stocks
sold over $300—General Motors, Mexican Petroleum, Texas Company
moved 10-20-30 points in a day. I remember selling a man Puts on
General Motors and Mexican Petroleum 30 points below the market
for 30 days. Those Puts cost $137.50 per hundred shares, but the
next day or so those stocks were down 40 points and the next day
they were up 30.1 sold a fellow a Call on Radio once for 30 days
at 100-the stock was 89 and the Call cost $137.50. There were 100
points in the Call when it was exercised.
"Years ago," there were two individuals in the street— not Put and
Call brokers exactly—who traded for their own account. They bought
Spreads—they would buy a Spread on 500 Studebaker selling at 80-Puts
at 72, and Calls at 90, for 30 days for $200 per 100-share Spread.
If the stock went up in a few days, they sold the Call for $200,
and then if the stock declined they sold the Put for $100 or $200,
according to the price of the stock. But one partner wouldn't sell
a contract unless the other partner agreed, and it was funny to
watch one partner run up and down New Street looking for the other
to O.K. a contemplated sale of a contract. Sometimes a broker would
ask to have the contract "in hand" for a few minutes to see if he
could sell it. He'd disappear into a nearby brokerage office and
wait to see if the stock moved and then come out to say, "O.K.,
I sold it."
"Years ago," I remember trading a Call on 10,000 shares of Pan American
Pete at 11:00 P.M. at night. When I first started, I did the trading,
I made out the contracts in ink—who owned a typewriter?—I made out
the checks, I delivered the contract, I picked up the checks and
made the deposits, I opened the shop and closed the shop; I was
the business. But all of the option-dealers did very well. After
a while I chipped in with another broker and we hired a boy for
$15 a week to stand at some phone booths in a nearby building (these
phone booths were our branch office), and if we were wanted on the
phones down the street our boy would come running after one of us
"big shots" and whoever was wanted would run up to answer "his"
phone. What fun if the restaurant phone wanted you at the same time!
But we had a peculiar sense of honor in those days. If I was sick
for a time, one of my competitors would answer my calls and do business
for me, and upon my return to work, he would give me a list of the
trades he had made for me, along with a check for my profits. And
though every one of us was a competitor and would try to offer an
option better than the next fellow, the broker who took care of
the sick fellow's customers would not, on the latter's recovery,
solicit business from his fellow broker's customers. It just wasn't
cricket. I had pneumonia once after I had been in business about
four years. At the time I was trying to follow a buying pool—only
I didn't know that it was selling in another place. I lost my money
and worried about my wife and kid, and got sick and contracted pneumonia.
I was home for about four weeks, but one of my competitors took
care of my business and wouldn't take more than a "thank you" for
it.
While I still had my office in my hat—I mean the restaurant—I made
a trade in 500 shares with an English fellow I had seen around "the
shop," and as he said, "I'll take it," he winked his eye. Trying
to be careful because I couldn't afford to make a mistake, I asked
him again if it was a trade and again he said, "I'll take it," but
gave another wink. I went over to one of the boys and asked him
about this fellow, who, every time he said, "I'll take it," winked
at me. They reassured me that the sale was O.K.—he just had a nervous
twitch—but I was scared.
Despite the length of time I've been in this business, I can remember
almost all of the mistakes that were made in trading, they were
that few. It's amazing because of the millions of shares of options
that are traded: a Put is a Put and not a Call; 100 is 100 and not
500; and Steel is Steel and not Studebaker. I hope I don't jinx
it, but I can't remember a serious mistake in our office in almost
10 years.
Just to show how mistakes were not made—often we would call a certain
seller of options at his home at 7 P.M. (he was a fellow who had
quite a thirst—so much so, that his tongue thickened) and we'd trade
a thousand or two with him, and next morning our contracts would
come in 100 per cent perfect—just as they had been traded. I don't
think there is another business in the whole wide world that has
had as few errors in the last forty years as the option business.
And it's fast—we've over 50 phones on our trading table, and on
a fast day the twelve ears and twelve hands that our six traders
have can't stop for a minute; still, I think it should get an "Oscar"
for being the least understood of all Wall Street businesses.
And speaking of "years ago," the following pages are reproductions
of a few pages of a book that was given to me. The book fascinated
me so much that I had a limited number of copies made, not only
because it tells of the option business and the stock-exchange of
those days, but because I felt it was a museum piece. The frontispiece
is dated 1875. One of the sketches shows the Sub-Treasury Building
at Wall and Broad Streets, New York, but there was no statue of
George Washington in the picture, as there is now. I investigated
and found out why: George was put there eight years after this little
book was published. I have added these few pages of this little
book to mine because I thought that the reader would be interested
in it. I hold the original in my Wall Street "Put and Call Library"
for posterity.
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