1988 - 1st Quarter (10)
1988 - 1st Quarter (10)
The US Treasury futures had already left my hands.
All my bullets were spent, and even if the price rose, all I could do was watch.
There was no stop-loss, so I would either take a profit or face a forced liquidation.
If the price fell and left unfilled contracts, I would have to chase and buy more, but that wasn't something I needed to worry about yet.
"Ara. Pull up the grain market status. Soybeans."
At my words, Ara typed a command into the terminal and switched the screen.
"...Huh?"
What's this.
I definitely thought the grain prices would fluctuate due to the breaking news.
Well, they did fluctuate a little.
'But it's falling?'
What the hell is going on?
"What's wrong?"
"I have something to think about."
Both Reuters and Bloomberg had breaking news.
Clear signs of drought.
News that should inevitably push futures prices up.
Yet the price is falling.
And it's even approaching the lower limit.
Since I can't know the situation on the trading floor, I don't know if it's a flood of sell orders or a price collapse.
"The full amount was executed at 22... Sir?"
"Shh. Please be quiet. The Boss seems to have something to think about."
Should I have studied commodities a bit more?
I never even glanced at anything other than gold and oil, and now it's coming back to bite me.
'No. Does the reason even matter?'
I am no longer an ordinary fund manager.
The fund is also not ordinary.
It's different from the past where I had to be absolutely sure and check everything twice if the reason and basis weren't clear.
I am certain that a drought is coming.
Unless this isn't the Earth I lived on, but something like Earth 102.
Therefore, the current lower limit is actually a bargain sale opportunity.
Yet, several problems remained.
I lacked funds, and time was also insufficient to use the omnibus account.
"David."
"Yes."
"Inquire with the CBOT about the speculative position limits for soybeans and corn."
"Understood."
He seemed a bit flustered by the sudden instruction regarding grains instead of US Treasuries.
But he quickly nodded and began giving instructions to the staff.
'Let's assume we can get the money by borrowing from banks with open credit lines.'
Ultimately, the amount we can accumulate depends on how much limit the CBOT grants.
About 3 minutes passed.
"They say they'll open up to 150 contracts!"
"150?"
"Yes."
Smaller than I thought.
Is it because of the positions entered through the omnibus?
Are they worried about market disruption?
Nothing to be done.
'Then I guess I don't need to worry about the price. Is it better to go for in-the-money or deep in-the-money?'
If I can only buy a maximum of 150 contracts anyway, there's no need to struggle for out-of-the-money.
Out-of-the-money is a structure for buying large quantities cheaply and squeezing out extreme profits.
If large-scale purchases are impossible, it's better to just buy at the current price (ITM).
"Check the premiums for in-the-money and deep in-the-money soybean options. As fast as possible."
"Understood."
As if they were already prepared, the staff picked up their phones at just David's hand gesture.
Since the terminals didn't yet provide option information, they had to find out directly.
"620C is 30, 600C is 40, 550C is 75 cents."
"At the lower limit?"
"Yes."
The current soybean futures price had already reached the lower limit of 620 cents.
It can't move below that.
Because of the special rule unique to commodities that prevents prices from rising or falling below the exchange-set amount.
"Look at these?"
"What's the matter?"
"The 550 strike, but it still has 5 cents of time value attached."
"Why is that?"
"Drought breaking news came out, futures prices plunged to the lower limit, yet the option premium value is alive, no, it has even risen relatively."
Ara tilted her head.
It seems her experience is still insufficient to grasp this all at once.
"Ah! Those bastards! They're plucking the ants!"
"That's right."
David seemed to have realized.
"Plucking ants?"
"It's called stop hunting."
"What's that?"
"News that a drought is coming reaches institutions like us first. Probably because we have terminals."
"Yes."
"Then small offices or individuals get the news later, right?"
"Probably?"
"And they have stop-losses set."
This isn't the era where you set it on a computer.
It's an era where you have to call your IB and tell them to cut losses if it falls below a certain price when placing an order.
Meaning, the IBs are looking at all their clients' stop-loss lines.
"So the IBs are dropping the price to that level?"
"Exactly."
"Why bother? If they spend money to drop the price, wouldn't the IBs also take a loss?"
"Because there are no sellers in the market."
"...Ah!"
If everyone shouts buy, only the price skyrockets.
In a normal market.
But grains?
A product with set upper and lower limits.
At best, it's all about 1-3% profit and loss.
"They're deliberately smashing the price to take the clients' positions for themselves. Because the positions hit by the stop line automatically come out as sell orders."
"Hooah... That's vicious."
"Everyone is preparing long positions. And in large quantities."
For the institutions that knew that information in advance, there's not much fun to be had, but the loss range is also small.
Seeing them pull this shit even though there's a limit to how much grain you can get into, it seems other grain distributors might have joined this game.
But from our perspective, it's none of our business.
We already confirmed our position through the omnibus, and we can only add a measly 150 contracts.
"How much for 150 contracts at the 550-cent strike?"
"It's $562,500."
Even deep ITM is only that much?
Since futures and options share a limit, there's no need to buy futures.
Since the products are separate, 150 contracts for corn too.
Then it's roughly the $1 million level.
"Connect me to Goldmun."
"Understood."
After that, nothing was particularly complicated.
Using Goldmun's credit loan, we secured 150 soybean and 150 corn contracts deep ITM.
One phone call was enough.
ITM had plenty of supply in the market, so there was nothing difficult about it.
The moment I placed the option order and put down the receiver.
"Huh? This, something seems a bit off."
"What is it?"
An employee tracking short-term US Treasuries raised his hand.
"Just now, the interest rate dropped a full 25bp in an instant."
"25bp?"
"The cause is still unknown, but it doesn't seem like a simple spread."
"Probably. Good catch."
Has the Fed started moving?
"What about the US Treasuries?"
"Fully executed at 22."
"Good. Close the US Treasury futures position."
"Tha... The price is still rising though. It might soon reach the margin call line."
"It's fine. The Fed has started moving, right?"
"25bp is definitely a surprising move, but it might not be the Fed."
"It's the Fed."
It has to be the Fed.
Even without the Status Window chart, in the current situation where signs of inflation are clearly visible, not raising rates would be dereliction of duty.
And even if the Fed doesn't move, it doesn't matter.
That 25bp alone will make the market follow.
If I can be sure of inflation signs just by looking at data, wouldn't the other Wall Street bastards be too?
Everyone will be of one mind to lower bond prices.
"22! 50, done!"
"Here, 70 contracts completed!"
"Good. Very good."
In Salomon Brothers' prop trading room.
There, a man was smiling, blowing cigar smoke.
The unseen king of the Prop Trading department.
A man named Bradley Erickson.
"Who could it be?"
"Who knows? Is that important? What's important is that they foolishly exposed their position."
"True. Still, it's fortunate the market is following us."
When someone exposes a large position, the market reacts in two ways.
One is to move the price in the opposite direction to eat that position.
The other is to jump on that position and preempt the price.
"There's no information about US Treasuries that we don't know, right?"
He blew out smoke and sneered.
Salomon Brothers is the king of bonds.
And the bond department, the biggest pillar moving Salomon, doesn't function without the prop trading department.
Therefore, Salomon's prop trading department could pride itself on being the biggest hand in the US bond market.
Someone using information Salomon doesn't know to go short on US Treasury futures?
That could never happen.
"Order book empty at 22! What should we do?"
"Uhahahaha! I'm full! How many did we eat?"
"1,527 contracts."
The order book at 22 ticks was empty.
Meaning they digested all the orders that were over 1,900.
And also meaning that scared people were no longer placing orders.
"Missing 400 is a bit regrettable."
"But we ate enough, right? How high should we push it now?"
"With that many orders, what do you think the margin line is?"
"Shouldn't we aim for around 97?"
"97... That'll cost some money."
"That should be considered investment capital."
"That's true too. Good! Up to 97..."
The moment they were laughing hahaha, about to chew and swallow the prey in their hands.
BAM-!
The door opened roughly and an employee rushed in.
"What's going on?"
"Chief. This..."
Bradley's face began turning pale as he received a single sheet of paper from the employee.
[FOMC, Plans 50bp Rate Hike]
"A hike? At this timing?!"
"Chief, what's wrong?"
"Look at this."
The employee he was talking to also gasped upon seeing the paper's contents.
"Oh my god!"
"There were definitely signs of inflation being stimulated, but..."
"This is serious. I thought the new Fed Chair was a dove."
"Maybe Paul's influence remains. Damn it! Anyway, not good. Did those bastards know this information?"
"Before us? Who on earth...?"
"We'll find out later! For now, close the positions first!"
"Understood!"
But it wasn't too late.
That paper contained information not yet released to the world.
Of course it's illegal, but if you worry about that, when do you make money?
"Damn bastards. I don't know who you are, but just you wait."
If we close properly now, Salomon won't take a loss either.
Yet.
It felt like the incentive to buy a yacht was slipping through his fingers, and Bradley gritted his teeth.
"Arthur Kim from K&M."
"Avoid the Prop and Bond departments today."
"They're probably really pissed off."
The force that took our position was probably Salomon.
Of course I don't know who, I just guessed.
Out of many candidates, Salomon had the highest probability.
If I'm wrong, well, there's no loss anyway.
For me or for Mickey.
"More importantly, are you still updating the 30-year and repo?"
"Good. We'll start buying around May."
I looked at the projected profit sheet I had organized.
───────────
<88 Point Liquidation Scenario>
[1st Batch]
Position : 5,720
Average Entry Price : 94.375
Projected Profit : $36,465,000
[2nd Batch]
Position : 1,590
Average Entry Price : 93.500
Projected Profit : $8,745,000
[3rd Batch]
Position : 3,551
Average Entry Price : 94.843
Projected Profit : $24,302,156
Total Projected Profit : $69,512,156
───────────
"National, please prepare $2.7 billion for us."
From the other side of the receiver, Mickey's dumbfounded voice came through.
