1988 - Lucky Me
1988 - Lucky Me
"Billy! Billy!"
"Yes, Senior!"
"How much is the Sterling Drug call option, February expiry, 10 delta?"
"Delta 10? Just a moment!"
"Calculate it quickly and bring it to me!"
While I was reading and checking the clauses of various documents, the senior female trader began moving busily, shouting.
'No poison pill clauses.'
There was no major issue with opening the CMA.
Well, if they put poison pill clauses in the standard format they sell to other clients too, it would be a big problem.
'This is okay.'
Arthur Kim.
I signed it, set it aside, and examined the next document.
"65!"
"Are you sure?"
"I've finished the verification! For a 45-day expiry, delta 10, the strike price is definitely $65!"
"Current price?"
"$54."
"Good. Then put in the order!"
"What are the conditions?"
"Total $20,000! Cut it down to quarters (1/4)!"
"Not eighths (1/8)?"
"If there are eighths, of course we fill those first! You idiot! Are you kidding?!"
This familiar atmosphere.
Memories are flooding back vividly.
Filling down to 1/8 (12.5 cents) per share.
The clear intent to somehow increase the contract count and skim off commission.
'This is done too.'
The Risk Trading Enhancement Agreement is also okay.
"Yes. That's right! 65, eighths! All. Done! How many quarters are showing up?"
The man called Billy taps on a calculator while on the phone.
Should I have just asked them to fill only at the 1/8 tick?
Since they doubled the price, it's a bit regrettable.
"Hello. Matthew. Yes. I was wondering if Goldman has any call options left. Sterling Drug."
I could hear the voice of another nearby trader holding a phone and talking.
......It seems I was mistaken.
Let's drop the excessive greed.
Individual stock options probably have low volume to begin with.
That's why they're calling other IBs, not just the exchange.
"The option trading commission is $2 per contract."
"Wait a moment. Let's change this to a percentage."
"I'm sorry, but regulations for individual derivative trading are set as a fixed amount."
I quickly started mental arithmetic.
Options are 100 shares per contract.
Therefore, the premium is $12.5 (1/8), $25 (1/4) per contract.
A $2 commission for buying a $12.5 or $25 product?
That's disgustingly expensive.
No matter how expensive commissions are in this era, taking up to 16% is almost at the level of a highway robber.
Having to hit a 16% return just to break even.
It feels like loan sharks taking advance interest.
"No helping it. Instead, I'll pay the commission in cash."
"Cash?"
It's an unusual method.
Usually, it's common to handle it within the account or via transfer.
Paying the commission in cash means you have to wait inside the bank until all orders are executed.
"It's cold outside, so I'll have to spend some time here."
"Our bank's heating is pretty good."
The woman chuckled and nodded.
She might be suspicious about insisting on cash payment instead of depositing it, but not asking the reason is a banker's virtue.
They'll probably just note it as a special circumstance in the transaction record.
That level of risk is worth taking.
Unless it's a full-scale IRS audit, they won't look into it that far.
In the meantime, I finished filling out all the documents.
The agreement to deposit over $20,000 in the account by next month was a bit complicated as it wasn't a standard contract.
I also processed the tax forms, credit enhancement, derivative and various OTC product trading applications. With this, it feels like I've done everything I needed to for now.
There were many unfamiliar documents too.
I didn't know there were separate contracts like ISDA for retail investors too.
Until now, I thought they were contracts and products only institutions could access.
I only found out after regressing.
"Senior! Execution is finished."
"Bring it here."
The senior trader, having looked over the paper handed by the junior, extended it directly in front of me.
"640 contracts at $12.5, 480 contracts at $25. A total of 1,120 contracts have been executed."
"......Amazing. Honestly, I'm surprised."
"Our team is elite."
She boasted, straightening her back as if emphasizing her large chest.
Deservedly so.
A much better result than expected.
It's almost embarrassingly good.
There were probably only about 100 contracts floating on the exchange, and poor handling could cause slippage even with just quarters.
And they filled more with eighths?
Just how tenaciously did they pull in the volume?
With this, it's worth giving 10% as commission.
"The commission isn't a waste. Keep the change as a tip."
I took out $2,300 from my wallet and paid it readily.
They're happy to get their commission, and I'm happy to fill more cheap orders.
Win-win.
Billy's mouth corners, watching from behind, rose as if they would tear.
I don't know exactly, but probably $300~400 of this is his incentive.
In an era where frying potatoes at McDonald's from 9 to 6 gets you a daily wage of $30, he just earned their ten days' pay in barely an hour.
No wonder everyone is desperate to get a job at a bank.
"Can I contact you here?"
"For now, yes. I'll let you know as soon as I get a cell phone."
"Understood."
I left the bank, looking at the trade confirmation.
Current price $54, strike price $65, 1,120 contracts.
A satisfying trade.
Now I just have to wait for Sodak-nim's blessing.
I believe! Sodak!
Knock! Knock knock!
"It's Jesse, Kim! I brought the newspaper!"
I opened the door and took the newspapers Jesse handed over.
Ever since receiving the coat the day before yesterday, the kid has completely lost his mind, declaring free errands and receipt collection for life.
Of course, I prepaid for the newspaper.
"Thanks."
"Don't mention it! Is there anything else you need?"
"I'm fine."
It's rewarding that he likes the gift I gave him.
But there's no need to wear a long coat indoors in the morning breeze.......
No.
I was short-sighted.
If he goes outside wearing that in Harlem, his life would be in danger.
It's right to enjoy it indoors.
I've been away from here for too long, so I lacked consideration.
"What clothes are popular at school these days?"
I should rather get him a few cheaper ones.
"Triple FAT Goose?"
"......Haa."
I let out a deep sigh.
I remembered.
Goose jacking. Jordan jacking.
It was a Harlem folk game.
If you wear a Goose, you get stabbed; if you wear Jordans, you're found as a corpse.
Gangs are exceptions, of course.
So wearing or having those was almost equivalent to carrying a gun.
"Don't worry! I'll only wear it at home!"
"Right. Got it. Go on."
Harlem.
After sending Jesse off, I shook my head side to side, sat on the bed, and unfolded the newspaper.
"......Huh?"
───────────
January 5, 1988
<The Wall Street Journal>
[Hoffmann-La Roche Declares Hostile M&A; on Sterling Drug!]
Swiss pharmaceutical company Hoffmann-La Roche has declared a tender offer.
The target is the American pharmaceutical company Sterling Drug. The tender offer price is $72 per share.
Sterling Drug, which manufactures major drugs like Aspirin, Demerol, etc.......
.
.
.
───────────
The news about Sterling Drug splashed large on the front page.
'Roche? No, why is Roche appearing here?'
What's this?
Where did Sodak go?
'Did Roche and Sodak compete?'
In the previous round, I bought Sodak.
I only saw Sterling Drug as a catalyst for a stock price rise.
I didn't know the detailed information before that.
'The butterfly effect? ......Probably not. It's just a situation I don't remember. That seems more likely.'
Then it's clear the final acquirer is Sodak.
Because on the day they acquired Sterling Drug, Sodak's stock price dropped 15%!
I couldn't forget that.
'......More importantly, $72 per share?!'
I bought it at a strike price of $65 when it was $54, and now it's become $72 overnight?
Is this how a gamma squeeze explodes?
"This is insane!"
Does this make sense?
'$7 per share, $700 profit per contract, and with 1,120 contracts.......'
$780,000?!
I went to sleep and woke up to find $4,500 multiplied into $780,000?
It's bewildering.
Was the LBO era such a crazily running market?
'And the final winner is Sodak!'
Then that means Sodak raised the acquisition price and called.
I don't remember exactly how much they declared, but it should safely be around $80.
Expected profit is at least $1.5 million.
'Did I miscalculate?'
$1.5 million?
$1.5 million profit from $4,500?
This is a bit too much.
Let me calculate again.
'......It increased?!'
Doing the proper calculation, it's $1.6 million.
What the hell.
380x, a 37,900% return?
You're kidding.
"No wonder everyone made such a fuss back then......."
I muttered blankly.
In the previous round, during this period, I was just a weak newbie, so I couldn't understand the madness of those doing insider trading for LBOs and M&A.
But now that I've done it myself, I finally understand.
When dollars just get copied like this, how could your eyes not go crazy and your stomach not burst?
Knock knock!
"Kim! There's a phone call!"
"Okay! Got it!"
It's obvious who the call is from.
I stood up to take the call and looked at the clock.
8:40 AM.
The market hasn't opened yet.
But pre-market trading is probably already underway.
"Arthur Kim speaking."
- It's Diana from Merrill Lynch! Have you seen the newspaper?
"Yes. Just a moment ago."
- Congratulations.
"Thank you. Though it's a bit surreal."
- Huh? Didn't you expect it?
"Not at all."
- Goodness!
I need to watch my words.
It's true I didn't expect it, but if I'm not careful, I could get flagged for insider trading.
It's a situation anyone would suspect.
No one would think it's just a coincidence to make 200x in one day.
So I have to keep insisting I was just lucky.
"I thought that since Tokyo Prime's pharmaceutical stocks returned to their original positions, the US would couple with them."
- Indeed. That could be it.
"And Black Monday is gradually ending, so now is also the bottom."
This isn't a wrong statement even looking at the entire US stock market.
If I went into S&P500 futures, I could probably double my money by year-end, right?
It's just that it's much more profitable to put that money into the Nikkei, so I'm not going in.
- Shall we liquidate as soon as the market opens?
"No. Please continue holding."
- Personally, I think the premium will be highest today. I recommend selling around the $72 line.
"I don't think Sterling Drug will think that way."
- Do you see them mounting a defense?
"Yes. They'll call a white knight."
That would be Sodak.
Probably?
The probability is high, but I'm not certain.
Just in case, Roche's entry itself might be a butterfly effect or something.
"Just keep holding, please."
- Well. Anyway, the minimum price is confirmed! Congratulations once again!
"If I knew this would happen, I wouldn't have filled out the deposit agreement documents."
- Ahahaha!
What's $20,000.
It looks like I'll be depositing over $200,000.
- Senior! Volatility is insane! It already hit $70 OTC!
Billy's voice comes through the receiver.
- Just the pre-market alone, the unrealized gain is already $900,000!
It seems the premium is much higher than expected due to volatility and time value.
$900,000......
"This is crazy."
- Did you hear? It's crazy! It is crazy!
Actually, they've already received their commission, and if they get trading commission again when liquidating, that's it.
Meaning they have no reason to be happy whether the price goes up or down.
Yet, most bankers rejoice in their client's profits.
Rationally, logically, it's because the client's deposit leads to increased trading volume.
Well.
Personally, I think it's just because they feel good.
Wall Street is as pure in front of numbers as it is greedy.
There's an established culture of acknowledging and congratulating ability, even if jealous, when the numbers on the other party's ledger go up.
Rather, it's the world outside Wall Street that tends to not acknowledge profits.
Not all Wall Street financiers are the same, of course.
"Then please continue tracking it."
- Leave it to us. Ah! And could you stop by when you have time?
"Is there a problem?"
- Not that. I just applied for a credit card and checkbook. You need to come and fill out a few simple documents?
"I'll go in the morning. Thank you."
Good sense.
It's not easy to find a partner who makes trading enjoyable.
Somehow, it seems my luck is extremely good in this life.