Anybody that knows us well enough (or has consistently read this blog), knows that we can’t resist a movie/documentary about trading or markets. Recently, Futures Magazine has been on their game, sort of re-releasing market documentaries on their website about the trading floors in Chicago. We’re not going to hide that we weren’t too impressed with their last film, “Floored,” which we thought made floor traders appear as drug addicted losers (which, I’m sure there are a few, but the grand majority are not).
Fortunately, that wasn’t the case for the latest re-release – last year’s documentary, “Cancel Crash,” which celebrated the 25th anniversary of the 1987 market crash by the floor traders of Chicago as the saviors of the stock market’s Black Monday crash.
From the start, “Cancel Crash” shows a collage of news reporters in the cheesiest of 80’s fashion, describing the stock market crash occurring on Black Monday, 1987. As many of us might recall, the Dow plunged 505 points in a single day, a 22% drop. As Futures Magazine put it, “$500 Billion worth of stocks vaporized.”
But the story within the story was what was going on the next day, October 20th. Many of us now look at that day as the single best buying opportunity maybe ever. But it wasn’t that easy. The real story is there were no buyers the next day, to the point where the specialists on the NYSE who were supposed to be the buyers of last resort would not step up and offer to buy any stock. With no public buyers, and the specialists unwilling to step up – there was essentially no market, with bid/offer spreads insanely wide. With no last price at the NYSE, the market makers in the CBOE (the options exchange for NYSE stocks) weren’t quoting any prices on the options on those stocks. And finally, in the S&P 500 pit in Chicago – the clearing firms were pulling traders who cleared their firms out of the pits because they had too much exposure already. As one trader puts it:
“I was in the S&P pit. What I remember most was that the clearing firms came down and took most guys out of the pit and didn’t let them trade because it was too dangerous. Only a few of us were left and we just tried to stay short because we knew what was going down.”
So next thing you know, the market is looking at the NYSE, the CBOE, and the CME closing because there are no buyers; sending further panic through all market participants. But the CBOT stayed resistant, remaining open, trading MMI Futures (Major Market Index) which was a market linked to a portion of companies/stocks in the Dow (essentially an earlier version of Dow futures, since there was no Dow futures at the time).
And it was in the MMI pit, so the movie says, where one trader – Chicago market maker Blair Hull – did what no other trader would do….BUY the plummeting market with 150 contracts between prices of 285 and 292. Being a thinner market with much less volume than the S&P futures across town, these 150 contracts sent the MMI futures screaming higher, moving 25% higher in hours.
The move in Chicago was enough to catch more than a few eyes, for it represented a huge arbitrage opportunity where someone could buy the actual stocks represented by the MMI index from the NYSE, and sell the MMI futures in a like amount to lock in an instant gain. And the rest is history, as those seeing the arbitrage opportunity came roaring back into the market buying up what the specialists would not and stabilizing the market from what had seemed like a bottomless fall hours earlier.
This Documentary takes those with years of experience on the floor and puts you into the action, describing the atmosphere on Black Monday as, “Civil War like,” with people crying, and fear overtaking grief for the first time they can remember. For those unfamiliar how futures, the pit, or how orders used to be fulfilled before the days of computer trading, “Cancel Crash” is a blast from the past educational experience with a gripping story line.
We don’t want to spoil you with too many details. With the documentary only 45 minutes long, there’s no reason not to pop some popcorn, head on over, and learn a thing or two.