Daily Speculations

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Stock Tradin'

By Victor Niederhoffer and Laurel Kenner


A typical day in the market seen in the light of Ben Green's Horse Tradin' , a book we cannot recommend enough to Speculators in any market. 

Scene is before the Chicago open on Tuesday, April 14, 2004. S&P futures are trading at around 1128. From there, they fall to 1120, rise back to 1128, fall back to 1120 and then go to 1130 at the end of the day. (We have taken the liberty of chopping off some digits so as to make the comparison between S&P prices and horse prices more convenient.)

S&P 500 June futures

Source: Bloomberg LP

Young trader: "You want to trade stock?"

Old trader: "You know, son, I'm very happy with these horses, and I have no interest in selling at 260, or even 280."

"That's OK. I got my money tied up tight in a bag on top of this nice mule, and he's good at working the crops. I don't have to worry about the war or the country banks going under, so I'll just ride him home and enjoy the summer."

(Young trader gets on horse; S&P prices fall to 220.)

"Son, lucky for you I just recalled have to leave the country next month. So I will trade with you, if you want."

"I'm not really interested in buying. But if I were, I couldn't give more than 200 or so for that horse."

"Well, I just might be interested in selling at that price, because I don't want to have to deal with the professionals when the auction house opens for business at 9:30 a.m."

"Sure, they'll try to fleece you. I can save you the trouble of dealing with them."

"OK, I'll sell at 220. How many you want?"

"Well, all I need is one."

"Fine, son."

(Hands over reins to young trader. Futures jump back to 280. It's 9:25 a.m., five minutes before the auction house opens.)

Young trader: "Well, just a minute now. Might be good to have one to take care of the field work for the corn. I might just take another one at 220."

Old trader: "Well, on second thought, I don't have any more to sell at 220, but I have a very good one I'm fixing to auction at 300 when the big money gets in at around 10 a.m."

"Well. I might give you my mule. He's worth 250, easy, and I'll throw in 50 boot."

"OK. You got a great bargain there, son."

(Young trader saddles up second horse and rides a short distance. Turns heel, comes back toward old trader.)

"Just a minute. That horse you sold me is blind and lame, and the paint on him is washing off in the rain. He's so old he's about to expire. Ain't going to do me no good during a war when no one's buying."

"Son, you bought him. The lesson you learned ought to be worth 300 bucks at least. I'll take him back from you for 220 and we'll call it a day."

"My partners insist on a profit."

"Young feller, I'd like to give you a profit. But I don't have that kind of money. especially not with that mule you traded me lying on its back and refusing to pull the wagon. Anyway, that $50 is doing me no good with the bank practically making me pay them to park my money with them."

"Fine, I'll just keep that horse and see if I can find someone back home who appreciates how age makes him so much better."

"OK. I'm really not interested in trading, anyway. I'm just a buy and hold man, interested in the improvement of the economy and the breed. (It's now almost 4 p.m.; futures jump from 220 to 300 on optimism about a big corporate earnings release scheduled for 4:15 p.m.) "On second thought, you're a great young cowboy with everything in life to look forward to. I'll buy him back from you at the original price of 300 after the auction market is closed."

"OK, I'll give him back to you for 300. But something tells me you're looking after your interests a lot better than I'm looking after mine."

-- Victor Niederhoffer