October 19, 1987

Posted by Jeff Carter
on October 19th, 2012

CHICAGO, IL - DECEMBER 31: Traders sit in a ...

(Image credit: Getty Images via @daylife)

That was the wildest day I remember ever, and I wasn’t even trading. I started trading in May of 1988. At the time of the crash, I worked for Roger Carlsson. He was a Eurodollar Options ($GE_F) trader. I clerked for him, did his out trades, and then after the market closed, did his position and made his sheets for the next day. My day usually started with a 5AM wake up, and I wasn’t finished until 5PM.

Most people forget, but the week before the crash, the market was down significantly just about every day. It’s not as if everyone woke up on Monday and felt like selling. The sell off Monday had momentum.

Prior to the S&P ($ES_F) open, the Eurodollars were already trading. They swung wildly. Typically, you’d quote the Euros in one tick increments. That was worth $25. In a crazy day, the market would move 5-10 points. We were quoting markets that were 10 ticks wide. It was ricocheting all over the place. Once the SPUs opened. It became a madhouse.

It was always hard to get a break. But on this day, it was hard to get away to even go to the bathroom. I remember there were brokers that refused to fill orders for people. If they didn’t know you, they’d tell you to scram. Traders cleared out of certain pits. The New York markets shut down-but we stayed open.

Tick tick tick, the market roared lower with every trade. During that day, I remember Roger and a broker, Wayne Friedman putting an order in the SPUs. They had thought they found a technical point in the market where it might stop. I took their order over to the SPU pit. Before I got the fill back to them they were out $25K. That was in less than five minutes.

At the end of our trading day, Brian Brophy and I walked over to watch the action. It was a struggling, sweating mass of humanity that had all the grace of a freight train engine flying down the tracks. We looked at the quote board and the market bounced around like a ping pong ball, but with every down tick, it went lower. I recall the market being 8000 points lower on the day. It finished the day down over 20%. Shocking.

When the closing bell rang, we knew we had seen something historic. I went upstairs and started doing the post market work that I did every day. It took me until 11PM to finish. I drove home, 45 minutes. Slept for 3.5 hrs and was back on the floor doing out trades the next morning at 4:30AM. I did out trades. I made a couple of price changes because they had been keypunched incorrectly. Roger asked me if everything was okay and I said, “Yeah”. What I forgot to tell him was those price changes cost him $100k! That’s how much prices were moving. Everyone did out trades until right before the opening bell at 7:20 AM.

The Eurodollars opened 350 points higher.

Oh, the stories you could hear from people that were in the pit on just that day, October 20th. It wasn’t just the pit I was in. No matter what you were trading, the market was affected. Even the meat traders had huge moves from spillover effects. Some firms had to sell out long positions just to cover margin. The stories are amazing and would blow your mind. For example, the S&P pit almost didn’t open. All trades had to be settled, and margined from the previous day. One house, can’t remember if it was Lehman, Shearson or Smith Barney, didn’t have enough cash in their accounts to cover their trading. It would have been the first time in history a market didn’t open for that reason, but they came through with the cash around 15 minutes before the opening bell.

Years later, when I was on the CME Board, I sat next to Gerry Corrigan. We chatted about the LCTM mess and he said, “other than the crash, that was the closest I had seen the world come to total financial meltdown.” I don’t know what he thinks about today, but his statement was pretty enlightening.

If you ever get the chance to get a person who was there talking about it, query them and then sit and listen. I don’t care what you have been through in trading, there was no day that has ever matched that day. I have traded through some pretty nasty stuff since I started in May of 1988-and nothing compares to it. Long Term Capital (1998) and the crash of 2008 aren’t even close.

One person I know was out so much money he couldn’t afford to cover it. Shrugging his shoulders, he kept the position on, and by the end of the day, he made mid six figures. Some guys sold the open, spread it off and made a million dollars on that one trade. Others saw their entire lives ruined because they came in with bad positions and were forced to cover.

Those days of human drama relating to a market are long gone. But, I fear the chance for an inadvertent crash is closer than you might think.

….there are some old time traders that read this blog that might want to chime in with their own story of that day. If you were in diapers then, you might chime in with a story of your wildest day ever.

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