Inside the Criminal Mind
May 07, 2010
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Usually I will have some major subject or context behind a blog posting - this time it is merely to describe just how speechless I am at the events which transpired today and how seemingly dirty I feel after moving in and out of the market as much as I did today.
Some of the trades that I made today were absolutely criminal! Due to the financial markets glitch or whatever they want to refer to it as I was able to take advantage of the complete liquidation of front running SPY call limit orders and prey on those with market orders for almost an hours time! What I was able to do is absolutely criminal and I'm in disbelief that it was as easy as it was and completely legal somehow. The contract in question that I traded during this time period was the SPY 120 calls. I had gotten myself into a small position of SPY 117 puts a week ago and about an hour prior to the route I had decided that I'd take a very unexpected 175% gain on these and run away tail tucked between my legs, what happened next completely stunned me....
Within 10 minutes of exiting my SPY 117 puts I decided at S&P 1150 that I'd seen enough and a 10 point rebound seemed likely. Volatility had been rising and things looked reasonable for an options bounce we'll call it. Sure enough over the next hour or so the S&P 500 rallied 7-8 points and I felt good, but was unwilling to sell, then the Greek protests began. I watched with utter disbelief and sheer silence as the market obliterated nearly 1 trillion dollars worth of wealth and shed upwards of 700 points or roughly 7% of all indexes values in about 15 minutes. I didn't know at the time that this was due largely to a trading platform glitch, but still I saw an incredible opportunity but was staggered with what to do no such short notice because that is normally not how I trade. As the market bottomed out at down 9.3% and began its ascent I figured I'd check my SPY 120 calls to see how worthless they were.... to my staggering bewilderment they were actually trading HIGHER than where they were when the S&P was 70 points higher!!! Allow me to repeat that... I bought calls, a bullish bet on the future price movement of the SPYDERS index, within a 2 week and 1 day timeframe, to hit a strike price of 120, and the index fell 7 points, or almost 6% since my purchase price, and I was actually getting a higher quote per contract.
What I believe had occured is something I had only dreamed of but never actually witnessed before and no I'm not talking about the complete tail between the legs and run away method which I've often questioned of institutions before. I actually believe that every single limit order got wiped out on the way down and it left nothing but a few stragglers due to gapping and a few loose market orders. Absolutely staggered to see the SPY calls trading as high as they were I unloaded for a roughly breakeven figure despite the S&P 500 going into freefall. This is where things really got interesting....
I don't know what compelled me to do it, but I decided to place another trade on the SPY 120 calls. Under normal circumstances this would be a pure suckers bet and it would have almost no chance in hell of reaching a strike price this high in a matter of 2 weeks but the pricing of this particular option was so irrational it was worth a shot. What I saw next put me into the 7th level of speechlessness. Trades were coming across the tape as the S&P 500 rallied from 1065 to 1095 or so in a matter of 5 minutes on this call at 6 cents, then 33 cents, then 20 cents, then 38 cents...it was pure anarchy. I put an order in at 20 cents and it was filled almost instantly. I turned around at put a sell order in at 30 cents and was filled before I could click the order button I'd swear! 50% and it took me about 12 seconds round trip! I went on to complete a few trades like this today before reality finally caught up with my highly erratic options strategy. I still feel I have a pretty good price on my SPY 120 calls going into Friday with the volatility index trading as high as it is.
What I did today stinks of wrongdoing and yet it is somehow completely legal! I am dumbfounded that such a simple flub in our computer system could send trillions of dollars into chaos like the way it did today. I am bearish on the short-term market but I am talking about an orderly march downward, not an cataclysmic implosion caused by data errors in our trade processing centers. There sure as hell be a better answer over the next few days than "a trading glitch" because as profitable as this was, I don't think I my order finger can deal with any more days like today. All I can say is that in my life I will probably remember 3-6 days as being particularly memorable in the stock market and I guar-an-damn-tee you I will remember today as one of those days. As for tomorrow, trade long and prosper (but only for a quick rebound =) )
UltraLong
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