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Inside the Criminal Mind



May 07, 2010 – Comments (13) | RELATED TICKERS: SPY , PG , MMM

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 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 =) )


13 Comments – Post Your Own

#1) On May 07, 2010 at 2:30 AM, BlackshearCaptL (26.05) wrote:

Wow excellent post.

You're quite the sophisticated player. 

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#2) On May 07, 2010 at 3:13 AM, SUPERMANSTOCKS (37.13) wrote:

right place right time way to go!

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#3) On May 07, 2010 at 5:19 AM, whereaminow (< 20) wrote:

LOL, that's great man. 

I went out drinking last night (I'm 7 hours ahead of the East Coast.)

I hadn't been out drinking since February.  

And of course the night I go out, the market goes ballistic.

Oh well...

Glad to hear you had some great success.  You just got rewarded for years of studying the market.  It's not criminal.  It's the reward for your hard work.  It's the reward for all the times you could have just said, "fuck it, I'm going to collect welfare and eat government cheese."  but instead you said, "I want to know more about this damn market!"

David in Qatar

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#4) On May 07, 2010 at 5:50 AM, DaretothREdux (53.79) wrote:

There is some rumor that the SEC will nullify any trades made during that period. So we will see if you get to keep your profits...

Personally, I don't buy the "computer error bullshiza" we are being sold right now. I think maybe the market was tanking and the gov't started throwing money at it to keep everyone from selling everything...but who knows?

Either way tomorrow should be interesting indeed.


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#5) On May 07, 2010 at 5:57 AM, fmahnke (66.91) wrote:


Congrats on the trade.  The last trade I made yesterday was to pick up some MCZ at ,405 which is the first time since I sold at .49 after last qtr.  What are your expectations for the upcoming qtr

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#6) On May 07, 2010 at 10:39 AM, ChrisGraley (28.65) wrote:

I was at a meeting at work at the time, but I doubt I would have had the  guts to trade into the volatility anyway.


Nice work!

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#7) On May 07, 2010 at 12:46 PM, TSIF (99.97) wrote:

Dareto, the only trades that will be cancelled are those that were done at MORE or LESS than 60% of the equities recent price.  There was no talk of affecting options, and with the 60% rule, there are a small number of trades this applies to.

I was so busy with the damage control/bargain hunting as things hit negative 300 that I was active in my account when the big drop hit.  I was rather stunned, but grabbed a few equities at 15% below what they finally closed at.  All valid trades. I was thinking about sellling some NRF into the market drop, saw what the price had dropped to, said screw it, and put in a buy order for more.  It's up considerably.  Rather than shed some to lock profit, I bought more....hmmmm, I guess if the market can be irrational, I can too!  But it comes down to dealing with what you know best when you hit a situation you weren't expecting.

 I didn't expect options to react that fast.  I was shocked when my PALM $4.00 options went negative.  I put in a buy order for more, but it never got filled.  Options are where to make money, and I would have been there, but I really didn't expect them to have much action right away.  Foolish me.  I'm generally too slow evaluating options. I need time to study them. Sounds Like UL has some trades he repeats and has studied. I had HOT on a long term PUT, but no sell order defined.  I'm using it slightly as a hedge.

It's hard to plan for someone else's stupidity.  I'll certainly be more viligent and a few low-ball buy orders will probably be part of my account in the future.  Certainly, I'll continue trying to stay knowledgeable and to plan on any equities that I already own.

Good luck.


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#8) On May 07, 2010 at 2:36 PM, rexlove (99.71) wrote:

Great play in the market UL. I wish I had been ready to trade that 5 min interval as well - it was a once in a lifetime opportunity. Although I would have probably chickened out and not touched the options market.

 Well done.  

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#9) On May 07, 2010 at 3:23 PM, TMFUltraLong (99.43) wrote:

Yeah, spoke too soon on that one. Got stuck in some calls yesterday and now suffering a roughly 25% loss... blech.


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#10) On May 07, 2010 at 8:51 PM, Robuh (25.93) wrote:

When I read about your ANF puts awhile ago (I think it was you) it struck me that I should look into it for my hedges. I hated the price I was getting given the lowish volatility at the time but I bought the contracts anyways. I immediately had buyers remorse and was about to write a strongly worded blog post calling you a weenie in an act of blame transference.

Luckily I didn't rebalance my portfolio in time (definitely not due to laziness) and got caught a little heavier on the short side than I normally am when all this stupidity occurred, so you get a pass. It's a good thing too because I had my thesaurus out and everything. 

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#11) On May 07, 2010 at 9:17 PM, russiangambit (28.82) wrote:

> Great play in the market UL. I wish I had been ready to trade that 5 min interval as well - it was a once in a lifetime opportunity. Although I would have probably chickened out and not touched the options market.

Exactly. I  saw it happen and luckily that morning I bought some short ETFs. It didn't even occur to me to try to buy something in this freefal. It was surreal and I didn't know what was going on. I know some retail brokers Websites were down. But I didn't even try to trade I was just watching how far it will fall.

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#12) On May 09, 2010 at 10:42 PM, Monkeylochs (< 20) wrote:

Ultralong, should we buy more shares of HEAT and TNDM these days or  should we bark up some other trees?

Nice work,


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#13) On May 10, 2010 at 12:27 AM, TMFUltraLong (99.43) wrote:

HEAT is so disgustingly cheap its...well...disgusting. I wish those options were more liquid but yes, add to that position. TNDM I've been wrong on so far and although I see it as a nice value, I see HEAT as the considerably better play here.


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