Actually, it opens up a whole range of new strategies. Oh, unbelievable. These other guys were set in their ways, even though they had only been there a couple of
years. Sooner than you might think, this nmnber one trader befriended me and suggested that we work together. We
started working on advanced strategies, getting real creative and abstract.
Were you working these out on a computer?
No, we did everything by hand. Writing out all these "what-ifs."
Didn't you still have to be guessing right on price and volatility direction?
You would have to guess right on volatility. However, we didn't have to peg market direction, because we
were setting up spreads that had a big edge. For example, one option might be highly overvalued because it was
popular among the member firms.
Eventually, I felt I was doing more of the work, while this top trader in the pit was counting on his ability to
muscle the market. He would also stray from the strategies we had worked out and even started doing things to try
to hurt me. I would say, "What are you doing?" He would just answer, "I changed my mind."
Finally, I just said, "Forget it, I'm working on my own." I started taking on more size. When interest rates
went through the roof in 1981 and early 1982, my strategies worked really well and I started making a lot of money.
Then in the bull market in 1982,1 had days when I was making $200,000 a day. The guys in my clearinghouse
couldn't believe the sheets; there was just tons of paper.
What kind of trades were you doing?
I was doing everything. I consider myself a matrix trader. I trade everything on the screen as it interrelates
to everything else. My basic strategy, however, was buying
butterflies [a long or short position at one strike price
balanced by an opposite position in higher and lower strike options—for example, long one IBM 135 call, short two
IBM 140 calls, and long one IBM 145 call] and offsetting that with an explosion position.
