Monday, November 19, 2007

Ahead of our time for insults and slurs

My husband wrote a pretty interesting response to an article published in the Oct. 15 issue of the New Yorker, The Blow-Up Artist, which portrayed Victor Niederhoffer's trading style (and unconventional lifestyle).
Two responses to the article were published in our most recent New Yorker and I have to say I'm unimpressed. Why didn't they publish Josh's response? Before I tell you about my conspiracy theory, let me share his response with you.
This is a short version you can email to your friends:
Hey, you heard of Victor Niederhoffer? I just read an article in the New Yorker about him about how he speculates in futures using massive leverage, and I remember his orders from when I was a floor trader in options at the CME … at the time we thought the client was a middle eastern oil sheik, and we always called his distinctive orders from “the sheik” (He was always always selling size downside puts on the S&P) … anyway, turns out it was this Niederhoffer … and then when he blew up in ‘97 or ‘98, and his clearing firm liquidated his positions in the morning (which would have been winners if they just waited until the afternoon) … I was making options markets that felt entirely obscene at the time. I always felt a little sorry for the guy that day … now I know who it was.
This is what he actually sent to New Yorker:
The Sheik!
In 1996 and 1997 I was a floor trader in the futures options pit of the S&P500 at the Chicago Mercantile Exchange. There was one broker for Refco, who generally handled medium to small sized orders. From time to time, though, he would show up with a very large order: almost always to sell downside puts. This is a very risky, highly leveraged strategy, and it had a very distinct signature. At the time, we didn’t know the orders were from Niederhoffer: but we knew they were from one particular client. On the floor, we called him “The Sheik”, for we assumed he must be someone with a ton of money, looking for some financial excitement. Whenever the broker began to represent an order bearing the signature of the Sheik, we would telegraph the trade to our counterparts across the (loud) trading floor by miming wrapping a turban around our heads – that was the hand signal that everyone recognized as the Sheik. In October of 1997, not long after the Sheik had renewed a sizeable signature position in the options, the S&P500 was down nearly 7% one day. The next morning, the market opened up down 3%, and the Refco broker representing the Sheik was actually buying his position back. We could tell by the nature of the orders that it was his brokerage firm closing him out of business (and not the Sheik voluntarily covering positions), and I won’t say that we didn’t take advantage of the situation. To close out positions that big all at once when there was already significant panic in the marketplace incurred extraordinary price increases. Options that were sold for as little as $3 the day before were being bought back for as much as $50.
Around 11 AM that same day, the market started rising – and it actually closed up over 5% on the day – surely enough that Refco wouldn’t have liquidated Niederhoffer’s position if they had just waited a few hours. The options that went from $3 to $50 were back to $3. We never did see another order from the Sheik after that, and it was only years later that I discovered this “Sheik” was actually a hedge fund manager named Niederhoffer (And I always wondered if he knew he was referred to as “the Sheik”.) But I did learn a little bit about leverage and timing that has helped me in my trading career since then: when you’re at the end of your leverage, and the margin calls are coming in, time is one thing you just don’t have.
I'm pretty sure they didn't publish this because Middle Eastern citizens and advocacy groups would send them hate mail.
So it brings me to the point of the title of this post. In the mid-90s my husband used a turban-wrapping mime for the word sheik, when he met me in May 2001, he playfully called me Osama and finally in July 2001, I jested that one of his friends looked like a terrorist. What all of these slurs have in common is that they were all said before September 11th. Now our past statements' follies have grown in size and they've come back to haunt us because most people don't realize that they were said prior to 9/11. They don't give us any credit or slack for being the modern-day Cassandra for insults and slurs. Stick with us and you'll totally offend everyone. Sadly their rage for you will only grow and grow and only you will know about the misattribution error.

1 comment:

Lost in Dixie said...

IF you want to get your opinion posted in the editorial section, your writing should be short, sweet, and non-offensive. Josh's writing is more for an op-ed piece in The Weekly Standard or The New Republic.