The picture above is the back of the pit where the S&P 500 “roll” or spread is traded.
The quarterly quadruple witching used to be one of the busiest days of the year, but “roll day”, or “switch day”, when the index futures markets front month contract changes from the June contract to the September contracts, was also a very hectic trading day. These two days, and Fed meetings, used to make up the busiest days of the year. The desk would be loaded for bear with thousands of S&P futures contracts on trading cards, still unmatched to their respective orders. It was total chaos but it was what the desk and the pit people lived for, big volume and big money. Big orders selling on one side of the S&P pit, and big buyers on the other side (our side) and neither order filler trading with each other, obviously it was designed that way. Sure electronic trading “made” it more fair, but now its the robots we have to fight with, not the floor brokers.
The Old Days
Its 8:17 am CT, Friday morning of the dreaded Quad Witch, and 3 out of our 6 clerks have not shown up at the desk yet. Floor people used to love going out Thursday nights and staying out late, but the clock is ticking, and now I am yelling at Brian.The phones are ringing off the hook, and there is Brian Shepard yelling at one of the guys for not picking up the phone. One by one the clerk’s show up at the desk as several big orders are being put in the pit.
It’s 8:27 and the September Quadruple expiration begins in 3 minutes. We’ve just heard that there was a S&P options exercise, and there are “thousands of big spoos to buy on the open!”. All the clerks are at the desk and we have 30 seconds to go. I am on with Steve Lau from UBS working the S&P program arbitrage line and I have Moore Capital in the other ear. “Danny, where we going to open?”
I yell back, “867.00 at 867.50!”
“Danny, sell 500 market and sell another 500 after you’re done with the first 500.” I repeat it back and Lau from UBS can hear me. Lau says, “Danny 867.00 bid for 200, pay 866.50 on 200 and 866.00 on 200!”
There are 4 seconds to the open and I yell to Lau, “Sell 500 market, bid 67.00 on 200, 66.50 on 200 and 66.00 on 200.”
Suddenly, it’s game time in the S&P pit, and if you can’t take the heat in the kitchen, you’re surely not going to like being around the S&P pit on a quad witching Friday. Ding, ding, ding goes the bell, 8 seconds later I am yelling to Lau, “67 on 200 FILLED, 66.50 on 200 FILLED , unable on the 66.00s.”
Lau comes back, “Danny I need those 66s.”
I yell into the pit, “Sell 500 more the hard way! Steve your filled on the 66.00s at 65.50.”
“Great work Danny, I’ll call you right back!” In that sequence Lau made $350,000. We were on the phone for a total of 45 seconds. Back then, the desk would stay busy until 10:00 or 10:30 as we waited on the “official” cash settlement. It was the Wild West, and yes, it was advantage to the floor trader, as well as if you had a good guy on the phone, then you could really make millions. As more contract volume moved to the screen, the “vig” that both floor and the bank proprietary traders sought disappeared. The “edge” a pit trader had over the pubic was gone once and for all. I wonder if the exchanges had any idea how electronic trading would eventually change the game, and where it would end up. I knew back in the day that floor traders were going to have a hard transition, but no one ever said we would be taking the other side of a system that never loses. The vig was not only gone, but sucked up by high speed computers that know exactly how the retail traders place orders. And as we all know, computers don’t make noise, they just take our cash.
In the end, the glory days of the futures pits in Chicago are a thing of the past. The big edges a trader could get on a big day like the Quad Witching could make a pit trader rich. I miss those days, but I understand that there is no stopping technology. Never could I have guessed that computers would make up 70%, or even 80%, of the daily volumes, and all the noise of the pits taken over by the hum of the floor computers. Next week’s quad witching will end up like many over the last few several years; busy until 9:00 and busy in the last 45 minutes of the day. No one yelling and no one jumping up and down, not anymore.
U.S. stocks gained Thursday after data showed retail sales rose in May. The Dow added 0.22%, to 18039.37, S&P 500 index gained 0.17%, to 2108.86 and the Nasdaq was up 0.11%, to 5082.51. Greek bailout talks have stopped, European stocks also pared gains, DAX ending up 0.6%, CAC 40 closing up 0.7%. Thursday around 5.7 billion shares changed hands, Commerce Department said U.S. retail sales rose 1.2% in May to $444.9 billion. The increase was led by strong auto and gas sales, with every category outside of health and personal-care stores advancing. Wednesday, the Dow jumped 1.3% to 18000.40 and the S&P 500 advanced 1.2% to 2105.20, the largest one-day gain for both indexes since May 8. The 10-year Treasury note fell to 2.383% from 2.478% on Wednesday. Thursday, data showed that jobless claims rose slightly last week but remained at a historically low level.
In Asia 6 out of 11 markets closed higher, and in Europe 11 out of 12 markets are trading lower this morning. We have a busy economic calendar today starting out with PPI-FD, Consumer Sentiment.
Our View: The S&P cash study shows today, Monday, and Tuesday as being up days. That said I do not believe all three will be up. This morning the S&P is down off of uncertainty about a Greek bailout deal. German Chancellor Angela Merkel call on all parties to return to the negotiating table. The DAX was down 1%, and the CAC was off over 1.1%. Our view is, we stay weak for the first part of the day, and rally. I think the later parts of the day will be quiet.
S&P Futures Roll Over Day Chop Fest
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- In Asia 6 of 11 markets closed higher : Shanghai Comp. +0.87%, Hang Seng +1.39 %, Nikkei +0.18 %
- In Europe 11 out of 12 markets are trading lower : DAX -1.19%, FTSE -0.68%, MICEX -0.05% , GD.AT -4.52% at 6:45 am CT
- Fair Value: S&P -8.33 , Nasdaq -7.58 , DOW -86.24
- Total Volume: 746k ESU and 3k SPU traded
- Economic calendar: PPI-FD, Consumer Sentiment.
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