The Best Trades Of The Pros
Ten
contributors to TradingMarkets.com respond to my question,
“What was your best trade ever?” Some
are brilliant, others involve a little luck…all are interesting.
Lewis Borsellino
The last time the Fed
cut — the surprise cut back
in January — it was kind of slow and mundane in the pits. I ended up getting long
50 contracts. I was trying to scale out of it and all of a sudden, I saw
everybody come to buy them from me, so I shut up. The Fed announced their cut,
and before I could open my mouth I made $350,000 on a 50 lot. That’s always fun
but then you go home and you start thinking about reality — what if you were
short those contracts?
Tony Crescenzi
I remember in 1994,
when the Fed indicated they
were changing interest rates via their open market operations. On the first day
of a two-day meeting, the Fed did not take action on the open market, as they do
daily. The inaction on their part was a hint that they were going to allow the
Fed funds rate to drift higher. I was familiar with the fact that the Fed would
typically come in and do their open market operations somewhere between 11:30
a.m. and 11:40 a.m., but I knew it was basically by 11:33 a.m. or 11:34 a.m., and if they hadn’t
acted by then, you could forget about them moving between 11:34 a.m. and 11:40
a.m..
I
shorted five-year T-note futures. Within an hour I was out at a profit, and next
thing, the Fed announced their rate hike. Their actions that day confirmed that
they were raising rates. That’s one my most memorable trades, because I
thought I had a significant edge on the market. Your knowledge of detail can put
you on top, and ahead of the market.
Alan Farley
My best trade ever was just when the bubble
was
starting in late 1999. It was a stock I used to play on the American Stock
Exchange called Interdigital Communications — it used to be symbol IDC. They
moved over to Nasdaq and became
(
IDCC |
Quote |
Chart |
News |
PowerRating). It was a speculative stock and used to
attract momentum traders. It showed up on my dip trip scan for Seven Bells. I
bought 600 shares the next morning — it was somewhere in the low 20s — and by the
end of the day, it was in the 50s. It was scaring the heck out of me. I made
a decision to hold the stock overnight. The thing gapped another 10 or 11 points the next day. I got almost
50 points in that thing on an overnight
hold. It just blew my mind.
Dave Floyd
The best trades happened numerous times from
January through April 2000. When the Nasdaq was just getting pummeled, there were
times when the Nasdaq futures were lock limit down. A lot of times when
those things came off lock limit, they’d gap down a little bit, but then they’d
come screaming back with a vengeance. You could buy the Qs on the breakdown,
once they stabilized a bit, and you catch pops of anywhere from a buck to a buck
and a half within a matter of three minutes. The Fed announcement trades are fun,
too (see Meet the
Traders).
Dave Landry
No trades really stand out
because most of my
trades are really short-term oriented. I have some examples in my book. I hit
some home runs very early on in my trading in the futures market, but in
hindsight I realize that was just through luck, excessive risk, and sloppy
trading. There are a few times a year where everything lines up — the sectors are
set up, the market is set up, the market bias is set up — those are the
times when you’re going to have your best trade.
Don Miller
This was back in April 2000, and the stock was
(
QXLC |
Quote |
Chart |
News |
PowerRating), which was a European
auction company, similar to eBay, Ubid, that sort of thing. That morning, an
analyst — I forget which firm it was, one of the smaller ones — came out with an
upgrade of the stock, basically touting the thing as the next eBay. They put a
price target on the thing in the multiple hundreds — it was either 200 or 400, I
can’t remember — it was some astonishing price target.
One of the
problems was, this stock had just split before the analyst upgrade. The stock
was languishing around $20 after the split, and they came up with this multiple-hundred-dollar target. Tom Costello and everyone else on CNBC hyped the darn
thing, and of course that was in the midst of the euphoria of the market. When
that thing opened, it shot up. I think it opened in the 80s, and it quickly shot
up to over 100. I got the short in at 100, and I just sat there.
There was so
much confusion; folks were finally starting to realize that the
target that this analyst put forth had not been adjusted for the stock split
that had just happened. I’m sitting there with my hands in my pockets, shorting.
I believe in tight stops and risk management, but I let that thing go — it was so
thin. That thing was traveling so fast; I let it go to about 120 — I didn’t
touch it. Once everyone started figuring out what was going on, and once it
started to fall, you never looked back.
Checking my records, I see I ended up
covering that the next day at $45. I was even lucky to even get the short off. I
came to find out later that the guy who made the upgrade, had been a vacuum
cleaner salesman a few months
before. Even the charts at that point I don’t
think had been updated for the split, so you really had to know what was going
on behind the scenes. That was the best day I had that year.
Jon Najarian
My best trade was ahead of the Gulf War.
Volatilities were very high. Any time there is an unknown event out there,
volatilities normally go up. When uncertainties are at highs, premiums you’re
going to pay for insurance are also at highs. Every once in a while, that
premium, even though it’s expanded, is worth owning, because maybe the event is
going to be extraordinary. Anybody can say in hindsight that you’d love to be
long volatility going into a war. The uncertainty of the outcome made owning
options extremely attractive.
When you own options, you’re betting on an
extraordinary event. If you’re buying options, you’re betting that the computer
models are wrong, or that the volatility assumption is wrong, one or the other.
When you’re buying a (naked) option and not hedging it, you’re looking for an
extraordinary event. If you don’t get it, the option buyer loses. It became
apparent that an extraordinary event was happening, and the market was making an
extraordinary move to the upside. We had positioned ourselves with straddles —
long calls and long puts — and we stood to benefit from that
extraordinary move.
That night, when they started the bombardment, we saw that
our technology worked. The next day,
(
IBM |
Quote |
Chart |
News |
PowerRating) opened up something like $15 —
that was
one of our big positions. It was trading 100 or 102. Owning the 100 calls and
puts meant we were positioned to make money if the market made an extraordinary
move — to the upside or downside. That’s not normally the way we trade. We
elected to do it ahead of that because we thought it was a rather extraordinary
opportunity.
Tim Truebenbach
In 1999, the market was flashing accumulation
signals, telecom was taking off and Qualcomm
(
QCOM |
Quote |
Chart |
News |
PowerRating) was the leader. Profits were
skyrocketing. I got in around Spring 1999, and the stock moved up solidly
into December 1999. I sold half when I was up 100%, and then it started a
climax run towards the middle of December and it literally gained 104% in three
weeks, and I sold the rest.
Len Yates
(
XMI |
Quote |
Chart |
News |
PowerRating) puts, nearby, about a week to go. It was the
gambler in me. This was about eight years ago. It looked like the market was set to
fall, and starting to fall, so I threw my money out there. This isn’t the kind
of risk that most people ought to take. Anyway, they were trading about a
dollar, and went to ten. I still do the same thing quite a bit nowadays — I look
for when the market seems to be set up for a fall, and I like playing falls
better than rises because they’re swift and more reliable when they start.
Also,
Spring 2000, during the selloff. I bought Verisign
(
VRSN |
Quote |
Chart |
News |
PowerRating) puts on April 7, and sold them
April 17. I paid 5 7/8 and sold them for 39 3/8. Look at that chart (see below), on the
seventh it was peaking. That was one anticipation job, right there!
With the steep fall it had experienced just a few days before, I knew that it
was going to repeat and was going to revisit lows.
Goran Yordanoff
I was short a very big position in
eBay
(
EBAY |
Quote |
Chart |
News |
PowerRating) recently,
at the 70 area. I only got between 8 and 10 points on the trade, but I had
so many shares that it was a gigantic profit. From a percentage return, the
trades are in the retail group — Christopher and Banks
(
CHBS |
Quote |
Chart |
News |
PowerRating), Charlotte
Russe
(
CHIC |
Quote |
Chart |
News |
PowerRating), Bebe
(
BEBE |
Quote |
Chart |
News |
PowerRating) — all
those trades returned roughly 40%-50%. Also TRC
(
TRR |
Quote |
Chart |
News |
PowerRating). All of those stocks had
something in common — we were able to identify negative divergences that were
occurring in their internals. From Sept. 1, 2000, I don’t think I’ve written
too many buy tickets. Based on the fact that I consider us being in a secular
bear market, I focus on stocks that are rallying into resistance and topping, or
stocks that were overextended.
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