Fuel economy: Hanging out with the Nymex energy traders (Daily Telegraph Magazine)
By David Rowan
The first time Eric Bolling traded natural gas, he lost $120,000 of his own money in a single afternoon. It was 10 times the risk he thought he had been carrying, a misjudgment that threatened him with all the pernicious self-doubt he had seen destroy fellow traders' careers. Yet rather than wallow on the downside, Bolling left the New York Mercantile Exchange (Nymex) that evening with a brimming sense of opportunity. Sure, the crude-oil market had been good to him since he had begun trading eight years earlier. But how much more action could there be in the volatile, high-stakes game that was gas? If just one trade could lose him so much in a day, what kind of edge could he grab on the upside?
Eleven years on, Bolling, 43, a former baseball pro who had to retire because of injury, is one of the world's pre-eminent energy traders, risking his personal fortune daily on movements in the prices of natural gas (as well as crude oil, heating oil and gasoline) - and mostly calling them right. For six hours each weekday, he stands screaming and waving on the exchange's cavernous trading floor, a couple of blocks from the World Trade Centre site. The deals struck here, in their hundreds of thousands, have pushed world fuel prices to record highs lately, as hurricanes have combined with Middle Eastern turbulence and China's soaring demand to create the volatility that drive opportunists like Bolling. "On the wilder days, they say you're going home in either an ambulance or a limousine," he says between trades on a frantic Thursday morning in October. "There isn't really a middle ground."
He has, he reflects, done well out of the hurricane season: with crude hitting $70 a barrel and natural-gas prices doubling in three months, the "Merc", as the exchange is known, is where the big money is. Bolling won't say how much Hurricane Katrina made him, but last year, according to Trader Monthly magazine, he made up to $15 million. He was the cover star for its June/July issue, devoted to the 100 highest-earning commodity traders in the world.
An hour into this morning's trading, though, Bolling is down financially, just as he was yesterday. He later admits that he is riding a $400,000 personal risk. "I hate losing," he says with a nervous laugh, glancing towards a computer chart showing gas slipping back from last night's $14.18 a unit to $13.80 ... now $13.77 ... now $13.75. "There's some people who are good at it, and those are usually the ones who don't last too long. Losing brings you further down than winning brings you up. It makes me much less talkative at home." He shuffles anxiously in his chair and then jumps up. "It's getting loud out there. I'd better get back."
The Merc's trading floor, a vast windowless turbine hall fuelled by raw human energy, is one of the last remaining commodities exchanges driven by the traditional man-to-man shouting match known as "open outcry". In their jarring multicoloured jackets, throats rasping to be heard, the men - of 816 traders here, only two are women - jostle for attention, throwing hand signals and wild facial gestures to swap "bid" and "ask" prices (the numbers at which they will buy or sell their tanker-loads of crude or gasoline or heating oil). Each time a deal is struck, the traders scribble details on to white cards which they throw frenetically at time-stamp clerks inside each commodity's trading ring. Nearby exchange staff key the numbers into tablet computers. The most competitive "buy" and "sell" prices are flashed on to wall-mounted screens above brokers holding two or even three phone handsets buzzing with incoming orders. At peak times - the crude and natural-gas rings forming two vast drivewheels at the machine's core - only the loudest voices can break though above the din:
"At 40 ..."
"Newman! What are you DOING?"
"Sell! Sell!"
"Anyone just buy 30 Ds at ten?"
"It's kind of athletic, with guys competing for trades, so if I'm louder, a squeakier wheel, you'll trade with me and not him," says John Conheeney Jr, a retired floor trader, who is explaining the system to a group of visiting students. "Maybe that's the issue with women - it's not their size or their aggressiveness, it's that you can't hear them as well." The downside, a Nymex spokeswoman adds, is that veteran traders commonly suffer voice polyps, hearing loss and fallen foot arches from the long periods standing. The trading day here might last only from 10am to 2.30pm (reduced since September 11), but the hours by no means reflect the nervous energy expended.
"It is a very physically demanding job," Eric Bolling says an hour later, with gas down yet another nickel to $13.70. "I mean, I've had my shirt ripped off my arm, hands jabbed into me. It can get real barbaric." The clerks he hires - prospective traders themselves - invariably have a sporting background. "With athletes, you typically have that will to win, an understanding of risk, and the ability to multi-task, to listen, and to make quick decisions. I might make 400 or 500 contracts a day," he says. "In fact, about 10 years ago, the US Marines came down here and then took a bunch of us to their training base to get inside the mind of a trader. They wanted to figure out how we were making so many fast decisions, and feed whatever that commodity was into the battlefield."
The Marine-Futures Traders Wargame, in December 1995, began with a team of generals and colonels making simulated trades against the professionals on the exchange floor. Bolling and his colleagues were then flown to a physical battlefield and told to plan a defensive strategy amid intense hostile mock gunfire and multiple streams of unfiltered military intelligence. The trick, the Marines concluded, lay in the traders' ability to process data quickly, to use past experience to identify a definite action plan and to test their position constantly in order to know when to pull out. "Sure, this is war for your financial survival," Bolling says, "but in the field I was absolutely terrified. I don't know how these guys can make decisions. That's people's lives. This is just money."
The New York Mercantile Exchange began in 1872 as a place to trade butter and cheese. More recently, it has become the world's largest energy futures market, setting the international price for crude oil, natural gas and other commodities from platinum to heating oil. The Nymex is not the only trading exchange - London's International Petroleum Exchange (IPE), which prices Brent crude, claims its benchmark affects far more tanker-loads - but since the IPE went all-electronic in April, Nymex has jumped into London too with its own rival open-outcry floor. This has, however, struggled to attract business. "Nymex London appears to be falling by the wayside," says Rob Laughlin, a senior energy broker with Man Financial in London. "Screen-based trading isn't as glamorous as the floor, but then does it need to be? The old system worked, but it was getting to be an awfully expensive way to trade."
London's experience suggests that the days of oil-trading pits may be numbered, but at the Nymex the traditional system is still very lucrative. With oil and gas hitting record prices and trading volumes at new highs, the energy markets are currently Wall Street's hottest bets. "Seats" to trade at the Nymex, which changed hands at $875,000 three years ago, now sell for well over $3 million. Many are owned by independent traders who, if they are not currently using theirs, can lease them out for around $20,000 a month (subject to financial references). Others belong to banks and brokerage houses. And while the "locals" - independent traders such as Eric Bolling - have generally prospered from recent price volatility, institutional seat-holders, too, have struck black gold. Top energy traders at Goldman Sachs have reportedly been making $20 million including bonuses, putting them among the world's highest-paid employees.
Three animated Goldman Sachs traders, distinctive in their gold-trimmed navy jackets, hover around the oil pit this Thursday lunchtime, alongside BNP Paribas (orange back and trims on short-sleeved navy) and Man Financial (a big red "M" on light blue with red). Crude, $30 a barrel two years ago, hit a record $70.85 a month ago, but has since been sinking to close at $62.79 last night. An agitated Goldman Sachs trader shoves a BNP Paribas man to gain a more prominent floor position, and for an instant a fist-fight looks a distinct possibility. Then three more BNP Paribas figures concertedly squeeze Goldman Sachs out of his spot, and the tension dissipates. Yards to their right, the natural-gas pit is in even greater turmoil: the falling price, now at $13.60, is down more than a dollar on yesterday's all-time high of $14.75. Eric Bolling, wearing badge number RBI 4775 but no jacket, stands in his usual gas-pit position, manically flicking fingers and flashing open palms as he screams to attract buyers for the stock he urgently needs to offload.
Bolling, shouting through cosmetically flawless white teeth as he throws one after another trade cards towards the inner ring, is in a tight position. "Long" on gas, having bought as prices were rising, he has belatedly recognised in the charts this morning a pattern known as a "technical key reversal", which he explains as a crucial shift in the price movement that signals the start of a new cycle. By the time the floor closes, the trend has dragged the price down further to $13.38.
Chart-reading, he explains 10 minutes later, still visibly buzzing with adrenaline, is one of his most effective predictive tools. "It's herd psychology; you can read it in every textbook," he says in a hoarse voice. "You trade to a record high but settle lower for the day, and you open up lower on the second day. That's your key reversal. It's a little move within the bigger picture, and you can see it forming in the graph."
That bigger picture still has the aftermath of hurricanes Katrina and Rita disrupting supplies, thus inflating prices. But the extra price jump yesterday followed a newsflash that a Louisiana pipeline hub was in better shape than expected. Initially prices slipped, but then speculative buyers piled in, sending the chart soaring - until a lack of underlying new demand sent the curve scurrying back down again as panic-selling set in. By the time Bolling recognised the pattern, all he could do was limit his damage. He has finished the day down, but feels vindicated that he called the key reversal correctly.
"You have to be able to take a loss, even though you can't like it," he says, distractedly examining the day's order books. "That's been two bad days now. God," he exclaims, turning pages impatiently. "Those trades were not good at all ..."
Had a particularly heavy loss ever caused him to cry? Bolling is momentarily taken aback, and then laughs. "No, no," he says with all the tough-guy resolve you would expect from a former Pittsburgh Pirates third baseman, albeit one forced by injury to quit after just two years. "Although ..." He pauses, then laughs again, this time a little nervously. "The closest I ever came to crying was in 2002, when my son was in preschool." He strokes his close-cropped goatee. "It was my day to read a story to the class, and I have a big position on natural gas, 500 spreads that happen to be the wrong way. The market was just ripping that morning. And I'm reading The Spider and the Fly, and I'm getting text messages about where the market's going, and the sweat is beating up on me.
"But I'm still reading, and when they open it up to questions, the kids turn out to love the story. So I end up having to answer 30 questions, while I'm seeing the market going worse and worse. By the time I get to the trading floor, I am down - should I say this? - $2 million. Two million dollars - because I was reading a story!"
He shrugs. "But what can you do? You try to put it aside, and you focus on trading. And to be honest, you make it back. Not all at once, of course. But you take baby steps, and you do."
In the natural-gas options pit, a few feet from where Bolling trades gas futures, Raymond Carbone has also been swallowing a loss today. In fact, Carbone, a genial third-generation Sicilian-American who started here in 1987, came out of 2004 bearing a net annual loss, his worst trading year yet. "It hurt, because it was purely a lack of discipline that led to it," he says as he mixes a vitamin C drink after Thursday's close. "When you make a chunk and don't manage your good fortune correctly - you give it back - that is a very mentally taxing thing to deal with. Same happened to me with Katrina when I didn't get out in time. If I take a stand and I'm wrong, I can take that on the head. But when I was right and didn't take my profit, and it goes the other way, then you sit there and shake your head cursing your own greed."
Still, last year's loss was only "a minor negative", and was more than compensated for by the success of Carbone's brokerage business, Paramount Options, which earns him commission on every client order. It also followed his best ever trading year. He will not discuss specifics, but when asked if that suggests a seven-figure income, he pauses before replying, "Probably."
Carbone, 46, takes a far more cerebral approach to trading. Whereas Bolling relies heavily on chart-reading to spot trends, and a sportsman's psychological preparation to remain "inside the zone", Carbone is the intellectually curious geopolitical strategist. Yes, he reads the charts daily, he explains; but whereas natural gas is a largely domestic US market, oil prices can move on any number of global triggers. Bolling's concentration rarely extends to background study ("Books? You barely read a pamphlet"); Carbone dissects news-magazines and business publications to judge the potential impact of political turmoil in Indonesia or ministerial speeches in Venezuela. Bolling arranges sessions with Flavia, his Brazilian "trading coach", to help him avoid "negative emotions" such as greed and fear; Carbone, who once helped organise concert tours by Blondie and Evelyn "Champagne" King, unwinds with his guitar collection and his CDs.
What both men share is an obsession with monitoring current and historic weather patterns, and a sense that money alone can never be the sole motivation for a successful trader. "Yes, when you open your statement, the number at the bottom kind of tells you how well you're doing," Carbone says. "But success is also measured by how you feel about your trading. Sometimes I've done trades that just feel really right, even if they won't make me much."
"It's not money of itself," Bolling agrees. "It may to an extent keep me here longer - or it may push me out quicker. You hear people talking about 'the number', whatever it is you need to make before you're done. Is $10 million enough? Or is $50 million the number, if that's what you need nowadays to get a private plane?"
The personal jet is not Bolling's style. He and his non-working wife have a substantial main home in suburban New Jersey, as well as a beach-house, but apart from regular trips to the casinos of Las Vegas or the Bahamas, he sees little need to indulge a "lifestyle". In 19 years' trading, he says, he has never taken more than a long weekend as holiday, in case the markets catch him by surprise. He also keeps his laptop beside him each evening, monitoring world price movements to avoid being caught on the hop.
He corrects himself. For the honeymoon, he did agree to a week in the Caribbean.
"I don't require much," he says. "I grew up in a lower-middle-class home in Chicago the size of this side office. My dad, a travelling salesman, never earned more than $40,000 a year. I think it would be arrogant, embarrassing, to spend lavishly." The embarrassment extends to discussing his work outside this building. "There's no way you can explain to someone like my father that before I came to work one day I was already down $2 million. Either they'll think you're lying or it would just bother them. And when you're up, you're not comfortable to discuss it with friends who have office jobs."
Mostly, thankfully, his trading has been "up". So why doesn't he cash in and do something less stressful? He admits to not sleeping well: five, six hours at the most, and never straight through. "Time was, if I ever made a million dollars, I was going to walk way from here and go buy a hot dog stand on the beach in Florida," he recalls. "But you keep raising the bar. It's an addictive game, and no one leaves when they're on top. You're unemployable after this - you have a need for a lot of action. I think I'm stuck here for a while."
Unless, of course, the markets make the decision for him. "During my monster slump, before seeing Flavia, I did think, maybe it's time, maybe the market's changing but I'm not changing with it. I've seen a lot of successful guys who went broke. There's one good friend, an extremely successful trader, the guy who for years you'd go to for gasoline. He had a gorgeous house in the Hamptons, an aeroplane, extra seats here that he leased out. One day, when he had a big position on, the US government changed the specifications for deliverable gasoline. The price exploded overnight. Boom! They took his house, his Hamptons place, his aeroplane, his seats ... He was so far in deficit that he had to come back in to work just to pay back his clearing house."
What happened to him? "Oh, he's long gone," Bolling says. "He now owns a strip club in Florida."
Raymond Carbone intends to quit while he is ahead. At 46, he is already contemplating his travel plans with Thuy, his gilrfriend, a banker specialising in derivatives who is currently based in London: part of the year in "the old country", Sicily, where he intends to build a house; part in Vietnam, where he lived in the late 1990s during a three-year break from trading; and part on Long Island, where he lives alone a few steps from the beach. "If this went away tomorrow, I'd be all right," he reflects. "Not a tycoon, but still enjoying life, eating well, pursuing music. Though I'd still trade, probably, but from a screen."
Friday's markets are far calmer, falling into what Carbone describes as "exhaustion mode". Crude hovers all session at around $61.50, gas barely moves from $13.36. Telephone-order clerks read celebrity magazines and complete crosswords. A tide of abandoned order cards, said to fill the equivalent of seven subway cars each year, ebbs gently on the ground.
"I'm spent, just physically drained," Eric Bolling says after the closing bell. "This week was work." Carbone, apart from placing brokerage orders, has made just one personal trade today, in the crude-oil pit. "I'm ready for a quiet time," he says. "It's been a rollercoaster two years."
He takes time to reflect aloud where he sees the markets going from here. The short-term action, he suggests, will be with heating oil and natural gas, especially if the winter proves as cold as predicted: refining capacity, ravaged by the hurricanes, will fail to meet the high weather-led demand, something that prices would reflect. Over the longer term, too, barring a global recession or a bird-flu pandemic that would shut down transport hubs, Carbone sees energy prices continuing to rise. "China and India have changed the dynamic, with three billion relatively new consumers adding to strong demand. Couple that with geopolitical concerns - Venezuela, unrest in Nigeria, Russia and the Iran problem - and we can easily break new ground with sustained higher prices. We may just have to get used to it."
He suggests we continue the conversation over a coffee in Greenwich Village, around the corner from his girlfriend's apartment, where he stays during the week. I raise the one concern I keep hearing about trading floors such as the Merc: that the speculative buying frenzies on which they thrive merely push up energy prices for the consumer.
"There are plenty of players in the market that influence the price of oil, not simply the group of people on that floor," he replies. "Those three billion people in Asia have a lot to do with what we're paying at the pumps today. No fund or speculator could ever move the price of oil like that. And don't forget, some traders or hedge funds are actually betting on prices going down, so it's not in their interests to bid prices up. In my first eight years, I was consistently bearish, always feeling that prices were too high. That led me to take positions where I lost money every time the price went up."
As we leave, a sudden intense New York rainstorm causes Carbone to break out in a grin. "You know, there's an important Yankees play-off tonight, and I got a couple of good tickets," he says as he flicks open an umbrella. "But when I saw the weather predictions on Monday, I put a notice in the men's room offering to sell."
And they went? "Yeah," he says with quiet satisfaction. "I bought them at $66, and sold at $100. And you know what? By midweek, every guy there was trying to offload tickets on that men's-room wall. You gotta think smarter."
(The Telegraph Magazine, November 19 2005)
The first time Eric Bolling traded natural gas, he lost $120,000 of his own money in a single afternoon. It was 10 times the risk he thought he had been carrying, a misjudgment that threatened him with all the pernicious self-doubt he had seen destroy fellow traders' careers. Yet rather than wallow on the downside, Bolling left the New York Mercantile Exchange (Nymex) that evening with a brimming sense of opportunity. Sure, the crude-oil market had been good to him since he had begun trading eight years earlier. But how much more action could there be in the volatile, high-stakes game that was gas? If just one trade could lose him so much in a day, what kind of edge could he grab on the upside?
Eleven years on, Bolling, 43, a former baseball pro who had to retire because of injury, is one of the world's pre-eminent energy traders, risking his personal fortune daily on movements in the prices of natural gas (as well as crude oil, heating oil and gasoline) - and mostly calling them right. For six hours each weekday, he stands screaming and waving on the exchange's cavernous trading floor, a couple of blocks from the World Trade Centre site. The deals struck here, in their hundreds of thousands, have pushed world fuel prices to record highs lately, as hurricanes have combined with Middle Eastern turbulence and China's soaring demand to create the volatility that drive opportunists like Bolling. "On the wilder days, they say you're going home in either an ambulance or a limousine," he says between trades on a frantic Thursday morning in October. "There isn't really a middle ground."
He has, he reflects, done well out of the hurricane season: with crude hitting $70 a barrel and natural-gas prices doubling in three months, the "Merc", as the exchange is known, is where the big money is. Bolling won't say how much Hurricane Katrina made him, but last year, according to Trader Monthly magazine, he made up to $15 million. He was the cover star for its June/July issue, devoted to the 100 highest-earning commodity traders in the world.
An hour into this morning's trading, though, Bolling is down financially, just as he was yesterday. He later admits that he is riding a $400,000 personal risk. "I hate losing," he says with a nervous laugh, glancing towards a computer chart showing gas slipping back from last night's $14.18 a unit to $13.80 ... now $13.77 ... now $13.75. "There's some people who are good at it, and those are usually the ones who don't last too long. Losing brings you further down than winning brings you up. It makes me much less talkative at home." He shuffles anxiously in his chair and then jumps up. "It's getting loud out there. I'd better get back."
The Merc's trading floor, a vast windowless turbine hall fuelled by raw human energy, is one of the last remaining commodities exchanges driven by the traditional man-to-man shouting match known as "open outcry". In their jarring multicoloured jackets, throats rasping to be heard, the men - of 816 traders here, only two are women - jostle for attention, throwing hand signals and wild facial gestures to swap "bid" and "ask" prices (the numbers at which they will buy or sell their tanker-loads of crude or gasoline or heating oil). Each time a deal is struck, the traders scribble details on to white cards which they throw frenetically at time-stamp clerks inside each commodity's trading ring. Nearby exchange staff key the numbers into tablet computers. The most competitive "buy" and "sell" prices are flashed on to wall-mounted screens above brokers holding two or even three phone handsets buzzing with incoming orders. At peak times - the crude and natural-gas rings forming two vast drivewheels at the machine's core - only the loudest voices can break though above the din:
"At 40 ..."
"Newman! What are you DOING?"
"Sell! Sell!"
"Anyone just buy 30 Ds at ten?"
"It's kind of athletic, with guys competing for trades, so if I'm louder, a squeakier wheel, you'll trade with me and not him," says John Conheeney Jr, a retired floor trader, who is explaining the system to a group of visiting students. "Maybe that's the issue with women - it's not their size or their aggressiveness, it's that you can't hear them as well." The downside, a Nymex spokeswoman adds, is that veteran traders commonly suffer voice polyps, hearing loss and fallen foot arches from the long periods standing. The trading day here might last only from 10am to 2.30pm (reduced since September 11), but the hours by no means reflect the nervous energy expended.
"It is a very physically demanding job," Eric Bolling says an hour later, with gas down yet another nickel to $13.70. "I mean, I've had my shirt ripped off my arm, hands jabbed into me. It can get real barbaric." The clerks he hires - prospective traders themselves - invariably have a sporting background. "With athletes, you typically have that will to win, an understanding of risk, and the ability to multi-task, to listen, and to make quick decisions. I might make 400 or 500 contracts a day," he says. "In fact, about 10 years ago, the US Marines came down here and then took a bunch of us to their training base to get inside the mind of a trader. They wanted to figure out how we were making so many fast decisions, and feed whatever that commodity was into the battlefield."
The Marine-Futures Traders Wargame, in December 1995, began with a team of generals and colonels making simulated trades against the professionals on the exchange floor. Bolling and his colleagues were then flown to a physical battlefield and told to plan a defensive strategy amid intense hostile mock gunfire and multiple streams of unfiltered military intelligence. The trick, the Marines concluded, lay in the traders' ability to process data quickly, to use past experience to identify a definite action plan and to test their position constantly in order to know when to pull out. "Sure, this is war for your financial survival," Bolling says, "but in the field I was absolutely terrified. I don't know how these guys can make decisions. That's people's lives. This is just money."
The New York Mercantile Exchange began in 1872 as a place to trade butter and cheese. More recently, it has become the world's largest energy futures market, setting the international price for crude oil, natural gas and other commodities from platinum to heating oil. The Nymex is not the only trading exchange - London's International Petroleum Exchange (IPE), which prices Brent crude, claims its benchmark affects far more tanker-loads - but since the IPE went all-electronic in April, Nymex has jumped into London too with its own rival open-outcry floor. This has, however, struggled to attract business. "Nymex London appears to be falling by the wayside," says Rob Laughlin, a senior energy broker with Man Financial in London. "Screen-based trading isn't as glamorous as the floor, but then does it need to be? The old system worked, but it was getting to be an awfully expensive way to trade."
London's experience suggests that the days of oil-trading pits may be numbered, but at the Nymex the traditional system is still very lucrative. With oil and gas hitting record prices and trading volumes at new highs, the energy markets are currently Wall Street's hottest bets. "Seats" to trade at the Nymex, which changed hands at $875,000 three years ago, now sell for well over $3 million. Many are owned by independent traders who, if they are not currently using theirs, can lease them out for around $20,000 a month (subject to financial references). Others belong to banks and brokerage houses. And while the "locals" - independent traders such as Eric Bolling - have generally prospered from recent price volatility, institutional seat-holders, too, have struck black gold. Top energy traders at Goldman Sachs have reportedly been making $20 million including bonuses, putting them among the world's highest-paid employees.
Three animated Goldman Sachs traders, distinctive in their gold-trimmed navy jackets, hover around the oil pit this Thursday lunchtime, alongside BNP Paribas (orange back and trims on short-sleeved navy) and Man Financial (a big red "M" on light blue with red). Crude, $30 a barrel two years ago, hit a record $70.85 a month ago, but has since been sinking to close at $62.79 last night. An agitated Goldman Sachs trader shoves a BNP Paribas man to gain a more prominent floor position, and for an instant a fist-fight looks a distinct possibility. Then three more BNP Paribas figures concertedly squeeze Goldman Sachs out of his spot, and the tension dissipates. Yards to their right, the natural-gas pit is in even greater turmoil: the falling price, now at $13.60, is down more than a dollar on yesterday's all-time high of $14.75. Eric Bolling, wearing badge number RBI 4775 but no jacket, stands in his usual gas-pit position, manically flicking fingers and flashing open palms as he screams to attract buyers for the stock he urgently needs to offload.
Bolling, shouting through cosmetically flawless white teeth as he throws one after another trade cards towards the inner ring, is in a tight position. "Long" on gas, having bought as prices were rising, he has belatedly recognised in the charts this morning a pattern known as a "technical key reversal", which he explains as a crucial shift in the price movement that signals the start of a new cycle. By the time the floor closes, the trend has dragged the price down further to $13.38.
Chart-reading, he explains 10 minutes later, still visibly buzzing with adrenaline, is one of his most effective predictive tools. "It's herd psychology; you can read it in every textbook," he says in a hoarse voice. "You trade to a record high but settle lower for the day, and you open up lower on the second day. That's your key reversal. It's a little move within the bigger picture, and you can see it forming in the graph."
That bigger picture still has the aftermath of hurricanes Katrina and Rita disrupting supplies, thus inflating prices. But the extra price jump yesterday followed a newsflash that a Louisiana pipeline hub was in better shape than expected. Initially prices slipped, but then speculative buyers piled in, sending the chart soaring - until a lack of underlying new demand sent the curve scurrying back down again as panic-selling set in. By the time Bolling recognised the pattern, all he could do was limit his damage. He has finished the day down, but feels vindicated that he called the key reversal correctly.
"You have to be able to take a loss, even though you can't like it," he says, distractedly examining the day's order books. "That's been two bad days now. God," he exclaims, turning pages impatiently. "Those trades were not good at all ..."
Had a particularly heavy loss ever caused him to cry? Bolling is momentarily taken aback, and then laughs. "No, no," he says with all the tough-guy resolve you would expect from a former Pittsburgh Pirates third baseman, albeit one forced by injury to quit after just two years. "Although ..." He pauses, then laughs again, this time a little nervously. "The closest I ever came to crying was in 2002, when my son was in preschool." He strokes his close-cropped goatee. "It was my day to read a story to the class, and I have a big position on natural gas, 500 spreads that happen to be the wrong way. The market was just ripping that morning. And I'm reading The Spider and the Fly, and I'm getting text messages about where the market's going, and the sweat is beating up on me.
"But I'm still reading, and when they open it up to questions, the kids turn out to love the story. So I end up having to answer 30 questions, while I'm seeing the market going worse and worse. By the time I get to the trading floor, I am down - should I say this? - $2 million. Two million dollars - because I was reading a story!"
He shrugs. "But what can you do? You try to put it aside, and you focus on trading. And to be honest, you make it back. Not all at once, of course. But you take baby steps, and you do."
In the natural-gas options pit, a few feet from where Bolling trades gas futures, Raymond Carbone has also been swallowing a loss today. In fact, Carbone, a genial third-generation Sicilian-American who started here in 1987, came out of 2004 bearing a net annual loss, his worst trading year yet. "It hurt, because it was purely a lack of discipline that led to it," he says as he mixes a vitamin C drink after Thursday's close. "When you make a chunk and don't manage your good fortune correctly - you give it back - that is a very mentally taxing thing to deal with. Same happened to me with Katrina when I didn't get out in time. If I take a stand and I'm wrong, I can take that on the head. But when I was right and didn't take my profit, and it goes the other way, then you sit there and shake your head cursing your own greed."
Still, last year's loss was only "a minor negative", and was more than compensated for by the success of Carbone's brokerage business, Paramount Options, which earns him commission on every client order. It also followed his best ever trading year. He will not discuss specifics, but when asked if that suggests a seven-figure income, he pauses before replying, "Probably."
Carbone, 46, takes a far more cerebral approach to trading. Whereas Bolling relies heavily on chart-reading to spot trends, and a sportsman's psychological preparation to remain "inside the zone", Carbone is the intellectually curious geopolitical strategist. Yes, he reads the charts daily, he explains; but whereas natural gas is a largely domestic US market, oil prices can move on any number of global triggers. Bolling's concentration rarely extends to background study ("Books? You barely read a pamphlet"); Carbone dissects news-magazines and business publications to judge the potential impact of political turmoil in Indonesia or ministerial speeches in Venezuela. Bolling arranges sessions with Flavia, his Brazilian "trading coach", to help him avoid "negative emotions" such as greed and fear; Carbone, who once helped organise concert tours by Blondie and Evelyn "Champagne" King, unwinds with his guitar collection and his CDs.
What both men share is an obsession with monitoring current and historic weather patterns, and a sense that money alone can never be the sole motivation for a successful trader. "Yes, when you open your statement, the number at the bottom kind of tells you how well you're doing," Carbone says. "But success is also measured by how you feel about your trading. Sometimes I've done trades that just feel really right, even if they won't make me much."
"It's not money of itself," Bolling agrees. "It may to an extent keep me here longer - or it may push me out quicker. You hear people talking about 'the number', whatever it is you need to make before you're done. Is $10 million enough? Or is $50 million the number, if that's what you need nowadays to get a private plane?"
The personal jet is not Bolling's style. He and his non-working wife have a substantial main home in suburban New Jersey, as well as a beach-house, but apart from regular trips to the casinos of Las Vegas or the Bahamas, he sees little need to indulge a "lifestyle". In 19 years' trading, he says, he has never taken more than a long weekend as holiday, in case the markets catch him by surprise. He also keeps his laptop beside him each evening, monitoring world price movements to avoid being caught on the hop.
He corrects himself. For the honeymoon, he did agree to a week in the Caribbean.
"I don't require much," he says. "I grew up in a lower-middle-class home in Chicago the size of this side office. My dad, a travelling salesman, never earned more than $40,000 a year. I think it would be arrogant, embarrassing, to spend lavishly." The embarrassment extends to discussing his work outside this building. "There's no way you can explain to someone like my father that before I came to work one day I was already down $2 million. Either they'll think you're lying or it would just bother them. And when you're up, you're not comfortable to discuss it with friends who have office jobs."
Mostly, thankfully, his trading has been "up". So why doesn't he cash in and do something less stressful? He admits to not sleeping well: five, six hours at the most, and never straight through. "Time was, if I ever made a million dollars, I was going to walk way from here and go buy a hot dog stand on the beach in Florida," he recalls. "But you keep raising the bar. It's an addictive game, and no one leaves when they're on top. You're unemployable after this - you have a need for a lot of action. I think I'm stuck here for a while."
Unless, of course, the markets make the decision for him. "During my monster slump, before seeing Flavia, I did think, maybe it's time, maybe the market's changing but I'm not changing with it. I've seen a lot of successful guys who went broke. There's one good friend, an extremely successful trader, the guy who for years you'd go to for gasoline. He had a gorgeous house in the Hamptons, an aeroplane, extra seats here that he leased out. One day, when he had a big position on, the US government changed the specifications for deliverable gasoline. The price exploded overnight. Boom! They took his house, his Hamptons place, his aeroplane, his seats ... He was so far in deficit that he had to come back in to work just to pay back his clearing house."
What happened to him? "Oh, he's long gone," Bolling says. "He now owns a strip club in Florida."
Raymond Carbone intends to quit while he is ahead. At 46, he is already contemplating his travel plans with Thuy, his gilrfriend, a banker specialising in derivatives who is currently based in London: part of the year in "the old country", Sicily, where he intends to build a house; part in Vietnam, where he lived in the late 1990s during a three-year break from trading; and part on Long Island, where he lives alone a few steps from the beach. "If this went away tomorrow, I'd be all right," he reflects. "Not a tycoon, but still enjoying life, eating well, pursuing music. Though I'd still trade, probably, but from a screen."
Friday's markets are far calmer, falling into what Carbone describes as "exhaustion mode". Crude hovers all session at around $61.50, gas barely moves from $13.36. Telephone-order clerks read celebrity magazines and complete crosswords. A tide of abandoned order cards, said to fill the equivalent of seven subway cars each year, ebbs gently on the ground.
"I'm spent, just physically drained," Eric Bolling says after the closing bell. "This week was work." Carbone, apart from placing brokerage orders, has made just one personal trade today, in the crude-oil pit. "I'm ready for a quiet time," he says. "It's been a rollercoaster two years."
He takes time to reflect aloud where he sees the markets going from here. The short-term action, he suggests, will be with heating oil and natural gas, especially if the winter proves as cold as predicted: refining capacity, ravaged by the hurricanes, will fail to meet the high weather-led demand, something that prices would reflect. Over the longer term, too, barring a global recession or a bird-flu pandemic that would shut down transport hubs, Carbone sees energy prices continuing to rise. "China and India have changed the dynamic, with three billion relatively new consumers adding to strong demand. Couple that with geopolitical concerns - Venezuela, unrest in Nigeria, Russia and the Iran problem - and we can easily break new ground with sustained higher prices. We may just have to get used to it."
He suggests we continue the conversation over a coffee in Greenwich Village, around the corner from his girlfriend's apartment, where he stays during the week. I raise the one concern I keep hearing about trading floors such as the Merc: that the speculative buying frenzies on which they thrive merely push up energy prices for the consumer.
"There are plenty of players in the market that influence the price of oil, not simply the group of people on that floor," he replies. "Those three billion people in Asia have a lot to do with what we're paying at the pumps today. No fund or speculator could ever move the price of oil like that. And don't forget, some traders or hedge funds are actually betting on prices going down, so it's not in their interests to bid prices up. In my first eight years, I was consistently bearish, always feeling that prices were too high. That led me to take positions where I lost money every time the price went up."
As we leave, a sudden intense New York rainstorm causes Carbone to break out in a grin. "You know, there's an important Yankees play-off tonight, and I got a couple of good tickets," he says as he flicks open an umbrella. "But when I saw the weather predictions on Monday, I put a notice in the men's room offering to sell."
And they went? "Yeah," he says with quiet satisfaction. "I bought them at $66, and sold at $100. And you know what? By midweek, every guy there was trying to offload tickets on that men's-room wall. You gotta think smarter."
(The Telegraph Magazine, November 19 2005)
posted by David Rowan at Sunday, June 29, 2008
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