Memories of the Crash of 1987

I was a heavy stock and option and commodity trader in the 1980s. So I have a lot of memories of the Crash. I was also a follower of the Elliot Wave then, and actually still use the theory some in chart interpretation.

So I was minting money bigtime until August when the Elliot Wave gave a sell signal with the Dow up around 2700, I turned around to the bear side. I continued to mint money in puts on the OEX - that's the S&P 100 index which was a big trading vehicle in the 1980s. I couldn't short then since I worked for a big Street firm and the house had rules against that. But puts on indices were fine. [By the way, commissions were quite high - even for employees, so day/week trading was costly. ]

By mid October I was up over 100% and had maximal hubris. The Bear side was ruling and I was a bear. All the stars were aligning for the dark side. The Fed was raising rates (#1). During the week before the crash, Congress started threatening to stop LBOs and takeovers (#2). The dollar started to freefall (#3). Reagan shelled an Iranian oil platform in the Persian Gulf (#4). Oil prices spiked (#5). So all that week the market went down by big steps. The signals were a five pointed star - a Pentagram - the sign of the werewolf lol ;-) Friday, October 16, was a big smash down day on huge volume. The Dow was at around 2200, down 500 pts since the August high. I thought that was the bottom or at least a bounce signal.

Sooooooooooo ... I cashed out all my puts and went long in stocks & calls on margin, thinking I was a modern era Jesse Livermore. He had down that in some early Panics - covering shorts and going long after a big smash down.

Monday. October 19, I had to attend a meeting in midtown NYC for a conference of the Japan Society on real estate - the Japaneses were buying US real estate bigtime and I wanted to learn more. Remember, then there were no cell phones, etc. So around midmorning I heard the president of Nomura speak rather worriedly about how the Japanese markets would open later. Uh oh. :-(

During a break around 11:00 AM I went to a pay phone on Seventh Avenue and called my broker. He was quite worried but said it would work out. He sounded shaken. I sold some stocks and calls at the market - the prices and tape were delayed some then as volume was huge.

Early in the afternoon I called again and learned that slide was continuing. So I sold more, about 2/3 of my positions, at big losses. After the close I learned more - the Dow was down 500 pts. Ugh !!!

Well, early the next morning at my desk with a Quotron to see prices, I decided to sell all. I was shaken up and didn't want to "play" in that game for awhile. By then I just had some calls and some OTC stocks left. I got good prices on the calls as the volatility was so high, they had some value left. And selling the OTC stocks then was good since those stocks were quite illiquid and continued to slide down for many days.

The net result was I lost every dollar of my 100% profits and was flat for the year. Nine months of hard work wasted. :-(( It could have been worse, of course, had I not made partial sells and quick decisions. I could have gotten wiped out.

My investment banking business got very active soon thereafter, so I was out of the market during the rebound and for months afterward. But the memories were burned into my brain. I've told this story to many friends over the years. I suppose the Greeks had it right - my hubris was punished by the trading gods.