Living and working here in Sin City has taught me more about the value of money than 37 years of previous experience out in the real world beyond the Nevada border. While I still consider myself a 'gambler', I find myself being no longer drawn to the siren song of the green felt jungle. Spending so much time behind the tables, I see just how often the dice and the cards turn cold. Actually, to be accurate, they're always cold, but every now and again they warm up just a little bit--enough to keep people playing and thinking they've got a shot at a big score. More often than not, it's a little more give and take, with the edge going to the 'take' side of the equation.
When I look back, all those years I was working in the brokerage were almost like stealing money. Yeah, I worked hard for my salary, but most days, a trained monkey could've done 90% of my job. And in the heady go-go days of the late 90's, making money was easier than falling into a Fremont Street gutter after too many sips from the river of free booze that runs through the middle of this town.
More than a few times, I'd take my entire paycheck and buy OEX call options (that's the S&P 100 Index) on a Friday morning, and make a thousand dollars by lunchtime, get out, and spend the night with my buddies smoking self-congratulatory cigars, buying rounds of drinks, and getting a lapdance or two, thinking that life just couldn't get much better than that.
I remember one day when a buddy of mine made over $50,000 in less than four hours on a couple thousand shares of E-Trade. And when the old gang gets together and starts telling stories, don't think that I don't remind my buddy Ed about the time he sold his Qualcomm options for a $2000 profit after two days, but had he remained in for another week he would've made about $60K more.
But that's how I discovered my affinity for Las Vegas--every couple of months, after a particularly good run in the market, my buddies and I would make a road trip up here for a long weekend of voluntary wealth re-distribution. Good times, indeed.
But there was one guy we could never get to come with us. His name is Wade, and he's probably the most naturally funny person I've ever met. Ed introduced Wade to the rest of us--they were best friends all through the Stand By Me years. While Eddie ended up in the white-collar brokerage world with the rest of us, Wade became a painting contractor. He made a pretty good living at it, but he would never come to Vegas with us, no matter how many times we invited him. When pressed, he finally summed it up fairly succintly when he said I work too damn hard for my money and I don't wanna go up there and piss it all away.
Those words have stuck with me for years now, but the lesson wasn't learned until recently. Back then, making money was simple. Go long on tech, that's all you had to do. I wish I would've kept and printed out all of the old inter-office emails from the good old days--
Dude--I'm already up $2100 on Juniper this morning... Think I should sell?
I'm telling you--as soon as Ciena drops below a hundred, buy calls! It works every time...
My OEX options are up seven points already. It looks like the girls at the Highlighter are gonna be breaking some rules tonight!
And so on...
But these days, I have to take a more measured approach. I guess it's a lesson that everyone learns eventually, but I think that part of my growing-up process has benefitted from me being here. I love the casino environment, and I love playing the games. For years, there was NOTHING I'd rather do than hang out at Binion's dice tables for 36 hours straight, make my way back to Phoenix, and crawl into work Monday morning with nothing to show for it but a hangover and a good story. But now, like Wade, I work too damn hard for my money to go and piss it away in the casino.
I see myself becoming more and more like one of those jaded locals who never gambles at all. Of course, March Madness is coming, and when my friends hit town I'll certainly spend some time throwing the dice and cursing the cards, but not nearly as much as in times past. Hell, the only casino game I play anymore is Pai Gow, only because I've discovered that it's a way to get free drinks while breaking even all night.
I guess the point is, I'm not getting any younger. I'm 38 years old and that sailboat I've been wanting for the past six years or so isn't any closer than it was on April 29th, 2001. In fact, it's much further away. Because on April 30th, 2001, I got laid off--the tipping point that began the series of events that led me to being a casino dealer here in Vegas five years later and making me start all over from square one.
Of course, I had to endure some fairly rough waters. The recession of 2001 literally wiped me out. Almost overnight, I lost over $80,000 that I'd saved up. All of my stock options evaporated into worthless paper (although my buddies still laugh about the stock certificate I mounted underneath the toilet seat lid at my old house, a parting gift from the buffoons that were running Charles Schwab at the time...), I sold my condo about a week before it went into foreclosure, and I successfully dodged the Repo man for a year before saying fuck it and buying the Ghetto Sled. All of my guns, my Les Paul, and the nicest Stratocaster in Phoenix ended up at the pawn shop, too. When I finally moved to Nashville to lean on my family for emotional support while I got back on my feet, I had $2500 to my name and everything I owned fit in a six-foot U-haul trailer.
But none of that even came close to teaching me the value of a buck like pitching cards to people who can't afford to play. Granted, a vast majority of the people I deal with every night are there to have fun and are goofing off with disposable income just like I did in years past. But I can always tell who shouldn't be there, and I guess somewhere deep down inside, I just don't want to be one of those people--I've already had a peek under the lid of Pandora's box of destitution and despair, and although my experience wasn't due to gambling, the parallels are a stark reminder.
Now that I've almost extricated myself from the quicksand of the past five years (well, the credit score is still suffering...), I'm ready to try and build up that elusive nest egg once again.
I don't think I'll be day-trading OEX options anymore. And I actually own mutual funds now. (Damn, I must be getting old). And instead of gambling on long options that expire worthless, I'm doing going to do more spreads until I get to the point where I can get a little more creative.
Like I said, I work too damn hard for my money to just piss it away.
Being a true-blue Capitalist to the core, I've been spending a lot of my free time lately trying to get back in the game and start making a little money besides just the stuff that comes on the paycheck. Of course, I keep telling myself that I'm actually going to finish poker school and get a part-time job doing that, but my gift for procrastination has been especially generous lately and I haven't made the commitment to do it. But I will.
In the meantime, I need to practice actually making money, and get back to doing the stuff I used to recommend to clients back in the day. It took awhile to find an opportunity--the days of low-hanging fruit are long gone, but I think I found something while sniffing around my favorite old playground, the OEX.
Warning: We're gonna change directions here...
On Friday, the S&P 100 closed at 583.75, which was +.56. The 52-week low was around 542, and that was mid-October during the worst of the gas price spikes.
Being an optimist, I'm bullish on the market, so lets make the following trade and see how it turns out in eight weeks:
This will be a credit put spread, so the first leg would be--
Selling Puts to Open 20 of the OEX April 560 contracts Bid: 2.10 Ask: 2.55
The second leg would be--
Buying Puts to Open 20 of the OEX April 550 contracts Bid: 1.25 Ask: 1.60
Since you sell at the bid, and buy at the ask price, the natural difference on this trade is a $ .50 credit. (Option Trading 101--each contract covers 100 shares, so multiply everything by 100, so that for each contract, the credit is actually $50. Now you know).
In broker-ese, the trade would look like this--
SPO 20 OEBPL @ 2.10
BPO 20 OEBPJ @ 1.60
Now, there is a substantial gap between the bid and the ask on both of these contracts, so I'd put the order in as a limit order of $ .60, not at the market price of $ .50 shown. The market maker has a bit of flexibility, so I don't have to take what he gives me. If they turn down the trade, no problemo, I'll move on and find something else. But that $10, although it doesn't seem like much, makes a big difference. And there is no reason to leave money on the table for the market maker to pocket. Besides, I gotta pay comission to the broker, so I might as well get that extra dime.
So in real world numbers, if the order fills, I'd get $60 per contract credited to my account. I used the example of 20 contracts, so that's $1200 minus a reasonable and customary commission. And the beauty of it is, if the OEX closes above 560 on Friday April 21, I get to keep that $1200, all profit. (Remember, it's at 583 right now).
Now for the fine print. If something bad happens and the market takes a huge dump between now and then, I'm on the hook for $940 per contract. That's $18,800 I'm risking to make $1200. Of course, thems the chances you take. Hey, I said I'm still a gambler.
If I did my math right, that's still almost a 6.4% return in eight weeks. If you extrapolate the numbers out to an entire year, that's about a 41% yield. Not too shabby, if the S&P 100 closes above 560.
So basically, with this type of trade, my max profit is $ .60, my max loss is $9.40, and my break-even point is the OEX closing at 556 on the third Friday in April.
In real numbers, the most I can make is the credit amout, $1200. The most I can lose is $18800, so that's the amount the broker wants to see in cash available in my account. Of course, if you don't have $20K lying around to invest, you can cut the numbers down smaller, just like a recipe. Do it with ten contracts and make $600, do it with five contracts and make $300. Of course, the fewer contracts you do, the commission starts to loom as a higher percentage of potential profit.
Any questions?
Some folks flip houses in the real estate market to build their wealth. Others sell shiat on Ebay. Luckily my experiences at Schwab taught me how to use the option market, so this is the path I'm choosing. Almost makes all those years in the quicksand worth it.
Hmmm.... Quicksand. Sounds like a great name for a sailboat.
Mikey
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