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Daily Trading Log
I've been trading for
more than 30 years, it's been a long time since the
1987 Crash. Many traders have asked for my story, so here it is...
I began trading options soon after they were "catching on". This was around
1982, and I dabbled in stock options until the S&P 100 (OEX) got going. The
market was enjoying “good times” for the seven years leading into the
The 1980's were a mini-mania, and like going in to the 2000 bubble top, it
was easy money for a while... As a trader, I was just beginning to feel
invincible. “Just buy a dip, they always go back up” was the theme most
The “pack-rat” in me, or just for nostalgia's sake, I stuffed away a lot of
old trade tickets that occurred around the time of the
1987 Crash. A few
months ago, I dug some out for illustration.
On 8/6/87, I buy 10 OEX 315 call options at 6 1/2, which costs $6,500, and I
pay $139.60 commissions... for a total net cost of $6,639.60.
Just 7 calendar days later, on 8/13/87, I closed the position, selling all
10 OEX 315 call options at 18 1/2.... that equaled $18,500, less 254.80 in
commission and a .62 SEC fee. The total net proceeds from the sale were
My "investment" of $6639.60 turned into $18244.58, giving a quick $11,604.98
profit. In percentage terms, that was about 175% return... in just 7 days!!!
And at that time, I thought I was boy genius... little did I know....
That trade was closed near the August 1987 highs... October 19th wasn't far
away.... "Black Monday"....
The market was getting “jittery” as we moved into the autumn months. The
market had topped in August, and suddenly things weren’t so rosy. One trade
that I’ll never forget was entered in early October, shortly before the
Crash. With the market having already dropped off of the August high, the
bounce back gave me the feeling that the market should “correct” one more
After all, the indicators I kept (mostly done with a calculator and pencil)
were very overbought. The charts that I drew with a pencil and paper, strung
across 18 feet of wall space, were giving sell signals. I could profit from
a sell-off by buying OEX Put options.
I couldn’t find the old ticket for the next trade, but I bought 10 OEX Put
options in early October. On Friday, October 16th, the last trading day
before the 1987 Crash, market sold off pretty hard – and I closed the OEX
put position… I was very happy on Friday, thinking that I might have covered
at a market bottom!
That feeling was gone on Sunday morning. The Friday sell off had shaken up a
lot of those used to the “easy money” on the way up. The Sunday morning Talk
shows were all about the Stock Market. I thought, “uh oh.”
It’s Monday morning, October 19, 1987, the day of the “1987 Crash.” “Boy
Genius” woke up to FNN (the old Financial News Network) and the anchor man
was nervous. Our market was going to open a LOT lower. With just a ticker
tape to trade off of, and needing to phone in orders to a broker, I decided
not to do anything but watch. I quickly had my VCR tape rewound, and I began
taping FNN “just in case.”
That day, watching FNN on TV, was pure chaos. They weren’t sure if the
ticker tape was accurate, or as much as an hour behind. I tried to capture
the Hourly close on the OEX to keep my charts updated, and that became
almost guesswork. I can remember thinking that I just threw away a winning
lottery ticket, I could have just cried.
At the close, the Dow lost 508 points.
Black Monday, the
1987 Crash, was
finally over. That was a whopping 22.5% drop for the day. For comparison
sake, as this is being written, the Dow is at roughly 105000. A 22.5% drop
would mean a Crash down to 8137 – or a one day loss off 2364 points!!
Back in those days, I plotted prices on paper charts.
Above is one of my charts of the price action shortly before the
The day after the 1987 Crash, the market rallied back. It was a very big up
day, and time to buy some OEX Put options for a test of the crash lows. A 10
point drop on the OEX allowed me to lock in a big profit… BUT, I insisted
that the market go lower. It didn’t. I was in the process of making my
biggest trading mistake. I essentially doubled-up on my bearish “bet” with
no regard to the risk side of the equation. To make a long story short,
$10,000 in profit not only evaporated, I ended up losing about $10,000 on
It's been almost 28 years since the
Crash, and over the past 28 years
I've made it my life's work to study and analyze the stock market. I've
gained a wealth of knowledge and experience that has allowed me to make a
living doing what I love the most...trading.
Here are the three main things learned from the period around the
NEVER confuse brains for a bull market. Learn to play both sides of the
market. In the years leading into the 1987 Crash, it was a one-way street on
the upside. The rising tide lifted almost all the boats. BUT, when it came
to an end, the 1987 Crash was a wake up call. Money can be made on the
downside, and sometimes a lot faster. Be flexible enough to play both the up
and down moves.
NEVER enter any trade without an “escape plan.” That should be a
stop-loss order, or at worst a mental stop that you will obey. And, NEVER
let a nice “winner” turn into a loser.
NEVER be dogmatic, thinking the market MUST do what your analysis says it
should do. The market can do whatever it likes, it doesn’t care what you or
I think it should do. When the market doesn’t act in accordance with your
work, and you are in a trade, close it out and take a fresh look. It will
save you money and aggravation, and set you free to go on to the next trade.
Since 1996 I've been writing the RBI Trader's Updates. It's a nightly
newsletter that has my trading plan for the next day with my support and
resistance numbers. My numbers are extremely accurate, and are followed by
floor traders, hedge fund managers, day traders, and professional traders
who all share the same passion for the market as I have.
Sign Up Now
and see for yourself!