Heaven has no rage like love to hatred turned…..

Posted on 09/13/2011

2


…….Nor hell a fury like a woman scorned. (A first hand account of the labor market).

This oft misquoted, insightful snippet was correct until very recently, when I was offered a position with a new, small private equity firm based in Chicago…..a position I accepted and at the same time TURNED DOWN another job opportunity…..only to be left twisting in the wind for weeks on end.

In AA, we are asked to “forgive and forget”. I’m quite certain that request was made by someone who didn’t recently get offered a job (in financial services) only to have it vacated WITHOUT being told ANYTHING.

The past year or so of my life is so laden with drama (much of it very good, some of it difficult) that if I were just a little bit younger and a little bit better looking, I imagine HBO, MTV, or perhaps one of the major networks would be knocking down my door for a piece of this “reality” programming.

Let’s take a quick glance back at some of the high/low lites:

Oct 2009 – get engaged at a Wilco concert. Come on……serious ratings boon to kick things off. People love the engagement episode right?

May 2010 – leave one brokerage firm where I was a top producer for another group. Firm 1 puts together a completely fabricated non-compete agreement in an effort to make my move as difficult as possible.  (Picture furrowed brows) Earlier in the month a broker I befriended at the firm died of an overdose in his Chicago apartment. I had made a concerted effort to talk to him about sobriety. He was incredibly smart, well read/well rounded, and undoubtedly the best sales person I’ve ever been around. In my opinion, he was also plagued by an incessant mental tug of war. Moments of clarity, chemically induced feelings of invincibility, too much regret and fear for someone his age. You are and always will be missed Nick. I think about you and pray for your family regularly.

Nov 2010 – One of my very best friend’s sister passed away after an incredibly courageous, years long battle with brain cancer. To say Jenny (Galloway) McDevitt was and STILL IS an inspiration seems like a callous understatement. Her willingness to fight and remain positive in the face of tremendous odds really puts the “I had a bad day” feeling in perspective.

You think losing a few bucks in the market, or losing a job, or a slow commute is bad? Try handling a cancer diagnosis WEEKS after giving birth to your son. Try running marathon after marathon while you undergo chemo and radiation. Try smiling incessantly and raising money for research to see to it that other families don’t have to go through the same thing.

Bless you Jenny. Bless your family and friends.

Jan 2011 – get an unsolicited offer to go back to work on a proprietary trading desk with one of the bigger/more successful trading firms in Chicago/London. Give up well paying position for opportunity hit it big in the Energy space with new firm.

Feb 2011 – GET MARRIED! Wooooohoooo. Without a doubt, the best day of my life. One made possible by my sobriety and the unwaivering support of one incredible, beautiful woman.

It was a PERFECT day (I kid you not….it was mid-February in Chicago and it was beautiful) and as cliche as it sounds – “unforgettable” (although that was NOT our song). Furthermore, the soundtrack for this day would kick ass from top notch church music to the best DJ in Chicago setting the amazing ambient backdrop to our reception.

While on our honeymoon, rebels took up arms in Libya (as the Arab Spring continued) and NATO forces started bombing strategic areas within Libyian borders. I, unfortunately, miss out on trading a parabolic move in volatility in the Energy complex. On the plus side, I did not sunburn in the Dominican Republic.

Early May 2011 –  Bin Laden killed by Navy Seals at a compound just outside Abbottabad in Northwest Pakistan (yeah – the country we give massive financial/military aid to).

Military and economic aid

Year↓ Military (USD in billions)↓ Economic (USD in billions)↓
2002 1.36 1.233 for 2002 to 2004
2003 1.500 1.233 for 2002 to 2004
2004 1.200 1.233 for 2002 to 2004
2005 1.313 .338
2006 1.260 .539
2007 1.115 .567
2008 1.435 .507
2009 1.689 1.366
2010 1.232 1.409
2011 1.685 unknown
Total 9000.740 billion[13] 6.08 billion[14]

Around the same time there was massive flooding in the Mississippi Delta which impacted the refining capabilities of many of the major players in the Energy space. I could go on and on about the backdrop from a Crude, Gasoline, Heating Oil, Nat Gas standpoint, but I would just bore  you……..

Cliff Notes: Energy prices had been steadily climbing since early 2011. The combination of QE2 and the perceived/real threat of inflation, the instability in North Africa and the Middle East (long list), and seasonal components (refiners moving from a winter to summer blend) put a consistent bid in Crude and the products.

Take a look at the move from ~Thanksgiving (2010) to early May ($85 – $114 or 34% higher in 6 months).

Better yet……RBOB or gasoline futures:

Gasoline futures bottomed around 2.10 in November and made a fairly steady advance to 3.10 in early May. In other words, a 47% move over the same 6 month time frame. The crack spreads (refining margin) for both Gas and Heat were historically very high.

I’m a contrarian and there’s NOTHING I like more (in the market) than making money on the downside when the “ship” is all loaded one way – which was the case in Spring for the Energies. All the big firms were talking about $200 Crude and $5.00 (at the pump) gasoline. Open interest (on the upside) exploded. Implied vols continued to come in (see for yourself below). Anyhow, long story long – I had on positions in Crude and Gasoline that would have performed wildly well on a pullback (my haircut – daily risk in clearing firm terms was somewhere between $100k and $150k) and my down 10% number in BOTH Crude and RBOB was ~+$450k (with daily theta ~$2,500-$3,000).

My buddy and the guy I reported to at the trading firm (makes for somewhat strange bedfellows – friend as boss) welcomed his first child (with his wife obviously) in late April. He came back to work shortly thereafter and we had a discussion about my (admittedly) onesided positions. I felt strongly that the economic environment didn’t warrant the move we’d seen in Crude (or the products) and vol was too low NOT to own (and for the most part I’m a dedicated premium seller). He felt perhaps I should work into a more structured position and he made some compelling points (if the products have outperformed and vol is relatively cheaper in there –  you ought to own that and be short crude vol to finance it). Confused yet?

I acquiesced.

Fast forward about 2/3 days. I’m SHORT Crude vol on a 27 or 28 vol. I’m LONG RBOB vol on a 24 or 25. Theoretically I am long the crack spread for free with extra time because of the expiration cycle.

I also worked into a synthetic Gasoline v. Heating Oil spread using options because Gasoline appeared “rich” relative to Heating Oil and that relationship historically peaks in early/mid May.

The Perfect Storm (release date May 5, 2011) starring yours truly:

………to be continued!

-I have to answer the phone, I believe Aaron Sorkin is calling!!

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