A trader’s job can be harrowing under the best of circumstances. It’s a life filled with split-second decisions, and mistakes can easily cost thousands of dollars, not to mention restless nights.
Last Monday, as markets reopened for the first time since the Sept. 11 attacks, the stakes were especially high for Michael Leichtner, a trader at Wedbush Morgan Securities in downtown Los Angeles.
Leichtner, who makes markets in a number of retail stocks, had ridden down the market in retailer Abercrombie & Fitch, maintaining a short bias as its shares fell to $22 from $30 in early September.
Like other retailers, Abercrombie is going through a sales slump as a result of the economic slowdown. But in the final trading sessions prior to Sept. 11, Leichtner switched his view to positive, reasoning that the stock was oversold. When trading ended on Sept. 10, the last trading session prior to the attacks that shut down Wall Street for four days, Leichtner was left holding more than 30,000 shares.
It would be a week before markets opened again, a week filled with disaster, frantic searching for colleagues (all 15 in New York are safe, according to firm President Ed Wedbush), and locating alternative facilities for them. During the hiatus, Wedbush Morgan representatives fielded calls from clients and notified others that they were in danger of receiving margin calls. But after the ringing of the NYSE’s opening bell by rescue workers, traders finally resumed their work in New York and on Wedbush’s 70-broker floor.
For Leichtner, the wait could have been longer. Shortly before 7 a.m., Abercrombie & Fitch opened at $17.05, down $4.73 a share. Leichtner would start his day $160,000 in the hole, and that was just one stock.
Undaunted, he bought 10,000 shares more, and waited. “It’s down too much. The retailers are really getting slammed,” Leichtner said.
Trading decisions like these aren’t long-term decisions, but gut-driven calls based on instinct, experience and a feel for recent trading patterns. Market makers typically stay neutral in most issues, but they’ll maintain a bias holding extra inventory if they’re bullish, or selling short if they believe a stock’s heading down. (Short selling involves the sale of borrowed shares in hopes that the price will go down so replacement shares can be purchased at a lower price.)
As the first hour of trading wore on, Leichtner and other traders called out instructions, encouragement and caution to each other as they made their way through the carnage.
At 6:45 a.m., about 10 minutes into trading, the Dow Jones Industrial Average was down 223 points. Several big names hadn’t yet opened.
A trader called out: “Boeing down $7.80.” Another said, “Why is Disney down $4.50?” Leichtner: “Come on market.” Another voice: “Don’t be alarmed.”
Just before 7 a.m., attention turned toward Vans Inc., Santa Fe Springs retailer of casual footwear and apparel. “Vans is getting smoked,” said one trader.
Minutes later, the tide began to turn, and Leichtner’s double-down bet began to pay off. “ANF just rallied 80 cents. Watch (American) Eagle.”
Around 7:20, the Dow hit its first bottom, at 9010, down nearly 600 points, and began to come back. (It would end the day at 8920, down 685 points.)
Then Gary Wedbush, the firm’s head trader, called out a purchase. “Vans $12.50 for 25 (thousand shares). It’s only traded 25,000 shares.”
By 8 a.m., Abercrombie had surged back to $18.81 a share, nearly $2 above its opening price. Leichtner was lowering his exposure by selling into the rally, 1,500 or 3,000 shares at a time. “Abercrombie is just screaming here,” he said.
“What’s it say?” asked a trader.
“It’s saying you’re not down 160 grand anymore, you’re only down 85,” Leichtner replied.
A few minutes later, Abercrombie hit $18.98 and then started to slip back. “Oh, let me out of my positions,” Leichtner said, selling in earnest now. “I’m happy with that rally.”
But happiness soon turned to regret over what could have been. Around 8:19, after Leichtner had rid himself of most of his Abercrombie shares, a buyer stepped in and bought a large block, driving the price back up to $19.60. “Look at that block he just put up and I missed it. I’m selling it all now. I may even go short,” Leichtner said.
Within a minute, he was done. He’d sold all his shares. Now it was time for the second-guessing to begin, but not without a tinge of relief. “I sold Abercrombie way too soon,” he told a colleague. “I could have lost only $30,000. I lost $77,000 but I was down 160.”
