The Day Trader: From the Pit to the PC

by Lewis Borsellino

Overview

The S&P futures pit is the ultimate arena for traders. It is a place where trading titans make split-second decisions on huge amounts of money, and fortunes appear and vanish with the blink of an eye. Successful day traders are brilliant, aggressive-and lucky. Lewis J. Borsellino is all three. And now he is telling his story. The nation's top S&P futures trader, Borsellino takes you inside the world of the day trader.

Chronicling Borsellino's incredible run on the floor of the Chicago Mercantile Exchange, The Day Trader offers a rare behind-the-scenes look at his everyday strategies and tactics. Raised to be a fierce and fearless competitor, Borsellino felt at home the first day he walked into the chaos and excitement of the Merc. In The Day Trader, he offers both a compelling story as well as an inside look at day trading and the S&P market. Borsellino outlines exactly what contributed to his unparalleled success-a rare blend of discipline, drive, intelligence, and an uncanny ability to read and interpret the market. The Day Trader is also a candid memoir of a second generation Italian American who learned tough life lessons from his father.

The senior statesman of the S&P pit, Borsellino offers vivid firsthand accounts of the unique dynamics of the trading floor, the fortunes won and lost in the crash of 1987, the FBI investigation that rocked the futures trading industry, and the tense political battles between Merc titans Leo Melamed and Jack Sandner. He also shares war stories from the floor, many involving top traders such as Richard Dennis and George Soros.

Finally, Borsellino chronicles the latest phase of his career, as he moves beyond the beloved trading pit to the challenges and opportunities of the electronic trading arena. More than the success story of one the nation's most respected traders, The Day Trader offers practical insights into the futures markets, pit trading, market psychology, fundamental and technical analysis, and risk. It is a rare opportunity to see inside the mind of one of today's most brilliant traders.

LEWIS J. BORSELLINO is the top S&P futures trader in the United States with a career that has spanned an unprecedented 18 years. His long-term success puts him into the trading pantheon that features such luminaries as Paul Tudor Jones, Victor Niederhoffer, and bond trader Tom Baldwin. Borsellino is a frequent contributing commentator on CNN and CNBC where he is regarded as the "biggest and best trader" in S&Ps. PATRICIA CRISAFULLI COMMINS is a freelance business writer and former correspondent for Reuters America Inc. She has also written for The Christian Science Monitor and the Wall Street Journal.

Product Details

ISBN-13:	9780471401612
Publisher:	Wiley
Publication date:	01/22/2001
Series:	From the Pit to the PC
Pages:	256
Product dimensions:	5.57(w) x 8.72(h) x 0.67(d)

About the Author

LEWIS J. BORSELLINO is the top S&P futures trader in the United States, with a career that has spanned nearly twenty years. His long-term success puts him into the trading pantheon that features such luminaries as Paul Tudor Jones, Victor Niederhoffer, and bond trader Tom Baldwin. Borsellino is a frequent guest commentator on CNN-FN and CNBC, where he is regarded as the "biggest and best trader" in S&Ps. He is also the founder of www.TeachTrade.com, a Web site that provides education and dynamic market commentary for traders.
PATRICIA CRISAFULLI COMMINS is a freelance business writer and former correspondent for Reuters America Inc. She has also written for the Christian Science Monitor and the Wall Street Journal.

Read an Excerpt

The Day Trader: From the Pit to the PC
Lewis Borsellino
ISBN: 0-471-33265-8

High Times

I was nowhere near the trading pit on Black Monday. I was out of Chicago, out of the country and, at that moment, out of touch with the market. It was late in the afternoon on October 19, 1987, when I stepped into the Piaget store in Zurich, Switzerland, to buy a watch. The salesman behind the counter was a middle-aged Swiss man, as conservatively dressed as any banker I had seen on the Bahnhofstrasse in Zurich's financial district. He laid four watches on a black velvet cushion and waited while I looked them over. I glanced up from the watches at an electronic sign outside a bank. I don't read German, but could still figure out what the sign said. The Dow Jones Industrial Average was off 500 points.
"That must be broken," I said to the salesman, gesturing toward the sign on the bank. I picked up one of the watches for a closer look.
"No, sir," the salesman said quietly in his clipped Swiss accent. "The U. S. stock market crashed today."
All the color drained out of my face. I threw the watch at the salesman and ran for the door. "Sir, don't you want the watch?" he asked, confused by my behavior.
"Forget the watch," I yelled back. "I've got to get back to Chicago."
Back at my hotel, the message light on my telephone flashed ominously. There were messages from my wife and my brother, repeating what the clerk in the watch store had told me. The stock market had crashed.
My first trip to Europe was cut short. There were seven of us-all businessmen, and I was the youngest at 30-on a 10-day excursion to Europe for rest and a little relaxation. We had left the previous Friday afternoon bound for Italy then Switzerland. I was short 25 Standard &Poor's 500 Stock Index futures (S&P) contracts when I got on a plane from Chicago to New York on Friday afternoon, but had left an order to fill them at the close. By the time I arrived in New York for my trans-Atlantic flight, I had made $250,000 on that trade. I was already up $2 million for the year. It was going to be a great trip.
After a weekend in Italy, we arrived in Zurich. I was staying in the Beau Rivage Hotel, the best of the five-star hotels in Zurich. My mind was admittedly on leisure and not on business when I walked into that watch store. When I left moments later, all I could think about was getting back into the trading pit as fast as I could. On Tuesday morning, I caught a flight to London where I hoped to get the Concorde to New York. To my amazement, the flight was full and I had to go standby-to the tune of $5,000 for a one-way ticket. But even that sky-high price was worth the investment to get me back to the trading pits where, in the wake of the biggest single-day decline in the stock market, opportunity awaited me.
I was so antsy on that three-hour flight to New York that I couldn't even enjoy the fact that I was on the Concorde for the first time. My focus was getting back to that trading pit where, I imagined, the S&Ps would probably rebound after Monday's sharp drop. But there was another pressing issue on my mind-something that only I could handle. I had 1,000 eurodollar call options, giving me the right to be long eurodollars at 94.00, which I had bought for $25,000 about two and a half months before. My reasons for buying the options were twofold: I wanted to become more familiar with options, which were fairly new to me. And, in this instance, the 94 calls would be very valuable should there be a cut in short-term interest rates.
As a futures trader, specializing in the Standard &Poor's 500 Stock Index contract at the Chicago Mercantile Exchange, I wanted to learn more about options. The interesting thing about options is that they give the holder the right-but not the obligation-to take a position in the futures market in return from a premium. Options carry a particular exercise, or strike, price. The closer the strike price is to the market, the more valuable the option (and the higher the premium). The farther away the strike price is from the market, the less valuable the option.
There are several diverse and complex strategies to trade futures and options together, and I had begun to dabble in them. The first time was in cattle options. I had the idea that cattle prices were going up, based in part on what I heard from a friend in the wholesale meat business. I decided to buy calls-2,000 of them-for about $25,000, gaining the right to be long cattle futures at 65.00 cents. Just as I had hoped, the market rose steadily until cattle prices were just 0.20 cent away from my strike price. If only I knew then what I know now. I would have sold futures when the market was at 64.80. If I pursued that strategy then, if prices rose, I'd be long cattle at 65 by exercising the call options. If prices fell, I'd be short from 64.80. My only risk was that 20-point differential between the call options and the futures price. That amounted to about a $61,000 investment-the cost of the options and my exposure on the futures trade-which would have been more than offset by the money I could have made on the trade.
Instead, I held onto my options, thinking that my 65 strike price was going to be hit. Then, the U. S. Department of Agriculture came out with a report that indicated a larger supply of cattle than previously estimated. Cattle price went limit down for five days, and my options expired worthless. If only I had sold the futures contracts at 64.80-my estimated profit on that trade would have been a cool $750,000.
The second time I tried an options play was six weeks before I left for Europe. Eurodollars were at 92.00 when I bought those 1,000 calls to be long at 94. But it looked like the scenario I had hoped for-a cut in short-term interest rates-was not going to materialize. When I left Chicago, eurodollars were down to 91.50. Interest rates would have to be reduced by two and a half basis points for my strike price to be hit. That seemed to be a pretty far-fetched proposition. My options were in the cabinet, meaning that although they had not yet expired, they were virtually worthless.
Then the stock market crashed, and Alan Greenspan, in an effort to calm the panic in the market, announced the Fed would loosen rates. On Tuesday morning, my eurodollar options went from just paper to solid gold. I could have parlayed them into about a $1 million profit, but I didn't know that at a cruising altitude of 50,000 feet.
There were no phones on the Concorde, and by the time I reached New York, the eurodollar market had not yet opened. I had to wait until I was on the plane from New York to Chicago to place a call to my floor broker. But, for some reason, the phone on that plane was not able to read my credit card when I ran it through the swiper. I was panicked now. Nobody knew about those options, and I was stuck in a plane with a phone that didn't work. I approached the flight attendant with a $100 bill and a question: "Do you have a VISA or an American Express card?"
She looked at me a little puzzled.
"I'm a commodities trader. The market is really crazy. I have to place a call and take care of something. But the phone won't read my credit card. I'll be on the phone two minutes. I'll give you $100 if you let me use your credit card."
The flight attendant took pity on me, and she wouldn't take the $100. "It's a five-dollar telephone charge," she said. "Give me five dollars and you can use my credit card."
When I finally reached the trading desk on the floor of the Merc, I learned eurodollar futures had opened at 94.50, but then retreated from the highs. My options were still worth something-but nowhere near what they could have been worth. I sold them for a $250,000 profit, which was still a 10-fold profit on a $25,000 investment.
Looking back, however, I would have done things very differently had I been on the floor that day. I could have sold my 94 options and made $500,000, or I could have sold 1,000 eurodollar futures to be short at 94.50 and stayed long options at 94 for a guaranteed 50-tick profit. Three days later, eurodollars were back down to 92, and I would have been short from 94.50. All in all, I figure I lost out on at least a potential $1,250,000 profit. Granted, I did make $250,000 on the options that I had thought were worthless. But, like much of what happened to me during the Crash of 1987, I made some big money-but also left a lot on the table.
When I reached the trading floor at the Chicago Mercantile Exchange at one o'clock Tuesday afternoon, it looked like a battlefield after heavy casualties. Some local traders had busted out, never to return. Others were yanked out by their clearing firms because they didn't have enough money in their trading accounts to cover potential six-figure losses. Other traders were just scared and stayed away until the smoke cleared. The traders who remained looked shell-shocked.
"You should have been here, Lewis," one trader said. "You would have made $5 million on Monday."
Another trader stopped me on the way to the S&P pit. "I swear to God you would have made $5 million," he said. "It was unbelievable."
Five million-every time somebody saw me, I heard that number. I would have made $5 million on Monday. It was not what I wanted to hear.
I made $500,000 on Tuesday as the market roared back about 350 points. Wednesday was another crazy, volatile day in the pit, and I netted another $500,000. Volatile days present huge opportunities for a day trader like myself. The more the market moves intraday-rising and falling, testing support levels, and breaking through resistance points-the greater the potential for profit. But a volatile market is a little like going white-water rafting. When you're in control, it's a great ride, but if you lose your focus and your discipline, things can get dicey very quickly. Luckily for me, I have this ability that the crazier the market becomes, the more focused I am. This ability has served me well in times of crisis, both personal and professional. When the world around me goes nuts, I become more sane. The wilder the market gets, the more disciplined I become.
Then came Thursday morning. The trading pit has a mood that reflects the thoughts, fears, hopes, and biases of the people in it. When negative news has hit the market, the pit feels like a top-heavy boat that's about to capsize. You know it's going down. On days when the market is bullish, you can feel the optimism that we're going to test the old highs, build enough momentum and break through them. Reading this mood comes with experience, from being in the pit day in and day out since I first arrived on the trading floor as a runner in 1981. I developed an instinct that grew out of listening to my gut as much as my brain. I've been wrong and I've second-guessed myself and been burned as a result. But, like a lot of veteran traders, I've learned to rely on an ability that is like a sixth sense when it comes to reading the market.
On the Thursday after the crash, there was definitely something in the air. As I walked into the S&P pit a few minutes before the opening bell, I noticed the brokers who filled customer orders seemed nervous and edgy. I had been an order-filler, myself, for four years before I began trading solely for my own account. I remembered well the nervous anticipation of having a big order to fill at the opening. That's what I saw across the pit that morning. I could see it in the way their eyes darted around them and the uneasy fidgeting of their body language. They were sellers, I decided at that moment. After a day of historic loss on Monday, followed by two days of high volatility on Tuesday and Wednesday, the sellers were coming back into the market.
Just before the market opens, the brokers are allowed to announce their bids and offers, which sets the tone for the opening trades. That morning, a broker announced he was offering to sell S&Ps 400 points lower. Then another broker, this one from Shearson, stepped up. He offered to sell 1,000 points lower. In those days, the S&P pit had no trading limits. Today, there are limits to control how far-and how fast-S&Ps can fall. These protective limits act like a brake to slow a sharp decline. But in those days, the market rose and fell at the whim of the bids and offers.
If the Shearson broker was willing to offer 600 points below the first broker, I wondered just how low this market would go. "I'm 2,000 lower!" I roared into the pit.
The Shearson broker didn't hesitate. "I'm 3,000 lower!" he bellowed back.
Holy shit! I thought. This market was down 3,000 points and we hadn't even started trading yet. To put this in perspective, in those days a 400-or 500-point rise or fall was a significant move.
"4,000 lower!" I yelled.
"5,000 lower," the Shearson broker countered.
With that, S&Ps opened about 5,600 points lower. It was a freefall, but we had to be near the bottom, my gut told me. "Buy 'em!" I started to say to the Shearson broker across the pit, until the trader behind me grabbed my arm.
"Lewis! I'll sell you 150!"
"Buy 'em!" I yelled back.
I scribbled the trade on my card and looked up.
A second later, another broker caught my eye. "I'm selling 300," he told me.
"Can't do it," I signaled back. I had just bought 150 contracts, and didn't think I could stomach taking the risk of another 300 in a market that could just as easily crash or rebound.
Two seconds later, a trader across the pit grabbed my attention. Using a combination of hand signals and lipreading, he asked me, "What are you doing?"
"I'm a seller," I replied.
"I'm a buyer," he signaled back.
I offered those 150 contracts-which I had bought less than a half-minute before-for 2,000 points higher than my purchase price. I made $1.3 million on that single trade. But I also knew that, if I had bought the other 300 contracts, my profit would have been a cool $5 million. But I couldn't look back. I had reached my internal risk limit. I made a few smaller trades, netting another $40,000 or $50,000. Then I had enough. I handed my last trading card to my clerk, walked out of the pit, went into the bathroom, and threw up.
I splashed my face with cold water and stared at my reflection in the mirror. Red veins striped my blue eyes and my skin looked gray. I ran my hands through my blond hair, cut short as in the days when I played college football. My mind reeled at the enormity of what I had pulled off, which my ego was just beginning to grasp. I was 30 years old, and I had made over a million dollars in less than a minute. But, I tasted the bile in the back of my throat and knew what my gut was telling me-it could have just as easily gone the other way and I'd be in the bathroom puking my guts out for another reason. If the market had turned against me, I would have been wiped out.
Trading provides the highest highs and the lowest lows of any profession, and I have had my share of both. For 18 years, I've stood in the S&P pit at the Merc, through the Reagan years, the Persian Gulf War, the Russian coup, the longest bull run in the market's history, and the Asian financial crisis. One way or the other, I'll be trading S&Ps for a long time to come-on the floor or electronically, from Chicago or from anywhere else. It doesn't matter. I'll be there in the market during whatever comes next. I've averaged well over seven figures a year-just trading my own money. I take risks that are not for the insecure or the faint-hearted, and reap the rewards that come from patience, discipline, and a competitor's drive.
My success has brought me my share of the good times. And, I've endured my share of the bad. But just as when you're on a roll at the craps table, you have to enjoy the winning streak for as long as it lasts. There are other rules that I live by, a kind of personal code I've hammered out-or that's been hammered into me-over the years. Never lose your focus, your discipline, or your control, and never forget who you are.
I've come a long way from Taylor Street on Chicago's Near West Side, where Italian was spoken as often as English and street-smart kids played tag on the sidewalk and down the alleys. I've gone far from the old neighborhood, where nearly everybody had some kind of racket on the side and, when it came to gambling or running the numbers, everybody knew somebody who was in on the game. I've curbed much of my quick temper, which never let me walk away from a fight, replacing it with the cooler head of a strategist. I've come a long way, but I haven't forgotten where I was born in April 1957. Nor have I lost the heart and nerve of a fighter with a toughness, mental and physical, that has made me successful. Those attributes have given me the strength to endure everything from FBI investigations to a bitter divorce and not lose my focus. I've become what I am, both in spite of my background and because of it.
Now, as I write at age 41, I have lasted 18 years in a profession in which the majority cash out, burn out, or crap out after only a few years. I no longer stand bell-to-bell as in the old days. I leave those grueling long days to younger traders, some a little more than half my age. I am leaving the pit, not just because I lack the stamina to be a player, but because the game is changing. I have entered a new arena as a fund manager, which calls upon both my ability as a trader and my focus and discipline.
Over the years I have persevered during the bad and profited in the good. For nearly two decades, my turf has been about a one-foot square spot on the second step of the trading pit. My brother, Joey, whom I consider to be the biggest S&P trader these days, stands to my left. Looking out into that pit, where hundreds of traders, brokers, and clerks swarm like bees in a hive, I see new faces. They trade for a while, and then they are gone. On the entire trading floor there are only a handful of guys who have traded as a long as I have. We greet each other with a nod or a wave like veterans of some foreign war.
I have seen it all-from the end of dual trading, which once allowed brokers to trade for themselves and fill orders for customers, to the advent of electronic trading, which threatens to make floor traders into an endangered species. I remember well a long sting operation at the Chicago Merc and its sister exchange, the Chicago Board of Trade, when the FBI tried to catch traders in the act of allegedly making illegal trades. A few minor infractions were handed out, but the majority of traders were found to be clean. And we've bumped into some of the biggest and supposedly best in the financial world.
Take the day George Soros filed what was tantamount to a class-action suit against the S&P pit following the Crash of 1987. It only took a day for the rumor to leak out regarding who was behind all that heavy selling on the Thursday after the crash. The Shearson brokers were filling a sell order for speculator and fund manager George Soros. But the Soros order, we learned, was for 2,500 contracts. The desk manager had somehow entered the order twice. Shearson inadvertently sold 5,000 contracts instead of just 2,500. The rumored loss on that sale was said to be around $60 million.
It was in early 1988 when attorneys representing Soros deposed me. I was called into a conference room at a posh law firm in which a group of dark-suited attorneys waited for me.
"You have the right to have an attorney present," one of Soros's lawyers counseled me.
"I don't need an attorney. Just ask me what you want to know."
They asked me everything from where I stood in the S&P pit to how long I had been a floor broker before I was a trader. Then they got down to business. They wanted to know if the Shearson brokers had somehow disclosed the order to me before the market opened.
"No," I replied firmly.
"Why were you selling the market down?"
"Because it was apparent to me that there were a lot more sellers than buyers in the market," I replied.
Under open outcry, trades are transacted based on the best bids and the best offer. On that Thursday morning, I had every right to make an offer as long as I was willing to take on a buyer at that price. "Each time I offered," I continued, "the brokers dropped their offers even lower."
"Isn't that disclosing a customer order?" the attorneys pressed.
"No, it isn't. Listen, I paid $150,000 for my seat on the exchange so I could know first-hand where the market was and to see who was doing what. Anyone is more than welcome to do exactly what I have done-buy a seat and watch the market."
The attorneys paused. I watched the reel-to-reel tape recorder make one revolution. "What was your intention?" they asked me.
"I was ready to buy from Shearson. But I didn't. I bought 150 contracts from another trader." By the attorneys' faces, I'd guess that statement was a piece of news to them. Someone hadn't done their homework.
The deposition was soon over, and the suit against the floor brokers and traders was eventually dropped. In the end, the dispute remained between Soros and Shearson. Theories have circulated for years about what supposedly caused the Crash. Some blame computerized sell programs that sparked the wholesale dumping of stock positions. Others have pointed an accusatory finger at the S&P pit itself, claiming that weakness in futures caused the sell-off in stocks. Whatever the reason, in the aftermath of the Crash, margin calls on stock portfolios were astronomical. Brokerage houses had to cough up billions of dollars to keep trading, and the Fed came to Wall Street's rescue.
But while Wall Street was on shaky ground, the Chicago Mercantile Exchange stood tall. Specialists at the New York Stock Exchange kept some stocks closed for two and three days after the Crash, saying they had to wait until they had buy orders. The S&P pit was closed only for a few hours on the Tuesday after the Crash. Anyone who was short the S&P contract was facing a 40-point discount to the cash market. To offset that risk, traders turned to the Major Market Index based on 20 of the largest stocks in the Dow Jones Industrial Average. This maxi contract, which traded at the Chicago Board of Trade at the time, was not perfectly correlated to the S&P, but it was close enough. When S&Ps were closed, the maxi was at an 80-point discount to the cash market. By the time S&Ps reopened, the maxi was at an 80-point premium, which fueled a rally in S&Ps. Sifting through the events surrounding the Crash and the days that followed, I believe the maxi and the rebound in S&Ps helped stem the tide of losses in stocks, and kept a severe crash from becoming even more catastrophic. This also turned the sentiment of the market, and program trading turned from massive selling to buying.
In time, the Soros incident faded from the pit talk, although we still-even today-occasionally razz the guy who was the Shearson desk manager that day. ("Wanna sell 5,000?" we'll tease him.) As for me, I keep on trading as aggressively as I always have. Trading is my life. It is my business. It is what I do to distinguish myself.
CNBC once described me as being among the biggest and best traders in the S&P pit. I acknowledge the compliment. I know that I am among the best when it comes to reading support and resistance in the market, interpreting floor-order flow, and anticipating how the market will react to the next twitch or itch of the Federal Reserve Board. But that is only part of my story. What has made me successful as a trader is where I have come from, the past that I've not only risen above but come to terms with. I am my own man, but I am also Tony Borsellino's son. In that, I am the product of his hopes and dreams for me.
My father's life, on the surface, was very different from mine. He operated in a different world, one he should have avoided. But he made choices based on the options that were available to him. What he did was for us, his family, to give us a better life than he had. If I heard him say it once, I heard him say it a million times: "I do what I do so you won't have to." It echoes in my memory.
My story, you see, is my father's legacy. I can't look at my life without explaining my father's. I see the success that my brother, Joey, and I have enjoyed, and I know we have Dad to thank-but not in the way that people might think. The rumor I've heard is that Dad supposedly left Joey and me a bundle of cash, which we used as seed money to trade at the Merc. That, the story goes, is why Joey and I have both been so successful. The truth is, when Dad died, there was no money.
Sometimes I joke with the guys in the pit. I say, "What did your Dad leave you-$15 or $20 million? My Dad left Joey and me a ski mask and a gun and a note that said, 'Go make a living. Take care of your mother. ' That's what we got."
My background is not a secret among my fellow traders, although no one ever asks me about it. In fact, I suspect that most of them are afraid to even bring up the subject for fear of offending me and facing my temper. As a result, the other traders have sometimes treated me differently, as if they were not entirely comfortable around me. To counter that, I sometimes joke about our childhood. I'll tell the "ski mask" story, which puts some people at ease and shakes others up a little bit.
But the truth is, Dad didn't really leave us a ski mask and a gun, either. He would have beaten the crap out of us if we ever thought of following in his footsteps when it came to the way he made his living. My father was a truck driver, legitimately, for 17 years. If something "fell off the truck," he made a little money on the side. Then came the temptation, the chance for a big score. There was no turning back.
The inheritance my father left Joey and me was worth more millions and will last longer than a trust fund. He left us integrity, self-reliance, intelligence, strength, toughness, and the ability to stand on our own. He made us men, even when we were little boys. And he loved us. Unconditionally. Unquestionably. Undeniably. His love for us and his belief that we could do whatever we set our minds to became the foundation for our success.
I was playing cards with Michael Jordan one day. A line like that usually gets somebody's attention. But it's true. We were relaxing in the clubhouse at a private country club after a golf tournament that included the top executives of some of Chicago's leading corporations, a few sports celebrities, and independent businessmen like me. We sat around the table, smoking cigars and having drinks. Somebody pulled out a deck of cards, and we played a few friendly hands of gin. I realized that evening that, if it weren't for the money, Michael Jordan would never have been part of that card game and neither would I. We come from different worlds than the men we were associating with that evening. They are great guys, to be sure, but I know who I am and where I come from. And no matter what club I am admitted to, no matter who I know or how much money I make, I'll never blend in completely with that crowd. By choice, I am and will always be a man apart.
Being blond, blue-eyed, and college-educated, I could have slipped into another name or identity the way I change into a golf shirt or a business suit, but that would have been only on the surface. I could never negate the impact of my upbringing on my character, and I certainly know I would never try. I am an Italian-American, and I am proud of my heritage and my ethnicity. My grandfather, Luigi Borsellino, emigrated from Sicily and scratched out a living, first as a bootlegger during Prohibition. Then, he and his two brothers started the first spaghetti factory in Chicago and also ran an olive oil-importing business.
My paternal grandparents had four children. The oldest son, Norfe, was born in Italy, where he spent the first nine years of his life with his mother after his father had emigrated to the United States. Arriving here at last, Norfe had no memories of his father, only the stories that his mother told him. That first meeting was soured by a trick played on Norfe, which became a family joke for the next 70 years. Someone called Norfe aside and told him in Italian that his father, who was not much more than five feet tall, had a new English nickname that he loved to be called. So Norfe smiled at his father for the first time since he was a baby and said loudly the English phrase he had learned just a minute before: "Hiya, Shorty!" He never understood why his father slapped him the minute he saw him.
After Norfe came Louisa, my father, Tony, and Josephine, whom everyone calls "Josie." My mother, Florence, or "Tootsie" as she is called, was also of Italian descent with a large family: Sammy, Caroline, Frank, Antoinette (whom everyone calls "Cookie"), and Tina. On paternal and maternal sides, ours was and still is a tightly knit group of aunts, uncles, and cousins. We have been there for each other during the hard times, which makes the occasions we have to celebrate all the sweeter. That to me is the essence of growing up Italian-American. I was raised to believe there is no sacrifice that you wouldn't make for your parents, your children, or your siblings. I remember the story of when my parents were newlyweds and living in an apartment one floor above my father's parents. Dad was so worried that his mother, who had a heart murmur, might suffer a heart attack while walking up the stairs that he carried her up three flights every day.
In an Italian family, we are all responsible for each other. That means if somebody has a problem, we all have a problem. The phones start ringing from one house to another until the problem is hashed out and a solution is found. When I was a kid, that solution was usually my father. He was the original "Solutions Provider," as the software people call their troubleshooters today. Even though he was not the oldest of the family, he was the one everyone turned to for help and advice. I'd be a billionaire today if I had a dollar for every time I heard my father say, "Don't worry about it. I'll take care of it."
My father was tough, with an iron will and nerves of steel, but he could also be gentle and compassionate, generous and fun-loving. He was loved by those who knew him well. I was reminded of that last April, when my wife, Julie, and I and the seven children we have between us were in Las Vegas to celebrate my 41st birthday. Two limousines were parked at the curb as we left Caesar's Palace for a night on the town. The driver of one approached me.
"Are you Mr. Borsellino?" he asked.
"Yes, that's me," I replied, figuring that the driver just wanted to be sure he was picking up the right party.
"Are you Tony's son?" he asked, his voice softening.
I was shocked at the mention of my father's name after all these years. "Yes, I am. I'm Lewis Borsellino."
The driver shook his head, smiling in disbelief. "My God. Tony's son. You look just like him. He was the best guy in the world."
You know the old saying, "Honor among thieves." It applied literally to my father. He broke laws by stealing from a company, diverting a load into his own hands. But he would never rob or steal from a person. I'm not splitting hairs nor am I defending what my father did. It was illegal and it was wrong. I don't like what he did and I don't approve of it. My father could have made a living with a legitimate business, relying on his brains and his balls to put a deal together. I'm angry that he didn't do that. I'm angry that he never saw my success and my brother's success. I'm angry that he never saw his grandchildren. And I'm angry that my mother has been a widow for nearly 20 years, since she was 43.
But he was my father and I love him. Regardless of the choices he made, he was a man who loved his family, who moved us out of the old neighborhood and into the suburbs to give us a better chance. It was a lifestyle change he couldn't afford, though, and he paid the price for getting involved with the wrong element. I'll never forget that. What he wanted was for us to have a better shake in life than he had.
"I do what I do so you won't have to."
My father never minced words, whether he was giving out advice or telling me straight out about himself and his life. He used his life as a lesson to my brother and me. He knew fear. He knew risk. And he was comfortable with both of them. With honesty and candor, Dad told Joey and me the truth about life as he saw it. I remember when I was 18 and prowling the clubs with my friends. My father would smile and say, "You like going out cabareting, huh? You like the good life? You better get a good education and get a job." Or else he'd take me to a club and point out the guys at the bar. "You see that guy? He's a judge. The other one is a lawyer. He's a doctor. The other guy owns his own business . . . You want to be like them? Get an education."
In so many ways, my father made me the person I am today. Whatever success I have enjoyed as a trader, I have to thank him and the lessons he taught me about survival, discipline, and endurance. From the beginning, my father wanted my brother, Joey, and me to be our own men, to be independent and self-reliant. To this day, I can still hear my father saying to me, "Don't follow the crowd. Be a leader."
I inherited from my father an intense passion for what I love and believe in, especially my family and those who are close to me. That passion is both my biggest asset and my nemesis. The times I have lost control or gotten myself in trouble were because of that passion; however, I can never tame or lose it. It is the core of who I am, my edge and my advantage.
My father taught me other lessons about life, particularly the celebration of it. When life was good, my father lived it up. When we were boys, Joey and I knew it was summer when we got buzz cuts and Mom packed us up to spend the summer at a house we rented in Lake Geneva, Wisconsin, which is to Chicago what the Hamptons are to New York. In 1964, my father bought a boat for $12,500 in cash. He drove a brand new Oldsmobile and Mom had a new Thunderbird. I remember that he always paid cash for everything and he always had a wad on him.
Little wonder then that, when I made it big as a trader, one of the first things I did was to buy a house in Lake Geneva. It was for my family and me to enjoy. But in my heart, it was also for Dad who used to joke, "Some day I'm going to buy a house on the lake and sit on the deck. When people come strolling by, I'm gonna yell, 'Hey, get off my property. ' "
But there is more to being a trader than making money. Surely, I have enjoyed the monetary rewards of my profession, just as I have lived it up during the high times. But handling success can be as difficult as dealing with failure. In fact, I believe the worst thing that can happen to a young trader is a string of wins the first week. It's so easy to believe that you are just that much smarter than the rest when you perceive every trade you made goes your way. When the market goes against you, and you're squeezed in a long position in a fast-falling market, or scrambling to cover a short position in a rally, you believe you are cursed.
The key is to never believe you can master the market. Oh, there have been times when I've called it so sweetly on the money that I've enjoyed a six-figure day without breaking a sweat. But there are others when I've violated my own rules, believing I knew when and where the market was headed instead of letting the market reveal its own timing. I've had my head handed to me on those days.
The market, as they say, rules. Every effort must be made-whether trades are made via an open outcry or an electronic exchange-to preserve the integrity of the market. Equal access must be guaranteed to all players, whether broker or independent "local trader," because in the end, it's the market that must be served by the players and not the other way around.
That's why I consider the Crash of 1987 to be one of the worst things that could have happened to our market. Sure, I was as wrapped up in the instant-gratification euphoria as everyone else. There were a lot of us who made a ton of money, just as there were those who were caught on the wrong side of the market and wiped out. But I would have preferred making $1 million a year for 30 years, rather than to make $4 million in 1 year and destroy the market and its integrity.
There were those who went around gloating after the Crash. To me, they were like the proverbial fools who killed the goose that laid the golden eggs in hopes of getting all the treasure at once. But, as the story goes, the goose only laid the golden eggs one at a time, and the fools with the butcher knife had a big mess on their hands. Moral of the story: patience and prudence, even in things financial, are their own reward. Perhaps that is the ultimate lesson of the high times. Live it up while you can. Enjoy the good fortune that life brings you, but understand that times will change. Just like the market, life has its up and down cycles. The high times never last forever.

Table of Contents

Preface.

Acknowledgments.

High Times.

The Trading Life.

Combat.

A Competitor's Heart.

The Down Times.

The Sting.

The Metamorphosis.

Trading Goes Electronic.

Politics, Trading, and the Futures Exchange.

From Grassroots to the Global Economy.

From the Pit to the PC.

What People are Saying About This

Nelson Freeburg

A legendary S&P floor trader has written a powerful, brutally honest chronicle of his determined rise to the top of his profession. Touching and insightful, this riveting account is one of the best trading memoirs ever.
(Nelson Freeburg, Publisher, Formula Research)

Nelson Freebug

A legendary S&P floor trader has written a powerful, brutally honest chronicle of his determined rise to the top of his profession. Touching and insightful, this riveting account is one of the best trading memoirs ever. (Nelson Freeburg, Publisher,Formula Research)

Mario Alberico

The Day Trader provides a rare look into the events that shaped the extraordinary character of one of the most unique people to ever put on a trading jacket. Most compelling are the glimpses into Borsellino's Italian-American upbringing. It comes as no surprise that Borsellino places himself at the center of the maelstrom surrounding electronic trading versus open outcry and provides a truly balanced, intelligent, and unemotional view of the momentous transformation occurring in the financial markets. It is imperative that anyone involved in trading the markets — either traditionally or electronically — read this story and benefit from the insights of one of the great traders of our lifetime.
(Mario Alberico, Former Senior Vice President, Electronic Trading, Chicago Mercantile Exchange)

Dominic Di Frisco

The Day Trader is must reading for anyone in the market. Lewis Borsellino is an Italian American hero who climbed the mountain with guts and honor.
(Dominic Di Frisco, President Emeritus, Joint Civic Committee of Italian-Americans)

Editorial Reviews

...interesting, informative, and written by a bona fide authority…the book does a great job of describing Borsellino’s rise from the Chicago streets to the top seat of the Chicago Mercantile Exchange futures pit to his current job trading with computers for client accounts at Borsellino Capital Management.

Business Week

...the most honest road map to a successful trading career ever written.....generously salted with genuine insight into the workings of the market.

Worth Magazine

"A legendary S&P floor trader has written a powerful, brutally honest chronicle of his determined rise to the top of his profession. Touching and insightful, this riveting account is one of the best trading memoirs ever." -Nelson Freeburg, Publisher, Formula Research

"The Day Trader provides a rare look into the events that shaped the extraordinary character of one of the most unique people to ever put on a trading jacket. Most compelling are the glimpses into Borsellino's Italian-American upbringing. It comes as no surprise that Borsellino places himself at the center of the maelstrom surrounding electronic trading versus open outcry and provides a truly balanced, intelligent, and unemotional view of the momentous transformation occurring in the financial markets. It is imperative that anyone involved in trading the markets - either traditionally or electronically - read this story and benefit from the insights of one of the great traders of our lifetime."-Mario Alberico, Former Senior Vice President, Electronic Trading, Chicago Mercantile Exchange

"The Day Trader is must reading for anyone in the market. Lewis Borsellino is an Italian American hero who climbed the mountain with guts and honor." -Dominic Di Frisco, President Emeritus, Joint Civic Committee of Italian-Americans


"...the most honest road map to a succesful trading career ever written....generously salted with genuine insight into the workings of the market."-Worth Magazine

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