His Highly Complex Bond Option Position Helped Get Me Fired From First American, But It Was Not His Fault Don Morton, the second futures brokerage account I ever opened as a full-service futures broker, passed away on Monday, December 2, 2024, at the age of 89. Don was a brilliant options trader who served as the executive director of the Tennessee Legislature's Fiscal Review Committee. He was also a U.S. Army veteran of the Korean War and a certified public accountant. I met Don when I worked for First American Discount, where he was a customer at Table 3. Don traded options spreads, primarily on 30-year Treasury bond options. I don’t recall exactly when his account was transferred to me after I was promoted to a new trading desk for high-risk customers, but he was part of my equity run. This included large, active day traders, traders from the Hume SuperInvestor File, a German introducing broker with numerous sub-accounts, and other high-risk traders. Don’s highly complex options position actually played a role in my being fired from First American. Another key figure was Gil Leistner, who led an options market-making group at Rosenthal. Gil also played a pivotal role in my career, teaching me and a select group of First American colleagues about the intricacies of options trading. The week before the 1987 stock market crash, Bill Mallers, Sr. shouted my name across the trading room midday on Wednesday. He called me over to my old trading desk, number 3, and informed me that the Dow was down 200 points. He mentioned an account holding 80 S&P 500 option straddles that was losing money, on margin call, and said the client could not be reached by telephone. Mallers had concluded that the new head of the desk, my former number two, was not up to the job. I sat down at the desk, reviewed the equity run, and checked the price of the S&P 500 futures. At that time, deltas weren’t included on the equity runs provided by GMI, nor were they available on the quote screens. While we had last trade prices for options, they were often grossly outdated. I had to extrapolate the deltas manually by analyzing the market and the distance of the account’s strike prices relative to the market. From there, I calculated a delta quotient for each position. I then summed up all the delta quotients, both long and short, to determine the net delta position. Finally, I multiplied that net delta by the change in the underlying market to assess the overall impact. After completing the calculations, I determined that the account was actually making about $10,000 that day and was not on margin call. The customer had sold the straddles in August, and although the market rallied in the fall, he consistently met all margin calls for his million-dollar account. When the straddles were sold, the market was positioned in the middle of the straddle. By October, the market had risen significantly above the straddle, which the customer had margined up to maintain. However, as the market fell, it landed right back in the middle of the original straddle position. When I explained this to Bill Mallers, Sr., he decided that I should take over handling the account in the future. By Friday, the stock market's decline had intensified, and the S&P futures were dropping sharply, putting the account in serious jeopardy. That afternoon, I was discussing potential next steps with the client when Bill Mallers, Jr. decided that the situation's gravity required the M...
