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When the sun rose on Monday, October 19, 1987, I felt financially secure. I had a great job, a beautiful house, nice cars, money in the bank and a belief that the future would bring me even greater abundance. By the time the sun set that evening, I was broke! The Dow dropped 500 points losing 22% of its value. A trillion dollars worth of financial assets vanished that day taking my entire net worth up in a puff of smoke. I had not only lost my wealth, but my confidence as a trader as well. I grieved for my clients and myself. Even in the depths of despair, there was no time for pity or resignation. I had a wife and two children depending upon me. I was being tested and failure was not an option.At the time of the crash, I had been a trader for almost a decade. I began trading in 1978 when I was stationed in Spain with the U.S. Air Force. One of my fellow officers was trading pork bellies. He often talked about his experiences and the money he was making. He made it sound very exciting and easy. I opened my first trading account with Merrill Lynch and I eagerly awaited every issue of the Stars and Stripes so that I could see how my stocks were doing. It was exciting. After getting out of the military and returning to the states, I settled in Oklahoma City and started attending law school. I intended to be a lawyer. I enrolled in law school while also continuing to invest in a small trading account. My trading was a hobby from which I hoped to make a few bucks.My broker, Henry, introduced me to stock options in oil companies. At this time, oil was king in Oklahoma City. Henry taught me his trading strategy for options. It was a ridiculously easy appro a c h that he called "The Bigger Fool Theory". The essence of the theory was simple, buy on the 2nd day of the move at a high price and there is always someone (a bigger fool) who will buy it from you at an even higher price on the 3rd day. Believe it or not, I successfully executed this strategy over and over again. Oil was booming and with the leverage of options I was earning some amazing returns.One day I was surprised to receive an invitation from Henry to come down to the Merrill Lynch office and meet the boss. From the time I entered I was treated like royalty. They were watching my account grow and believed I had some sort of gift. Long story short, they offered me a job to trade professionally that I simply couldn't refuse. They paid me to trade during the day and I was able to finish my law degree at night.In 1982, the S&P futures opened for trading. This was the ultimate trading vehicle: superior leverage, excellent liquidity and tremendous intra-day movement. I quickly fell in love with this market and after four hard years I was reaping some major rewards. Others took notice of my track record; I was offered a great position at Smith Barney and ultimately became a vice president. After becoming the top producing trading advisor in the office, I started receiving some very larg e accounts. In fact, I made a million dollar profit for one account in just one month! Trading was both a profession and passion for me and I loved it!Pride Comes Before the FallS&P options became my obsession. You might say I never met an option I wouldn't sell. I was one of the biggest retail options traders in the United States. I thought I was one of the chosen ones. Walking on water didn't seem like that hard of a task. Then came Black Monday, the day the floor evaporated beneath my feet. On Thursday, I was holding a large spread position in options on the S&P Futures Index. I was long 1,000 October S&P puts and I was short 1000 November S&P puts.
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