View Full Version : Pit Trading/Scalping

01-23-2002, 09:25 PM

I am thinking of becoming a pit trader to market make/scalp. Are there any fellow pit traders or floor brokers here and what do u generally think of this idea? Most importantly, do u guys think this is the right way to go and is it profitable in the long run?


01-23-2002, 10:09 PM
I am glad to hear you are talking about options, and not futures. I have not spoken to a futures pit trader who is living it up in a long time, and most are grasping for some way to adapt their skills and make a living off floor.

Coming from nearly zero knowledge, my anwer would be don't do it. But I assume you know more about current option-floor opportunities than me, or can meet people and find out quickly. I imagine you could look at historic seat prices and rental rates to get a good idea of how big a vig most typical traders can expect to cover.

So far as "the long run," my answer would be definitely no. Freelance options floor trading is a young man's job, not an old man's job. And the game gets tougher and more evolved and competitive every year, who knows how tricky and hairy and edgy it will become. But, on the other hand, for a guy in his early twenties, who knows where it might lead!

Have lots of fun!


P.S. I hope you have gone broke a number of times before, whether playing poker, day-trading stocks, or whatever. The options floor can be an ugly and unrecoverable place to learn the lessons about going broke for the first time.

01-24-2002, 08:49 AM
IF!?! You know what you are doing I would investigate the COM seats on the CBOT.Last I checked they were around 25k.You cannot trade futures but the financial options and grain options should keep you busy.Good luck

01-24-2002, 01:06 PM
tks again for the attention that u guys have given me.

The recurring theme that I seem to gather here is that u are encouraging when it comes to options pit trading but somewhat negative when it comes to futures. Why is it so? Shouldn't it be easier to make a living and scalp in the futures pit which is so much more liquid.

Also, now that I am thinking more and more about pit trading, I kinda came up with a theory which I don't know if it holds water. Here's how it goes...

It should be more profitable and relatively easier to scalp in a more volatile and liquid market because as mentioned above,

1. it is more volatile, which probably means that the noise or random ratio is higher. Since market making is similar to pit-trading or scalping in this instance, the profitability of this activity thrives on the fact that order-flows or papers are inconsistent. Thus, if it means that the more inconsistent or random the order-flows, it should mean to say that there are more money to be made from the market. And if this is true, the locals in pits like ND and SP should technically be makin gmore money than locals in ED or some other short-term interest rate products.

2. Since the market is liquid, it means to say that there will be more participants in this market which will result in greater volume of trades and orders. This should, in return, enhance the scalping opportunity for locals.

If the above thesis is right, then we can also reach the same conclusion that FX dealers working for banks should technically be making more from making markets in Euros and Dlr/Jpy rather than currencies like Dlr/CAD because they are more volatile and liquid.

However, I am confused by another thought of mine.

A market maker's edge comes from buying and selling below and above a contract's fair value respectively. The difficult part about it is determining point-blank its fair value, be it options or futures, becuase the market is dynamic and the "statistical" fair value keeps changing. I kinda reach the conclusion that this is one of the reasons why most locals go into spread trading. It helps them to determine one contract's fair value in relation to another and lock the position into a spread, thinking that if they could buy slightly below or sell above the closing spread price of yesterday, they should be able to profit from it once things return to equilibrium. And since spread prices seldom move too dramatically in relation to outright, this should reduce the risk that they carry until they close out the position. Thus, by going into spreads, this helps them to 1. determine the fair value and 2. reduces the statistical deviation and thus the risk involved.

Thus, if the second theory holds water, then this should imply that the ED locals should be making more money than the Bonds or ND locals.

What are your tots?


01-24-2002, 01:30 PM
I don't have the energy of eLroy to address all your concerns.Market making is very different depending on the commodity.For instance in FX if you are a big player a lot of your profits are generated from customers hitting your bid and taking your offer simultaneously.

Scalping futures mean either you go long or short or spread them off versus another month.

Scalping options means you hedge vs futures,or the dozens of various option strategies available

that make sense relative to the options you just bought or sold. There are literally hundreds of

things you can do against "mis-priced options"

Note.A market makers profit does not necessarily come from buying and selling above fair value.Sometimes one market makers bid is anothers offer.I suggest you get a clerks job on the floor before you take the plunge. Good luck

01-24-2002, 01:59 PM
Dr. Bill has already given his opinion that there is something wrong with my post at this link:


But I stand by it.

So far as options trading, many independent traders have found it useful/safe to band together in collectives, and many bigger firms have taken big-firm-sized hits.

So far as futures - and assuming you are shooting to become the biggest local as a benchmark - it is my understanding that Tom Baldwin made more money than Lewis Borsellino ever did - if only because the bond is the biggest market on Earth - and that Lewis Borsellino's profits can basically divided into three periods, 1) the best before the 1987 Crash, 2) the 1987 Crash rebounding through maybe 1997, and 3) declining, trendless, local-on-local crap since then.

It is also important to note that Lewis Borsellino learned to read the institutional/dealer order flow as a filling broker for Salomon Brothers. You might find it useful to work as an off-floor grunt in some big trading firm just to get a window inside what they are thinking and doing.

Finally, I run into people who used to be profitable independent options floor traders - in all different eras - all the time, and who are now doing this or that. Either they didn't evolve, or they burnt out, or something. Point is, I can't think of any big-time, long-term individuals that ever ruled the options pits, only firms bearing the names of indiviudals that endured the test of time.

Wait, there was one in Chicago, but I can't remember his name or what ever happened to him.


01-24-2002, 02:19 PM
I know plenty of "big time" players who made and are making great sums of money in the options ring.But lets face it they quietly bank their cash.They are not the flamboyant pit traders people hear about.But they are consistent winners.

I know people who very successfully scalp the futures as well.I had a one year period where all I traded was intra currency spreads.I am not knocking the futures traders.

01-24-2002, 02:22 PM
One more thing and you will laugh at this as I did.If you are in the bond pits and you see an order clerk signal the broker to buy say 1,000

contracts at the market you are not suppossed to use that information to profit.