The screens are crawling with red and green. But mostly red.
“What is this?”
The stock market is headed down again, as it was yesterday and the day before that. A 32-year-old trader named Peter Milman sits slumped under fluorescent lights in an open-air trading office on Madison Avenue, surrounded by men just like him: rows of traders in jeans and T-shirts and hoodies, faces slack, staring at banks of monitors that jump with charts and graphs and gauges, the only sound the tapping of computer keys—and the occasional expletive.
On this day in mid-November, President Bush is in Manhattan trying to reassure investors, but it doesn’t seem to matter. Treasury Secretary Hank Paulson’s announcement that he’ll scrap his original $700 billion bailout plan for financial institutions has sent the market into a tailspin. Milman’s monologue reads like an emotional ticker tape: “Fuck. Shit. Oh my God. Unbelievable. Oh God. Wow. Oh God. Wow, wow.”
And then, without warning, it happens: The market strikes an invisible bottom, the indexes reverse course, and stock charts head skyward. Perhaps it’s the glimmer of hope in the forthcoming meeting of the G20? Or plummeting oil prices? Milman doesn’t know why—or care. “Oh my God,” he says, whacking furiously on his keys, buying in as the market rises, then quickly selling off, over and over again, up, up, up. He leans off the edge of his seat now, like he’s trying to tilt the market to his will, a pinball wizard at the arcade. His monitor is streaked with green lines edging higher, his profit-and-loss gauge flipping numbers like a slot machine, punching up hundreds of dollars per second, point by S&P point—then thousands per second: green, green, green.
“Come on, NASDAQ, follow!” he hisses, urging it on. “C’mon, sixes, S&Ps! C’mon, let’s see fives, NASDAQ!”
The room is alive with chatter, row after row. The men lean into their screens, adrenaline surging. “Beautiful,” says a nearby trader.
“That is so fast,” whispers Milman. “Wow.”
In recent months, as the stock market has virtually spun off its axis, most people—the reasonable ones—have fled for their economic lives. But like a big-wave rider or a tornado chaser, Peter Milman dives in and out of the market’s sickening maw, riding the explosions of panic and greed and trying to snatch victory—profits—from the jaws of worldwide financial defeat. As a day trader who follows every tick of the Dow, he has a visceral view of the most manic-depressive stock market in recent history.
It is precisely the terrifying volatility—the VIX, the ticker symbol for the Chicago Board Options Exchange Volatility Index, has reached its highest recorded levels in recent months—that has made day traders suddenly hot again after years in the wilderness following the dot-com bust of 2000. (In fact, they don’t call themselves “day traders” anymore, preferring the term “active,” or “professional,” traders.) Downswings of hundreds of points on the Dow followed by equally large reversals offer great opportunities for the short-term investor. One need only jump in and chase a stock or an index for a few points: Buy in, sell off, repeat. Traders try to make money on the upswings and the downswings, in the latter case by short-selling—temporarily covering a long position for another party on the bet that his stock will go down. But Milman prefers to hitch a ride on the rebounds, the style of trading he learned during the bull market.
Throughout the fall, when the Dow Jones regularly swung 200 points in a single day (with one record-breaking 1,000-point swing in October), Milman experienced the most lucrative trading he’s seen since the late nineties. In December, as hedge funds liquidated en masse and the Federal Reserve tried to stanch the cash bleed at banks, prolonged upswings became less frequent, but traders continued to find pockets of momentum, especially at the end of the day, when there is typically a mad rush of trading before the bell. The bear market hasn’t slowed Milman down: He’s up roughly half a million dollars over the last three months. Last week, there was another flurry of volatility, with bad banking news sending the Dow plummeting to 7,949 points on Inauguration Day. The following day was a spiky roller-coaster ride, the Dow traveling down over 100 points, then reversing course for a 290-point gain. It was precisely the kind of day that day traders love. Milman made $18,000.
The percentage of traders like Milman is small, but it’s not just day traders who are approaching the market with a short time-horizon these days. Investment bankers and hedge-fund managers who might have once based their trades on extensive research and elaborate models are finding that their models don’t work in this chaotic environment. Some who otherwise would have shunned this kind of day-trading are finding it profitable to chase the minute-by-minute momentum. “It’s definitely not a buy-and-hold market,” says one investment banker. “This is a trader’s market.” Some out-of-work I-bankers are also trying their hands at day-trading, with varying degrees of success. Scott Redler, a partner at the trading group T3live.com, hired (then fired) a trader who had lost his job when one of the major investment banks closed last year. “He lost more than any of our traders because he didn’t understand the smaller time frame and risk,” says Redler. “They think they know how to trade and they lose because they don’t know what it takes.”