Elbow to elbow and belly to belly, a hundred strong in their octagonal place of haggle, the youthful players crowd one of America's newer financial craps shoots.
Tick! A new price flashes into place high above the room. Their eyes barely flicker. They have already sensed the move.
Among them is Adam Goldman, not so long ago a gangly high school student in Potomac, Md., and now a gangly gambler in financial futures at the Chicago Board of Trade. At 24, he is amassing gut-wrenching experience and good money speculating in the daily rise and fall of the price of options.
Tick! Down again. Faces set as though nothing mattered, the traders' brains race ahead, probing silently for secret advantage.
Tick! New price quotations roll across the boards. The action is heating up. Traders throw fingers at each other, shout their prices back and forth, jostle for position as they work the movement of the market. Orders fly, clerks scurry, telephones on the banks behind the pit ring. Scribble! Scribble! Here a tick, there a tick.
"That's how I began," Goldman recalled during a break in the trading one recent day. "Buy it at five, sell it at six, buy at five, sell at six, buy at six, sell at seven."
Goldman buys and sells options on U.S. Treasury bond futures contracts. Up, down, sideways, it doesn't matter much as long as there is action in the pit: He makes money by betting the price will fall and collecting if it does, by betting the price will rise and collecting if it does. Wrong guesses can cost big.
But even in the trading pits of Chicago, where people make their living buying and selling soybeans that haven't been grown and the bellies of sows still unborn, trading T-bond futures options is an exotic occupation, two steps removed from selling bonds themselves.
Most of the action in Chicago is trading futures contracts, which amounts to betting how much soybeans or government bonds will be worth a few months from now.
A T-bond futures contract resembles a real estate option, in which a person buys an option to purchase a house. The option, relatively cheap, locks the buyer into a set purchase price over a certain time. Goldman goes a step farther: He buys options to buy futures contracts to buy government bonds. Wheeling and dealing in the national debt, he is betting on whether interest rates will go up or down, how soon and by how much.
He and his fellow floor traders play the game for a pure profit motive, but banks and corporations use the market for a different reason -- to protect themselves from unexpected changes in interest rates. If General Motors is going to need to borrow $100 million for a new plant next winter and fears interest rates will go up, it can lock in the rate now through futures and options trading.
Traders in T-bond futures options almost never exercise their options to buy or sell, trading them in a series of paper transactions within a market created by the very existence of the pit.
From the 8 a.m. opening bell until the 2 p.m. closing clang, the challenge for Goldman and his colleagues lies in gauging the right moment to make a deal.
"You buy this call [a holder's option to buy], you sell that call," Goldman said. "You buy this put [a holder's option to sell], you sell that put. You have a spread [between call and put prices]. You buy and sell and you have another kind of a spread.
"It's not just one option versus another option. It's more of a backgammon or a chess game, where each piece fits into a certain place at a certain time. And there are times when pieces go out of place, and that means you have to move the piece next to it up a notch. And that in turn makes things come back into equilibrium."
Just as agricultural commodities traders never see the pork bellies and bushels of corn they buy and sell, so Goldman and the T-bond options traders never handle real bonds. Because they are cheaper and less risky than bond purchases, options are said to give the market extra liquidity, providing increased hedging and speculative flexibility that can help smooth out overall price fluctuations.
The options market in T-bond futures contracts forms each day, responding to distant forces in national and international financial markets. Trading in Treasury bills, foreign currency, municipal bonds, Eurodollars and other types of monetary exchange has exploded around the world in the past decade, overtaking trading in corn, soybeans, pork bellies and other agricultural commodities.
Speeding this transformation are such divergent factors as the balance of currencies, the arrival of global electronic banking, lingering industrial recession, double- and triple-digit inflation in many nations and near-bankruptcy in others.
Such changes in the way people speculate with their own or others' money are reflected here, the cradle of America's commodities markets. Fortunes are still being won and lost on the "hard" commodities produced by the Farm Belt, but the hot pits are the financial trading dens. Commodities specialists and analysts at the Board of Trade and arch-rival Chicago Mercantile Exchange, or "Merc," say trading in financial futures is in its infancy. "We feel as though we're like the computer industry was 15 years ago," said one Board of Trade official.
At a time when plunging prices have driven American agriculture commodities into a backwater caused by overproduction and faltering worldwide demand in the face of the strong dollar, financial futures trading is where the action is. In the first six months of this year, the number of U.S. Treasury Bond futures contracts traded at the Board of Trade totaled 3,754,784, an increase of 1,163,000 contracts, 44 percent, over the previous year.
Over at the Merc, June trading in Eurodollars totaled 891,496 contracts, double the total for June 1984. Similar phenomenal increases have overtaken trading in the British pound, Treasury notes, municipal bonds and other financial contracts.
The shift in the commodities markets here in part reflects the complex and jarring changes in the wider U.S. economy as the nation transforms itself from the leading manufacturing power of the Industrial Age to the leading telecommunications power of the Age of Information.
But many of the older floor traders at the big exchanges have steered clear of these newest commodities. So much is the new game the province of the young that one Eurodollars trader in his late 30s confessed recently to feeling his age. "Most of the guys around me are in their 20s," he said. "I'm one of the oldest out there." After years of shouting frantic buy and sell orders in the hurly-burly of the exchanges, he is taking voice lessons from a professional opera coach to help keep his frayed vocal cords going for a few more years. Many others do the same.
A 1978 graduate of Winston Churchill High School in Potomac, Goldman initially majored in bioengineering at Northwestern University in Evanston, Ill. But the oldest child of Yetta and Sidney Goldman of Potomac felt hemmed in. His father, a communications lawyer formerly with the White House Office of Telecommunications Policy, "always preached: 'Be your own boss and you'll be better off for it.' "
Adam switched to economics and history because, he said, "I was taught to take myself as far as my mind will take me."
Summer brokerage jobs fed his interest in financial trading. Some months after his 1982 college graduation, Goldman struck out on his own, renting a Board of Trade seat for $200 a month to trade T-bond futures options.
"Basically, I just traded the cheapest possible option. It had the most liquidity because the institutions were trading them on a daily basis to hedge against cash bond positions they had."
The early going was rough. He made a little, lost a little. But in a few months, he had lost several thousand dollars of his original $10,000 trading stake. "It was difficult. I understood the principles, but they sometimes didn't work in real action. I was inexperienced."
But in the summer of 1983, "it started clicking," he said. "I began seeing the relationships between those spreads working on a day-to-day basis. The knowledge was building, allowing me to go out there and really do things with confidence. I would hold a position for an hour, the spread would come back and I could get out -- hopefully with a profit."
Soon, he was making $500 on good days.
There were "some hard knocks. You think you know a lot, but you don't realize how little until they start playing the game differently. At that point, the market shifted, and I began to learn a new lesson . . . another angle in how options are traded."
He expanded his scope of operations, trading scores of options at a single crack. "If you're successful that way, the money builds up pretty quick. But if you don't, it goes down just as quick. That was basically my lesson. People mostly learn by their mistakes.
"You have to know when to increase or decrease your size. You increase when you have a full understanding of what's happening with the market. You're with the market flow. But you have to decrease your size when you find the market's telling you something you didn't experience before. I learned that you never try to be bigger than the market. From that point on, I never traded that big again."
Goldman has been prospering ever since. He no longer rents his trading seat; he has bought an $80,000 associate membership instead. He owns a large Victorian house in Evanston and is busy renovating it.
And he learned other things about this fast-moving corner of American commerce in the Roaring Eighties. "I've been relatively successful down here, learned a hell of a lot about the markets, about myself. I've also seen what the money does to people -- the greed factor . . . how it changes people's heads, changes their ideals. It changes how they view people outside of this place.
"I would say that a lot of things I've seen have not been of a good nature . . . the kind of morals I was never brought up to follow. I think it's told me what I don't want to be a lot of times. It teaches you what you want to be through yourself."
But Adam Goldman is hooked on the commodities pits.
"It's fascinating. There is always a different facet to the market. Flexibility is the key to existence down here. You have to learn when to rely on old methods, and when to change with the times.