Hedging Stress

Cigars Ease the Tension for the Big Dogs on Chicago's Futures Exchanges
| By Alejandro Benes | From Pierce Brosnan, Nov/Dec 97

The Treasury bond pit at the Chicago Board of Trade is particularly active very early one Wednesday morning in February. Alan Greenspan, the chairman of the Federal Reserve Board, has just finished telling Congress that the Fed might raise interest rates in a preemptive strike against inflation.

A few doors down from the Board of Trade (CBOT), Tom Baldwin has his eyes glued to the screen of a video monitor that keeps track of T-bond prices. "The market's crashing," he says at 9 a.m. as small rectangles of cathode-ray green flash at him, indicating that the market is making a big move. "It's dropped a point and a half in a minute. That's a lot. That would be the equivalent of the Dow dropping a hundred points in five minutes. That would be huge. A million dollars. [Greenspan] must have been very bearish," Baldwin adds, not knowing or much caring what the Fed chairman specifically said. Baldwin, like most pit traders, really cares only how the market is moving. "Wow. It's going straight down."

Lucien Thomas Baldwin III, who goes by the acronym "BAL" that he wears on the badge pinned to his purple trading jacket, occupies the top rung on the volatile, high-stress ladder of trading in the Treasury-bond pit of the CBOT. He became the biggest in the world by withstanding the slings and arrows of outrageous fortunes being made or lost in seconds. Not that there is an official ranking of this kind of thing, but Baldwin's exposure on any given day is in the neighborhood of $5 million. Fellow traders call Baldwin "The King."

"Right now, I don't have a position [in the market]. I'm sort of glad I'm not there," Baldwin says, unconvincingly for a man who started with $20,000 in 1982 and has been known to trade as many as 60,000 contracts a day with a total face value of $6 billion. "When there's a big move like this where it just goes one way for a long run, somewhere in there you're gonna be on the other side of the order, but if it keeps going like this, you lose money."

Baldwin knows all this from personal experience. "I've made $2 million in a day, but I've lost $5 million in a day," Baldwin says. Five million dollars. Lost. One day.

On March 17, 1989, Baldwin, at the age of 41, started trading early. Here's how the Chicago Tribune later reported what happened:

The time: early morning, about 7:25 a.m. Within minutes, the government will release the latest producer price index figures, statistics that can send bond prices rollicking. Baldwin is bullish and has been buying T-bonds since the market opened at 7:20, believing bond prices are about to soar. The news hits. Nearly 500 bond traders and brokers erupt in a maelstrom of shouting and waving. Buying and selling. By now Baldwin has purchased a whopping 6,000 T-bond contracts. His market position is the equivalent of the annual budget of a Third World country. He controls a staggering $600 million worth of T-bonds. The market turns. And tanks. And keeps on tanking. Baldwin has guessed incorrectly. He furiously begins to reverse himself, closing out his positions. One after another. All 6,000 of them. By 7:45 it is over. The dust settles. Baldwin studies his trading card. He has lost $5 million without blinking.

Now worth "multimillions"--true to trader form, he won't tell how much money he has--Baldwin is able to look back at that day with little emotion. "The market went down, straight down for two points and there was no out. It was instantaneous and never came back," Baldwin now explains quite matter-of-factly, adding that most people view what he does as gambling. "Then you start over." Or you smoke a cigar.

"One afternoon Tom comes into the back office," recalls Joe Howe, the owner of Jack Schwartz Importers, a cigar store across the street from the CBOT. "He's kinda quiet and sits down here and lights a cigar and we're talking a little. He asks me if he can use the phone to check on his trades. He calls and then sits down again and says, 'Well, when I came in I was down $800,000. Now I'm down only $200,000.' This was in about five minutes."

Fortunately for the traders who live and die by these riotous changes in fortune, the area around the three big futures exchanges that trade in Chicago has spawned a mini-industry that invites traders to relieve their stress. In the CBOT is Rubovits, a cigar store. Across the street from the CBOT is the Mercy Hospital Stress Analysis Program. But Jack Schwartz, next door to that, is the preferred sanctuary for many of the traders. Part of the reason is the interminable lighthearted abuse to which every customer is treated upon entering. The shop also boasts the "coldest [soda] pop in town" and free matches. But probably the biggest thing the smoke shop has to offer traders is a level of understanding that comes from having been there.

The manager of Jack Schwartz is Billy O'Hara. For 17 years, O'Hara, now 41, traded on the Chicago Board of Options Exchange. He left about two years ago and began working at the cigar store, a move that allowed him to stay close to his friends.

"I tripped over the trading business when I was 20 years old and was involved with it for about 19 years working for a brokerage house and trading for myself and learning the business," O'Hara says as he explains why he got out. "It's riskier today than it's ever been. If I'm 28 years old and I lose all my money, it's not gonna change my life at all. You know, I'm still eating pizza five nights a week. I don't have kids at 28! At 40 years old I have responsibilities and just don't want to take that risk anymore of waking up one day being a couple of hundred thousand dollars poorer [when you haven't taken] what you think is a lot of risk. And it happens," insists O'Hara, whose biggest loss was $80,000. "I saw people who lost all their money when they were 50 years old." O'Hara, who has three young children, adds, "You know, to just have a kid in college, I don't know if I could say to him, 'You have to come home. I just don't have the money to do it anymore.'"

On a day like that Wednesday in February, the traders appreciate the way they're treated. One walks by the store, looks in and shakes his head. He doesn't want to talk about it. On bad days, traders might get a Coke or a new cigar on the house.

"When it's a bad day, our job is to feel it and know we can't cross that line that you normally can cross with a person," O'Hara says. "We would never make fun of the day they had. We want them to come in the back room and we've had people come in here that just need to sit. 'Come on back here and we'll close the door.' We had a guy in here who worked across the street for 45 years as a member and he came back here and broke down. And the phones are ringing and he's crying and we're crying for him. You should have seen the place. It was like an encounter session. What's important now is this guy, because he's a friend of ours. Just got to the time where he decided he's had enough. He couldn't make it home so he came here."

Don't misunderstand, O'Hara says, things are not always so sad.

"What we like to provide is a friendship and a haven for people to come in and celebrate with us," O'Hara says. "I would say we sell more cigars for celebrating than we do on a bad day. [The traders] will just keep on walking on a bad day. They're down, they're sulking, and we understand that and we still say 'Hi' to them when they go by, but we won't make fun of them."

In his short career, Tom Baldwin has not given many people much cause to make fun of him. He has turned the profits from the pit into something of a conglomerate, even though he became a trader to avoid corporate life. In 1989, the Baldwin Development Co., along with ING Bank of the Netherlands and Chevron Oil Co., bought the historic Rookery building, built in 1888, on LaSalle Street, and renovated it. Baldwin Asset Management Co. manages the Rookery and other properties. MC Baldwin Financial operates managed futures funds. Baldwin has his own jet, which he uses mainly to get to and from his country house on Michigan's Upper Peninsula. He spent 70 days there last year.

The 50-room house, along with 19 other buildings, oversees 3.5 miles of lakefront along the shores of Lake Superior on 5,000 acres of wildlife sanctuary. The whole complex is a national landmark. Oh yeah, the house is made out of logs and has a price tag of $12 million. The first owner of the house was a successful American who came up with such quaint notions as branch banking and who helped create a little enterprise called General Motors. Buying the house led to Baldwin being the "other" bidder for the JFK humidor in last year's Jacqueline Kennedy Onassis auction at Sotheby's.

"The house was built in 1919 by a guy named Lewis Kauffman. I have his humidor from that era, so I really like humidors and I really was a fan of John F. Kennedy," says Baldwin, who bid in the auction from Chicago with the express intent of buying the humidor, a gift from comedian Milton Berle for JFK's inauguration. "So I kind of went with [the attitude] 'I didn't care what it cost.' I kinda, sort of thought it would cost about $150,000 because I'd heard Milton Berle was going to pay up to a hundred. So I thought, 'Well, screw him. If he thinks he's gonna buy it for a hundred, he's gonna have to pay a whole lot higher than that,'" Baldwin says with a laugh. He only told Joe Howe that he was going to bid six figures for the JFK humidor. Neither Howe nor Baldwin thought anyone else would bid that high. Of course, Marvin Shanken, the publisher of Cigar Aficionado, bid higher, and higher, and higher. Baldwin shakes his head. "And, you know, $510,000 is where I dropped out. So I was disappointed."

Howe calculates he could have saved one of the two final bidders a significant amount of money. "I'm pretty sure I'm the only one who knew that Tom was going to bid for the humidor," Howe says while tasting five different cigars downstairs at Chicago's Havana Café Cubano. "If I had known that Marvin was going to go that high, I would have put together a conference call with Tom to work out a compromise and maybe they would have given me a commission."

Baldwin began smoking cigars more than two decades ago, after getting his MBA in agribusiness from Santa Clara University. "I used to work in a meat-packing plant, and the general manager and I used to smoke cigars together," Baldwin remembers. "So back then is when I actually started smoking cigars. Usually the biggest one I could find."

Though he wasn't smoking drugstore cigars back then, his taste has improved since. "I don't really smoke the same ones," Baldwin says. "Gloria Cubanas, Davidoffs. I started out smoking Pleiades, then Davidoffs and then Gloria Cubanas and then Cuban cigars, sort of the current fad." The cigars are stored in one of four humidors, one of which, an old Dunhill box full of Cuban La Gloria Cubana Medaille d'Or No. 2s, sits on the credenza in his office.

By 10:30 a.m. on the day of the Greenspan comments, Baldwin has left his office and is in the pit. He just couldn't stay away from the action. Everyone else knows he is there, too. In his chosen field, Tom Baldwin is so successful that other traders honored Baldwin with the creation of a hand signal at the CBOT. The Wall Street Journal described the move as "clerks...furiously brushing their hair back with one hand--pit pantomime for 'bald.' " Baldwin loves it, the trading in particular. The signal comes in handy when Baldwin is trading and others want to follow his moves. "Shadow trading" is what such a maneuver is called.

"Here we go, Baldwin!" shouts trader Steve Horowich.

"Baldwin's a big buyer at 18," interprets Paul Johnson, a broker, after flashing a series of hand signals with Horowich. "I think he bought a thousand." That's 1,000 contracts. At $100,000 per contract, that's $100 million.

Baldwin's presence brings new fervor to the pit. He appears to be picking his spots and many of the traders seem to be looking at him. Baldwin's arms go up, tilted slightly forward, hands cupped downward, inviting others to trade. Suddenly, he spots an opportunity. Baldwin's arms flail, fingers gyrating while signaling, and then the right hand jabs forward with the forefinger pointing across the pit to the trader with whom he has just done the deal. Baldwin quickly records the transaction on a trading card and, without turning, reaches over his right shoulder and hands the card to a clerk. He is calm, his eyes already scanning the pit for the next, um, victim.

While Baldwin is scanning, Jerry Zawaski, a veteran trader, stands outside the pit. He is talking to different people, trying to gauge what's going on. Zawaski is well known to friends around the CBOT as "Zee-Wa," from his badge with the legend "ZWA." The system of using these acronyms--never more than three letters--is vital to tracking the split-second trades Zawaski makes with up to 600 other traders in the T-bond pit. The acronyms, the loud, colorful jackets and the seemingly chaotic process of using hand signals to indicate how many of what commodity a trader wants to buy or sell are all part of what the exchanges call the "open outcry" system.

Standing above the new $182 million, 60,000-square-foot trading floor of the CBOT, the open outcry system looks like a hallucination of oversized peanut M&Ms all fighting to get inside already too-crowded bowls. ZWA has not started trading yet, and some days he simply won't.

Jerry Zawaski was raised in a large family without much money on Chicago's South Side. Now he uses two-dollar bills with his signature on them as a calling card. He tells people the deuce will bring them luck. At 45 years old, Zawaski has more money than he ever thought he would.

"I'm rich," Zawaski says in about as precise a response as he cares to give with respect to where 16 years as a full-time trader of U.S. Treasury bonds has put him and his family on America's socioeconomic ladder. "You never talk about the money and how much is made," Zawaski explains about the trading culture, while on the last throes of a Davidoff Aniversario and driving what he calls his "big-ass black Mercedes," glove compartment stocked with "power snacks" optional. "If someone tells you how much they make, just cut it in half," he adds. "The kitchen in my house," Zawaski will admit somewhat incredulously, "is bigger than the bedroom I shared with five brothers when I was growing up."

The custom-built 6,400-square-foot home on the North Shore is where Zawaski heads after every working day in the trading pit at the Chicago Board of Trade--after taking a few detours.

"Hi, guys," Zawaski says to the attendants as he pulls into the parking lot of Sportsman's Park, a racetrack about 20 minutes away from the Board of Trade. Zawaski knows them by name. He visits the track about twice a week after a couple of hours on the trading floor.

"I go have lunch and then I usually try to be home by 3:30 every day," he says. "That's when the kids come home from school. It's a great lifestyle." Still, Zawaski says that Karen, his wife of 10 years, expects more of his time at home. "We have fights about it sometimes," he admits.

"My neighborhood in Wilmette is right near Northwestern [University]. Our neighborhood is populated with all these MBAs from Northwestern. They leave at six in the morning and come home at six at night," Zawaski says, building up to the argument he uses with his wife. "I go, 'Hey, you want me to go get a job where I'm going 12 hours a day and then hit the couch because I'm so exhausted?' That's my retort, which isn't too much. It doesn't fly." He laughs.

The trade-off (isn't there always a trade-off?) for the big cars, the million-dollar-plus net worth and being able to see the kids grow up is stress. We're not talking about "I'm-an-hour-late-for-the-big-meeting" kind of stress. What Zawaski and his colleagues go through every day is the kind of stress that comes from putting everything you own and have worked for on the line. If you win, you get the big house in Wilmette, you play 50 rounds of golf every summer, and you take vacations at the Ocean Club on Paradise Island where you bet an average of $576 on each hand of black-jack and see Kevin Costner having breakfast with Sean Connery. If you lose, you are out what most people would consider a year's salary. Or worse.

"For every winner there's a loser. All these clichés work. But down there they're not clichés," Zawaski says about the trading pits, adding that fear is a constant on each of Chicago's three exchanges. "I saw one guy about a year ago, froze on some order. Lost about a million dollars. A million bucks, just like that." He snaps his fingers. "He froze. He froze for an hour. Once he missed [the trade] he realized, 'I'm in shit. I'm in trouble.'"

Because of his long experience, Zawaski, whose daily trading exposure is generally between $20,000 and $30,000, now makes money about eight days out of 10.

"As you get better, the more money you make, the less risk you want to take. So you're working less hours," Zawaski says, adding that there is tremendous competition among the traders. "The stress of standing there is just absolutely incredible. I mean, it just pours on you, it just beats down on you, and I can't take it. Massive, huge split-second decisions." That's why Zawaski tries not to spend too many hours in the pit.

The Chicago Board of Trade, the world's oldest and largest futures and options exchange, defines itself as the global leader of the "risk management industry." When the CBOT was established in 1848, trading was limited to agricultural commodities. In 1975, the CBOT inaugurated financial contracts and, in 1982, options on futures contracts. Chicago is host not only to the CBOT, but also the Chicago Board of Options Exchange (CBOE) and the Chicago Mercantile Exchange. The trading dynamics are fundamentally the same at all the exchanges, the major difference being the commodities or financial instruments they trade. The common function of the three exchanges is to provide a hedge for risk. Hedging is essentially the transfer of risk. Hedgers are the ones sloughing off their price risk to speculators willing to absorb and manage the risk. The traders speculate, using futures contracts and options, that the price of commodities or financial instruments will move.

Suppose a soybean distributor suspects the price of soybeans is going to rise precipitously in the near future. To protect himself he can buy a futures contract on soybeans that will be delivered in six months. The price he agrees to today will be the price he pays in six months, regardless of fluctuations in the value of that commodity. By locking in a price in advance, he effectively protects himself against crop failures or other calamities that would drive the price up and affect his profit margin. At the same time, the farmer who sells him that futures contract is agreeing to supply beans at that price. This allows him to plant the beans, secure in the knowledge that he will have a buyer at a certain price, even if the price falls in the interim.

The market risk has not been eliminated but rather assumed by futures brokers, who take a speculative stance, betting either that the price of soybeans will go up or down in six months. If they bet right, they can make a lot of money.

"Think of the futures contract as a pledge to deliver goods in the future at a pre-arranged price," explains former trader Ted Fishman, now a financial writer. The futures contract is not to be confused with an option, a different financial instrument though a variation of a futures contract. "An option is a right, not a promise. If you buy a 'call option,' you're buying the right to purchase something for a certain price. Only futures contracts obligate you to do anything. Options, like their name says, give you the option to buy something at a set price. The advantage of call options is that if the price goes down in the future, you don't have to use the option, you can just buy the stock at the cheaper market price and all you've lost is the premium."

In the trading pit, the proximity to others trading in the same product means that price discovery is at its most efficient. You know instantly who is willing to sell or buy and for how much. In many cases, the more the price moves, the more money there is to be made. With enough trades at small spreads (the difference between the bid and offer prices) a trader can make--or lose--a significant amount of money on any given day. Prices for agricultural products can be affected by any number of unpredictable factors--weather, disease, bugs--which in turn affect the price of the commodity. In the Treasury bond pit, the unpredictable factors affecting prices are, among other things, the perceptions of investors, the predictions of economists, financial analysts, the health of the economy, inflation, wars, politics and the policies of the Federal Reserve. All of these factors affect the price of money: interest rates.

"We're a hedge center between the Fed and the banks," says Zawaski. "They have to buy and sell and they need a place for liquidity to offset each one of these trades. That's what the bond pit is. Everything's totally connected, but we're kinda the big dogs. We're the interest rates. We're driven by interest rates. There's no bigger [market] in the world. The stock market even watches us. We're the big dogs."

The trader provides a risk-transfer service that most people don't recognize, appreciate or understand, says Paul R.T. Johnson Jr., a CBOT director and T-bond broker (a broker trades for clients while a "local," or "scalper," generally trades for himself). "It allows your and my home mortgage to be at a lower rate," Johnson says while smoking a Davidoff Double R after lunch at The Excelsior, across the street from the CBOT and down the hall from Jack Schwartz Importers where Johnson serves as vice president of the Jack Schwartz Cigar Club.

"The government has postponed [Treasury bond] auctions when we're not in," earnestly adds Johnson, whose "LSU" badge stands for his alma mater, Louisiana State University.

Johnson distinguishes between the exchanges and what he and many traders refer to as the "real" world. "I'm part of that which allows people to do real things out there," Johnson says, clearly focusing on important matters. "Like making cigars, so we can all enjoy our life; I really think it's a great part of life because you've really got to enjoy the pleasures. If you don't stop and smell the roses or sit back and relax and think about your fellow man, you're missing it all."

At 10:58 on that winter Wednesday, Zawaski is just climbing into the pit, a few feet and a mass of humanity from Baldwin. Three minutes later he is executing a trade. At 11:05, the pit erupts. The price is up slightly. At 11:08, there is a two-point drop. Then it's down another point just 11 seconds later, according to the numerous clocks and quote boards encircling the trading floor. The hits just keep on coming.

At 12:15, Avi Goldfeder, Johnson's partner, is ready for his midday meal. He reaches into his briefcase and pulls out a bottle of aspirin. "Well, here's my lunch," he says, taking out two pills and popping them into his mouth. No smoking on the trading floor.

Steve Horowich is standing on the top tier of the pit, looking out. He is trading for the brokers who have "decks," which are little more than consoles with as many phone lines as possible, which reach out to different clients around the world. Brokers are paid a commission for the trades they execute, and Horowich and his group make about a dollar per contract traded that they handle for brokers like Johnson and Goldfeder. On an active day thousands of trades are being made. To save time in communicating information in a pursuit where split-seconds count, Horowich stands back-to-back with one of his associates and leans backward to talk to him. The associate, at 6 foot 10 inches, is the tallest trader in the pit, which is a significant advantage.

"It's stressful," Baldwin says of trading. "The actual trading part is not as stressful as the physical part of it because the trading conditions are so miserable, standing there packed in the pit. That's so uncomfortable, that's the worst part." Baldwin is 5-foot-10-inches tall and slender, but the pit is full of much bigger people, some of whom are former college basketball players.

On this day, the Greenspan statement has struck at the heart of the T-bond pit: the "benchmark" 30-year Treasury bond suffers a one-day loss of 1 1/2 points, the biggest price drop in seven months. Many of the "big dogs" howl as prices drop steadily with few chances for recovery. Some traders already held positions or took positions early that morning in anticipation of what the market would do that day. Others would wait, but most of those who had bought at higher prices spend the day frantically looking for the nearest exit, the smallest loss. At moments, "open-outcry" trading looks more like roller derby.

Even if you handle the stress well, fame and fortune can create their own form of anxiety.

"The pressure of the lifestyle is more in defending it," Baldwin says passionately. "Yeah, you can travel here and there and you can buy any car you want, buy any house you want. Once you've done that, then what do you do? Then it becomes, 'Well, I'm supposed to defend it.' Estate planning, taxes, you know, somebody falls down on your property, they sue you. If you're Dennis Rodman [of the Chicago Bulls] and you kick somebody, then you get sued. Well, if you don't have any money and you kick somebody, it's no problem. And because you have money, you get held to a different standard. You become a target. It's very frustrating."

Baldwin's assessment of the pressure is uncommon among traders. Most say that handling the stress is their biggest challenge.

"The stress is tremendous at times. Wouldn't you say?" Dick Friedman is asking his friends while they have breakfast at the Ceres Café on the ground floor of the CBOT building. Friedman is an options trader on the CBOE.

"He's not stressed out at all," responds Neal Shamis sarcastically. Shamis was Friedman's fraternity brother at Indiana University and is also an options trader.

"When you find yourself trading an order and the next thing you know you find yourself down $7,000 in a minute and a half, that's stressful," Friedman emphasizes. "I have lost my hair. I smoke more cigars. I exercise a little bit more than I used to. I find that helps some. But the nice part of this job is--and you gotta learn this early--when the day's done, you gotta leave it at work. And I think most people are pretty good at doing that. I'm fairly good at it. When I go home and see my kids and my wife," he pauses, "or see my kids." Friedman laughs at his own joke. "No, I'm just kidding. You just forget about everything. It's nice. There's not a lot of places, even though you take the risks that you take and the stress that you undergo, there's not a whole lot of places in the world where at the ages we are you can be your own boss. You call your own shots. You're effectively managing your own business."

Friedman, 37, Shamis, 37, and Dan Dougherty, 38, all smoke cigars. "My favorite cigar is the Avo No. 2, which I am pretty religious about," Friedman says. "I really like that. In the summers I switch to the Avo No. 3 because I have time to sit out on my porch at home and enjoy that for a good length of time. During the winter I'm usually confined to my office. I go up to my office to get a break from the stress and sit back, maybe take a look around the Internet, play some games, take an hour and smoke a cigar and relax."

"And you've got your quotes up there so you can stay in touch with your business," adds Dougherty.

"I can watch the markets and what I'm doing," Friedman says. "I can play Trivial Pursuit on-line on the Internet while I'm watching my positions." Even though his office is designated a no-smoking area, Friedman and his co-conspirators have thus far avoided detection. "What we've resorted to is moving the ceiling tile to try and let the smoke escape," Friedman says.

Traders have become expert at finding different ways to relieve stress. While Zawaski spends time at the racetrack, plays golf and has nice lunches and cigars at the Four Seasons, others stay closer to the exchange, crowding into the Off-Track Betting parlor at the corner of Jackson and Franklin. They are looking for action at all times, but don't necessarily want to watch the horses run. Many traders will simply relax at private clubs like the Union League Club, on West Jackson, with its soothing art collection, or the CME Club, at the Chicago Mercantile Exchange, on South Wacker and Monroe.

"Eleven years ago," says Donna Kozak, the former manager of the CME Club, "I don't remember one cigar in here. Five years ago it really picked up." The CME Club allows cigar smoking in the bar, but if more than four people are lighting up, the club moves them to a private room.

No such problem at the LaSalle Club. Located at the same address as the CBOE, the LaSalle Club is a luxurious haunt with state-of-the-art workout facilities, saunas, lap pool with dim lighting, racquetball courts, basketball, aerobics--the whole deal. The hotel has 19 rooms (three of them suites), a cigar lounge and Everest, reputedly one of the two best restaurants in Chicago.

"You'll find that 90 percent of these guys that are here at the club," managing director Richard Gaylord says, "work hard and they play hard. It's kind of unique because they work out hard and then they'll go back and have a great brandy and a cigar. The beauty of it is location. You can walk up here. It's private. We push privacy and exclusivity."

Gaylord, a cigar smoker, says that the club's bar and restaurant, The Buckingham Grill, sells about $1,500 worth of cigars a month. A cabinet humidor separates the bar from the dining room. The bar has a ceiling-high, arch-shaped window looking out onto the Congress Parkway. The place is busy after the close of trading on that particular Wednesday. "Obviously the bad day on the floor is better in the bar," Gaylord offers.

"I guess sometimes before I can do this, I'll go work out," says Rob Schmidt, 35, who trades S&P 500 index options and is sitting in the bar smoking an Avo Pyramid, his favorite, and drinking a Booker's Bourbon on the rocks. Schmidt gets to the gym about 4:30 in the afternoon. He'll work out and make it to the bar by six.

"Then I go home," he puffs. "I find myself a much better husband and father. After this ritual, I know they [wife and children] see a big difference [from when] I come home straight from the trading floor."

Schmidt, like many other traders who've been at it a few years, does not exactly fit the stereotype of the fast-living trader. "I would say that traders have a reputation for liking some of the richer things in life. I would say that leads rather more to cigars and great liquor and all kinds of great entertainment," Schmidt notes, adding that many of his colleagues incorporate that good life with their families.

Paul Johnson, 39, who likes Avo No. 3 and Pleiades, agrees with Schmidt, but points out that the reputation is drawn from younger traders, noting that about 80 percent of those who try to make it as traders don't last. If they last, they usually settle down.

"Adversity strengthens a lot of us," says Johnson, who recently lost $62,500 because of an error by one of his staff. "You see some guys in there on the floor, they're crazy. They're nuts! You see them outside of the floor and they're some of the most genteel people you could meet. There's a guy, they call him 'The Hog,' that trades at the Merc, and he is one of the craziest, raunchiest guys around, but you see him around his children...." Johnson says, then goes nonverbal, relying on a shrug and turned-up palms, as if to say, "Go figure." Johnson continues with the story, remembering a party one Fourth of July when The Hog, who declined to be interviewed, had his view of the fireworks blocked and chose not to move closer to the window.

"What he was doing," Johnson says, "was sitting, watching his girls watch the fireworks. Here's a guy who's the raunchiest, craziest, great trader, and the greatest pleasure he gets out of life is watching his children enjoy themselves."

Jerry Zawaski is leaving Sportsman's Park. He bet a couple of races, had lunch and a couple of drinks, and is now on his way home. It's 3 p.m. Zawaski still does not fully believe the life he has.

"I think I just got lucky," Zawaski says. Of course, that's not all there is to his success; some of it can be attributed to his late father. "I was 26 years old and my dad sat me down. Old Polish guy, he was like 6 foot 2 inches, 220. He sat me down at the table and said, 'Hey, enough's enough. You been jackin' around. I got three jobs for you. Take your pick: I got IBM,' which my brother was at and he said he could get me in. My dad worked at a bank and he said, 'I could get you in at the bank or you can try this thing down at the board as a runner making 80 bucks a week.' And I said, 'OK, I'll take a shot,' and I went down to the board and I walked on the floor and I knew immediately there was nothing else I wanted to do. Nothing.

"I've been on the floor since '76, I got my membership in '81. To get my membership I had to work two full-time jobs for two straight years. I was working 17, 18 hours a day every single day. I had no money. I'm one of 10 kids from the South Side of Chicago and we just never had a chance. So when I started I was working from six in the morning to 2:30 in the afternoon, I'd jump on the El and I'd bartend until one in the morning, sleep for five hours and do it again. That was the only way I could get any money saved."

Zawaski just loved the action. To get his membership he needed $50,000 in an account and a seat on the board. A seat, which allows you to trade, can either be purchased for about $700,000 (the price fluctuates) or leased at around $6,000 a month. Zawaski chose the second option. He borrowed $70,000 to get started, quickly paid it back, then became better and better at making the right trades and made more and more money. That led to problems.

"Money management is definitely different as a trader," Zawaski says, now enjoying his "everyday cigar," a $2.50 Honduran called Westminster Dreams, which is exclusive to Jack Schwartz Importers. "You go in there, and that day when you make twenty, thirty thousand and you go home and your wife says she's gonna go shopping for a washer and you're gonna go to three stores and save a hundred bucks, it just gets a little quirky.

"She's been through the ringer with me," Zawaski adds. "I never really started doing very well till the last four years. Doing very well, real well. You know, like seven-figure-type years. I started doing well when I started listening to some subliminal tapes. Basically, the crux of the tapes was about not feeling guilty. I honestly think that the one thing that wipes out a lot of traders--it wipes out everybody, but you see it faster there [in the pit]--is guilt. A lot of people have tons of guilt about making money and being successful. I see it. I see it all the time. It's like people go out of their way to fuck up down there. And you wonder, 'Why would they go out of their way to mess up?'"

Tom Baldwin, who believes that the trading lifestyle contri-buted to his divorce, accepts what Zawaski is saying, but has a different perspective.

"I think that's true of a lot of traders," Baldwin says about the guilt issue. "I think, probably, a lot of them are subconscious. I don't happen to have that. I mean, I have a pretty good understanding of risk and I have a lot of war wounds. When you lose $5 million in 10 minutes, I deserve everything I make anytime I make it. I mean, that's a lot of pain."

"What experience down there teaches you," Zawaski says, "is to see everything and then know what to do with it. In sports I think it's more of a natural thing; here it's a learning process. The thing is you may learn it and still not know what to do with it. It's slowing the picture down. It's real important, real important."

That and keeping one eye on Alan Greenspan.

Alejandro Benes is a writer based in Washington, D.C.