Skip to content

No one is pursuing the billions made on those perfectly-timed S&P e-mini trades. Here’s why

Biggest lesson learned recently:

Stop panicking.

Set up rules. Program them. And let your online broker take care of them — while you’re at the beach.

Buy cheap. Put in stop loss sell limits.

Leave the trading to machines. Humans are the worst. I ‘m a human. I’m even worse.

The market is edging away from tech — though Apple — God bless it — keeps climbing. It’s still cheap. It’s P/E is still only 20.

They’re trying to sell me shares in Airbnb — before it goes public. I guess Airbnb shareholders are not sanguine about their prospects as a public company — though the company is growing and making a little money, i.e. it’s profitable.

Who really made those profitable S&P500 e-mini trades?

Yesterday I reprinted the Vanity Fair article.

Two days later, the consensus is:

+ The trades may not have happened, though the Vanity Fair writer says they did.

+ It smells like insider trading, except there’s no “fraud,” which is critical to insider trading convictions.

+ None of the regulatory agencies seem one bit interested.

My belief: The trades were successful because of Trump tweets. He’s the only person who knows when and what he tweets. Our regulatory agencies are afraid of their jobs should the billion-dollar successful trades lead to Trump. He could fire them all. Further there’s no fraud, no insider trading and you can’t charge a sitting president. And it’s only a few billion dollars.

Hence, all we can do is to admire the audacity (and success) of it all.

Here’s the response I received this morning from the SEC in response to my question about were they investigating?

I contacted the CME’s public relations department and received this today.

I’m staggered at the disinterest.

I’ve reproduced the Vanity Fair article below.

Batteries

I’m changing the battery on my laptop. It has lost its charge. It will now only hold 36% of what it held when it was new. Better: if I had run it down completely more often. It would have lasted longer.

Sounds like we did right hanging onto UNH

Earnings came in strongly. The Democratic candidates are waffling on Medicare For All, also called “Let’s kill the private insurance companies, such as UNH.”

Even so, at least a couple of them tried to preserve some wiggle room. Warren started out the year by portraying her support for Medicare for All as a statement about aspirations rather than a commitment to the particulars of the Sanders plan. In an interview with Bloomberg Television, in January, she identified “affordable health care for every American” as her goal and said that there were “different ways we can get there.” At a CNN town-hall meeting in March, she said that there were “a lot of different pathways” to universal coverage, and added, “What we’re all looking for is the lowest cost way to make sure that everybody gets covered.”

But, unlike in many other policy areas, Warren didn’t propose an over-all health-care-reform plan of her own, as Harris did, or back away from the commitment to eliminate private insurance, as Booker did, sort of. Warren was rolling out so many proposals that her campaign started selling T-shirts emblazoned with the slogan “Warren has a plan for that.” But in the area of health care she confined herself to relatively narrow proposals, including measures to reduce the cost of prescription drugs, expand rural health-care programs, and tackle the opioid crisis.

Here’s UNH this year. I suspect it will go higher. I think Medicare for All is not happening. If I had been running for office, I would suggest a small Medicare enlargement — say being eligible at 55, instead of today’s 65. Personally, I’m happy with Medicare, but I also have UNH supplemental and pay for specialty treatments.

Here’s UNH this year:

Don’t do stupid

+ If you’re sick, call an ambulance and get yourself to the Emergency Room. Don’t drive yourself. Ambulances add far greater urgency and you won’t wait around for the five hours if you drive yourself there.

+ The National Safety Council says 51 American children have died so far this year from heatstroke after being left or getting trapped in cars. While most of these deaths happen during the much warmer summer months, they can still happen at other times of year, such as the 1-year-old who died on Monday in Florida after she was left in a hot Jeep for several hours.

+ Overcoming jet lag. Scientists have found exercise and the right food can help synchronize the body to a new time zone, though research has also repeatedly shown sunlight is the most powerful tool. A University of Boulder Colorado study in 2017 said body-clock adjustment can be rapidly achieved by exposure to natural light alone. In short, go outside.

+ If you hate Windows 10’s insane interface, download Classic Shell. Makes your Win10 look like Win7. Which is comforting. This software is perfectly safe. I use it. All my friends use it. Click here.

+ In the theater, slide the no-ring switch off on your iPhone. And put your Apple Watch in theater mode:

Turn them on, when you leave the theater. Otherwise you won’t get a phone call for days. Trust me on that one.

Nice bicycle lights

25 bicyclists have died this year in Manhattan. Bright flashing lights — for day and night biking — are a huge plus. These NiteIze are the brightest. They are rechargeable. Easy to attach. Click here.

For Halloween dinner

I didn’t make this. It’s still funny.

Classic Australian video

Here’s the Vanity Fair article, which I reproduced yesterday and which should be getting more attention, but isn’t:

In the last 10 minutes of trading at the Chicago Mercantile Exchange on Friday, September 13, someone got very lucky. That’s when he or she, or a group of people, sold short 120,000 “S&P e-minis”—electronically traded futures contracts linked to the Standard & Poor’s 500 stock index—when the index was trading around 3010. The time was 3:50 p.m. in New York; it was nearing midnight in Tehran. A few hours later, drones attacked a large swath of Saudi Arabia’s oil infrastructure, choking off production in the country and sending oil prices soaring. By the time the CME next opened, for pretrading on Sunday night, the S&P index had fallen 30 points, giving that very fortunate trader, or traders, a quick $180 million profit.

It was not an isolated occurrence. Three days earlier, in the last 10 minutes of trading, someone bought 82,000 S&P e-minis when the index was trading at 2969. That was nearly 4 a.m. on September 11 in Beijing, where a few hours later, the Chinese government announced that it would lift tariffs on a range of American-made products. As has been the typical reaction in the U.S. stock markets as the trade war with China chugs on without any perceptible logic, when the news about a potential resolution of it seems positive, stock markets go up, and when the news about the trade war appears negative, they go down.

The news was viewed positively. The S&P index moved swiftly on September 11 to 2996, up nearly 30 points. That same day, President Donald Trump said he would postpone tariffs on some Chinese goods, and the S&P index moved to 3016, or up 47 points since the fortunate person bought the 82,000 e-minis just before the market closed on September 10. Since a one-point movement, up or down, in an e-mini contract is worth $50, a 47-point movement up in a day was worth $2,350 per contract. If you were the lucky one who bought the 82,000 e-mini contracts, well, then you were sitting on a one-day profit of roughly $190 million.

A week earlier, three minutes before the CME closed on September 3, someone bought 55,000 e-mini contracts, with the index at about 2906. At around 9 p.m. in New York—9 a.m. in Hong Kong—the market started moving and kept rallying for the next six hours or so, reaching 2936. Around 2 p.m. in Hong Kong—2 a.m. in New York—Carrie Lam, the Hong Kong leader, announced that she would be withdrawing the controversial extradition bill that had been roiling the city in protest for months. Whoever bought those e-mini contracts a few hours earlier made a killing: a cool $82.5 million profit.

But these wins were peanuts compared to the money made by a trader, or group of traders, who bought 420,000 September e-minis in the last 30 minutes of trading on June 28. That was some 40% of the day’s trading volume in September e-minis—making it a trade that could not easily be ignored. By then, President Trump was already in Osaka, Japan—14 hours ahead of Chicago—and on his way to a roughly hour-long meeting with China’s President Xi Jinping as part of the G20 summit. On Saturday in Osaka, after the market had closed in Chicago, Trump emerged from his meeting with Xi and announced that the intermittent trade talks were “back on track.” The following week was a good one in the stock market, thanks to the Trump announcement. On Thursday, June 27, the S&P 500 index stood at about 2915; a week or so later, it was just below 3000, a gain of 84 points, or $4,200 per e-mini contract. Whoever bought the 420,000 e-minis on June 28 had made a handsome profit of nearly $1.8 billion.

Traders in the Chicago pits have been watching these kinds of wagers with an increasing mixture of shock and awe since the start of the Trump presidency. They are used to rapid fluctuations in the S&P 500 index; volatility is common, of course. But the precision and timing of these trades, and the vast amount of money being made as a result of them, make the traders wonder if all this is on the level. Are the people behind these trades incredibly lucky, or do they have access to information that other people don’t have about, say, Trump’s or Beijing’s latest thinking on the trade war or any other of a number of ways that Trump is able to move the markets through his tweeting or slips of the tongue? Essentially, do they have inside information?

Theoretically, market regulators are supposed to be keeping an eye on big trades such as these, to try to figure out whether they are just happy coincidences or whether there is something more nefarious afoot. And they say they do. But calls to the Chicago Mercantile Exchange, where the trades takes place, the Securities and Exchange Commission, which regulates the equity markets, and to the Commodity Futures Trading Commission, which regulates futures contracts, such as e-minis, were answered in different ways. Christopher Carofine, at the SEC, declined to comment. The CFTC did not respond to my inquiries, while a spokeswoman for the CME says the trades in question did not originate from a single source and they were of no concern.

There is no way for another trader, let alone an outsider such as me, to know who is making these trades. But regulators know or can find out. One longtime CME trader who has been watching with disgust says he’s never seen anything quite like these trades, not at least since al-Qaida cashed in before initiating the September 11 attacks. “There is definite hanky-panky going on, to the world’s financial markets’ detriment,” he says. “This is abysmal.”

In the case of Trump, market manipulation also yields political dividends. Perhaps the most obvious example dates to late August, when Trump, desperate to reignite trade talks with China, boasted during the G7 summit that his counterparts in Beijing had come back to the table. “We’ve gotten two calls—very, very good calls,” he told reporters. “They mean business.” The market rose more than 900 points over the next few days. But a spokesperson for the Chinese foreign ministry said he was not aware of any such calls. An editor at the Global Times, the state-controlled newspaper, tweeted that he knew of no calls made in the days leading up to the G7 meeting and that “China won’t cave to US pressure.” Two U.S government officials later told CNN that Trump misspoke and “conflated” comments from China’s Vice Premier Liu He with direct communication from the Chinese. According to CNN, the officials said Trump was “eager to project optimism that might boost markets.”

Indeed, this single Trump lie briefly inflated domestic markets by hundreds of billions of dollars. “What this describes is, quite literally, market manipulation that constitutes criminal violations of the Securities Exchange Act of 1934,” commented George Conway, the conservative attorney and Trump critic.

Whether Conway is right or wrong is a matter of legal opinion, but given how fishy and coincidental the trading in e-minis seems to be these days, the SEC or CFTC would be doing a great service (and their job) for the American people by investigating who is behind these lucrative trades, and what they knew before they placed them. At the moment, what we’re getting from them is an indifferent shrug.

Federal regulators might start here: In the last 10 minutes of trading on Friday, August 23, as the markets were roiling in the face of more bad trade news, someone bought 386,000 September e-minis. Three days later, Trump lied about getting a call from China to restart the trade talks, and the S&P 500 index shot up nearly 80 points. The potential profit on the trade was more than $1.5 billion.

Have a great weekend. See you next week. — Harry Newton