The Treasure Huntermarkets usually drop much faster than they rally, and I knew the
whole world was long now and the whole thing had changed, and
I thought it was just a question of when the market did a cliff dive.
We were in the deflationary ’90s, and I had seen how the guys in
gold used to get burned every time it rallied too high, and I kind
of thought the same thing would happen here in OJ. There were
some newspaper articles, like Jimmy Rogers was inBarron’sone
weekend saying this OJ market is unsustainable because Brazil was
growing a zillion orange trees or something like that. Which was
eventually true, then destiny kicked in and OJ crashed.
Q: So you took$250,000, and then did you leave or continue to
trade OJ?
A: No, I stayed with them, I traded there until 1997. The thing
that made me leave the market was the best trade that I ever had.
It was in orange juice as well, and it was the freeze that never
happened. This was February 1996. We had gone through freeze
season and if a freeze happens according to what I studied in
the charts, they usually happened in December and usually right
around Christmas Eve. We went through this period, went into
January and there was no cold weather and nothing was going
on, and so the option volatilities were plunging, they went from
like 40 percent down to 20 and I had never seen option vols at
20 in orange juice. So I started doing back spreads while other
guys were crushing out of the money call options for May delivery.
They figured that freeze season was over, volatilities are going to
collapse, orange juice was never going to go back up to$1.30 to
$1.50—let’s nail these guys on these May calls. So I’d buy, and
then I’d back spread them. I would try to do back spreads for zero
cost, so I’d sell at-the-money calls and buy whatever strike I could
get out of the money where I could buy two of them and be zero
cost in terms of option premium. I thought to myself that even if
we had a big down move, it wasn’t a problem and that this position
would work too because if we did get some type of spike, some
type of freeze, my twice-as-many calls would kick in.