Trading Places- question about money and stocks

They weren't trading stocks. They were trading futures on the commodities exchange.

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They were trading futures on the commodities exchange.

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I get that. So the price of FCOJ had to go up dramatically afterwards for them to realize that much money?

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Backwards - they sold a ton of futures while the price was high (and the Dukes were buying). Then the crop report comes in and the price plummets. They then buy back the same number of futures that they had "sold" earlier. In the end, they end up with no FCOJ futures, but a ton of cash.

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This. With futures you either buy low and sell high or sell high and buy low. They did the later. Futures also have a lot of inherent leverage, so they could take a smaller amount of money and use it to play with contracts that are worth a lot more.

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Also, what on earth is with all the shouting and hand signals? What is going on there? How do they keep track of it?

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You don't really. That's why open call trading pits are all but dead.

Essentially, there are several smaller markets within each pit. You don't necessarily know what people on the other side are doing unless they are really moving the market. That's why everyone rushes over to Murphy and Aykroyd right before the market closes. They were the only ones buying at that point, and everyone else was trying to cut their losses.

You can make (and lose) A LOT more money trading futures rather than buying and investing in stocks. And, you don't need as much money to "get rich". That's what the "margin call" was at the end of the scene.

I took a finance course where we had a semester long "game" of futures trading. We each got $10,000. I made $100K over the semester and came in second.

Trading Places is one of my favorite movies. I can't even begin to count how many times I've seen it. I once sat through the trading scene and tried to estimate how much money they made -- just by going off the amounts they bought at specific prices and how much they sold at specific prices. YEAH, I KNOW -- I was bored.

It amounted into the billions. When they were trading "5" that meant 5,000 futures contracts. And, think about how many "5"'s and "10"'s they traded in that short amount of time.

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Doesn't one need some type of credential to be on the floor? Maybe a Duke competitor gave them access to the trading.

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This part of it did require a willing suspension of disbelief. There's no way someone who has been totally discredited and was under indictment for selling heroin, errr, I'm sorry, PCP/Angel Dust, would have ever been allowed to trade. Billy Ray, Capricorn, might have had a license given that he was working for Duke and Duke, but even that was unlikely. Of course, maybe Billy Ray, Capricorn, applied the Quart-of-Blood technique on someone to get his license and that's how he got in.

YEAH!

I had to look it up as well. I am not too familair with trading.

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I was watching Trading Places a while back, for about the seventh or eighth time, and it occurred to me that I still didn't know exactly how Winthorpe (Dan Aykroyd) and Valentine (Eddie Murphy) did what they did to make a gazillion bucks and simultaneously break Duke and Duke. Well, thanks to detailed analysis of the tape, computer modeling, psychological simulations, The University of Florida Cooperative Extension Service, nitpickers.com, and Carl Speare, I now have the answer.

First, a little background. From the UF page: "Most orange juice is sold as concentrate (all water is removed) in units of "pounds solid", which are approximately 1.17 pounds per unit (www.floridajuice.com). All prices are in cents per pound. For example, the September contract closed at 76.5 cents per pound solid. At 15,000 pounds per contract, this was the equivalent of $11,483 per contract."

The Dukes' agent has the fake crop report saying that the weather was bad and the harvest was less than normal. Therefore, he is expecting high prices. Valentine and Winthorpe have the real crop report and know that prices will go down when it is revealed.

The agent wants to own as many contracts as possible before the crop report is revealed, since (he thinks) once it is, the price will go up and he can sell at a profit. Trading begins with a price of 102 cents per pound, which translates into $15,300 per contract. Once everyone sees that the Dukes' agent is trying to corner the market, they all want a piece of it, forcing the price up since more people are buying than selling.

At a moment timed for maximum dramatic impact, Valentine and Winthorpe make their first move: "Sell [unintelligible] in April at 142!" They're selling short: selling contracts they don't yet hold. They are betting they will be able to buy the contracts later at a lower price so they come out making money but not holding any contracts at the end of trading (after all, who wants one of these babies rolling up their driveway?).

Now that there is another source of contracts available, the other agents buy from Valentine and Winthorpe as fast as the duo can write the orders. This has the effect of driving the price down somewhat, since there are now more sellers than there were before; by the time everybody pauses to hear the crop report, the price is back down to 102 cents per contract (interestingly, right where it was at the start of trading). The crop report is revealed and the price starts dropping as everyone tries to get rid of their contracts ("zero their positions") before the bottom drops out or trading ends.

At a moment timed for maximum dramatic impact (about 46 cents per pound), Valentine and Winthorpe make their second move. They need to buy--a lot--to zero their position, and the crowd is more than willing to oblige. An important point here is that they don't buy any from the Dukes' agent; after all, they want him to be left holding the bag at the end of trading. When that time comes, the price is 29 cents per pound, and Valentine and Winthorpe have delivered on all their short-sold contracts.

Now let's generate some brown numbers. It sounds like Winthorpe says "20,000," so let's go with that as the total number of contracts they moved. Let's assume they sold short at a constant rate from the time the price was 142 until the time the price was 102. From this, we can figure an average price per contract of 122 cents per pound. Likewise, let's assume they bought at a constant rate from the time the price was 46 cents per pound until the end (29 cents per pound), which yields an average price per contract of 38 cents per pound.

Profits: (122 cents/pound - 38 cents/pound) * 15000 pounds/contract * 20000 contracts = $252,000,000.00. Cha-ching!

Since the Dukes' agent flamed out, he's holding a bunch of contracts at the end of trading. There's a margin call to settle the Dukes' account, and it's not too hard to see from the math above where their $394,000,000 margin call comes from.

Of course, there's a bit of Hollywood License at work here; various market safeguards prevent the price moving so much. As Carl Speare told me in an email:

"Where the movie commits a fatal flaw is the fact that all US markets, including commodities futures, have 'circuit breakers' in place to prevent exactly what happened in Trading Places. On days when the Dow is up big, or down big, watch CNBC. You'll see a red box above the Dow quote sayings 'curbs in.' That refers to those circuit breakers. The moment the price of the OJ contracts went up as much as it did initially, the circuit breakers would have likely kicked in and trading would have either been limited or stopped. Certainly, when the price dropped that much, trading would have been stopped; plus, there are rules governing selling short in a down market. Thus, their short sales in a down market would have been locked out. Check out cftc.gov as a good reference."

Carl was also very helpful in providing more detail (and more correct detail) than I originally had.

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Source

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Where the movie commits a fatal flaw is the fact that all US markets, including commodities futures, have 'circuit breakers' in place to prevent exactly what happened in Trading Places. On days when the Dow is up big, or down big, watch CNBC. You'll see a red box above the Dow quote sayings 'curbs in.' That refers to those circuit breakers. The moment the price of the OJ contracts went up as much as it did initially, the circuit breakers would have likely kicked in and trading would have either been limited or stopped. Certainly, when the price dropped that much, trading would have been stopped;

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Is he sure that there were circuit breakers in place on commodity exchanges during the timeframe in which this movie was made?

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Is he sure that there were circuit breakers in place on commodity exchanges during the timeframe in which this movie was made?

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the movie came out in 83, I don't think they added those breakers until after the crash in 87.

It was the Dukes! It was the Dukes!



Get off your knees Louie!



Yeah Coleman, I think I will



retire.

Personally, I don't understand why Louis did not get a little more pissed at Coleman. Yeah, I get that Coleman had no choice to go along with the Dukes, but he's Louie's faithful manservant, and treated him like shite.

"He was wearing my Harvard tie. Can you believe it? MY Harvard tie. Like oh, sure, HE went to Harvard."