St. Louis is a city in Missouri, located near the meeting of the Mississippi and the Missouri Rivers. In 2020, the city proper had a population of only 301,578, while its bi-state metropolitan area, which extends into Illinois, had an estimated population of over 2,800,000, the largest metropolitan area in Missouri and the second largest in Illinois. The city’s eastern boundary is the Mississippi River, which separates Missouri from Illinois. The Missouri River forms the northern line of St. Louis County, except for a few areas where the river has changed its course. The Meramec River forms most of its southern line. The land that is now St. Louis has been occupied by Native American cultures for thousands of years before European settlement. St. Louis, the city, was founded on February 14, 1764, by French fur traders, named for King Louis IX of France. Thus, it quickly became the regional center for the French inhabitants. In 1804, the United States acquired St. Louis as part of the Louisiana Purchase. In the 19th century, St. Louis developed as a major port on the Mississippi River. From 1870 until 1920, it was the fourth-largest city in the country. In 1904, it hosted the Louisiana Purchase Exposition, also known as the St. Louis World’s Fair, and the Summer Olympics, the first non-European city. European exploration of the area was first recorded in 1673, when French explorers Louis Jolliet and Jacques Marquette traveled through the Mississippi River valley. Five years later, La Salle claimed the region for France known as Louisiana. During the American Revolutionary War, St. Louis was unsuccessfully attacked by British-allied Native American in the Battle of St. Louis. After the Louisiana Purchase in 1804, St. Louis became the capital and gateway to the new territory. Shortly after the official transfer of authority was made, the Lewis and Clark Expedition was commissioned by President Thomas Jefferson. Settled by many Southerners in a slave state, the city was split in political sympathies and became polarized during the American Civil War. After the war, St. Louis profited because of trade with the West. Industrial production continued to increase during the late 19th century. In the first half of the 20th century, St. Louis was a destination for the Great Migration of African Americans from the rural South seeking better opportunities. St. Louis, like many Midwestern cities, expanded in the early 20th century due to industrialization. Suburbanization from the 1950s through the 1990s dramatically reduced the city’s population, as did restructuring of industry and the loss of jobs. St. Louis has lost 64% of its population since the 1950 United States census. Since 2014, the city of St. Louis has had one of the highest murder rates, per capita, in the United States. In 2016, St. Louis was the most dangerous city in the United States with populations of 100,000 or more, ranking 1st in violent crime and 2nd in property crime. Yet there are some nice places to see in St. Louis like the Art Museum, the Missouri Botanical Gardens, the Cathedral Basilica of St. Louis, City Hall, the Central Library, the Old Courthouse, St. Louis Science Center, Union Station, and the St. Louis Zoo. Have you ever visited St. Louis?
We took a vacation trip to St. Louis, Missouri
As soon as school finished at St. Lawrence O’Toole in 1979, we set out for a vacation in St. Louis and the Missouri Ozarks. In fact, we have been to St. Louis, a few times. I have my scrapbook for this trip and our week in the Missouri Ozarks. I wanted Margaret and Joy to have a summer vacation before I started at the CBOE in late June. Besides, I had vacation time coming from my time at Montgomery Ward. I have nine postcards from this trip to St. Louis, from the Gateway Arch, Busch Stadium II, home of the St. Louis Cardinals baseball team then, and the Anheuser Busch factory, since we took a tour of the brewery. After our short trip to St. Louis, we were going to drive out to the Ozarks in southwestern Missouri. I wanted Margaret and Joy to have a good vacation in one place. We might not have many more vacations, since I was going to run a one-man options market maker operation. Have you ever had a vacation in one place?
I was leaving Montgomery Wards
In May, 1979, it was beginning to hit me. I was turning 40, and I was about to start a new adventure. I was going to leave the place that I had worked at for eight years, since I started in June, 1971. I had gotten to know my work friends at the Montgomery Wart Outlet Store in Franklin Park. I was a little sad in leaving. I suddenly realized that I had never been at one place for more than a couple of years. I was at Granville, Wisconsin, for two years, and at Benburb, Norther Ireland, for nearly two years. I only spent a year and a half at Loyola and Lake Bluff, Illinois. However, I had spent four years in Louvain, Belgium, and Trier, Germany, the longest that I had been anywhere. I was barely over a year at CTU in Chicago, and barely three years in Hyde Park. Now I had spent six years in Matteson, and eight years here at Montgomery Ward. I had a certain routine to my life. I had become accustomed to hour long commutes. I was always excited when the trip took less than ¾ of an hour. I knew the people at work. I even knew some of the people in the warehouse. These were my work friends. Would I have the same kind of friendship with my new workers at the Chicago Board Options Exchange? We had no formal going away party. A bunch of us, about 15-20, got together at a pizza place off Manheim Road and sat around after we closed the store at 5:00 PM on one Monday evening. I realized that I hardly knew them that well. We never socialized outside of work, since many of them lived in the northwest side of Chicago or in the northern or western suburbs, not like me in the south suburbs. Everyone wished me well. I could not tell whether Jerry Syndorwicz was happy about me leaving or not. Anyway, they were staying and I was leaving. Have you ever left a work place?
Rent or buy?
I had done some research on options trading and Jerry’s friend Marshall Katz wanted to know if we wanted to lease a seat, rather than buy it. Jerry said no, but I began to think about it. How much would it cost per month? Marshall said that I could rent a seat for around $2,000 per month. I could be a trader on the floor with no cost to trade the options since Katz, Scher, and Company would be the clearing house. I would be a market maker, or in floor slang they called it scalping. You bought a stock option at one price and sold it right away for a higher price. I began to study stock options more seriously. If there were large movements on a stock, the options gave you more leverage. There were put and call options with all different dates. I was more intrigued. I watched the options markets for a couple of weeks to get a feel for the price fluctuations. The options were much cheaper than the stocks, but the risk was greater with the options, since they all had limited time frames. I saw the possibilities, but I was still not sure. I did not have a lot of assets, since the equity in my house was out of bounds. However, if I traded options on a monthly basis, I could get out of it, if it was not working out. How could I study all these stocks and their potential movements? Then Marshall Katz explained to me that the most liquid stock was IBM and I could be a day trader there and close out my account every day. Thus, there would not be any great risk. Finally, I decided to take an option on the Chicago Board Options Exchange (CBOE). I talked it over with Margaret and she basically said if that was what I wanted to do, it would be okay with her. I would be like a renter with no equity, but I was renting an options seat with the option to buy. Have you ever heard about Stock options seats being rented?
Stock option contracts
The stock option contract is what was traded on the floor of the exchange. You could purchase a contract to buy a certain amount of a stock with a certain fixed price with a fixed date in the future. This was named a call option. I would pay to buy an option to purchase IBM in August at $120.00, if it is selling presently at $115.00, if this was April. I could sell this option contract if IBM went higher or exercise the option to buy the stock at $120.00, even if it was at $125.00. Either way, I was a winner. However, if IBM went lower, then I could sell the option at a loss or keep it to the bitter end and lose everything. The reverse was true for put contracts. This was an option to sell a stock within a defined period. In put options, I did not have to own the stock, so that they became known as “naked options.” Thus, with a small investment, I could have a bigger increase when the underlying stock did well. About 80-90% of the trades were calls, rather than puts. Even the loses were limited to the options price not the price of the underlying stock. The prices were set by the market makers in the pits. The options price could be between 1/16, 1/8, 3/16, 1/4, 5/16, 3/8, 7/16, 1/2, 9/16, 5/8, 11/16, 3/4, 13/16, 7/8, 15/16, or 1. They eventually eliminated the 1/16 and keep the prices at 1/8. Most transactions were either 1/8 or 1/4. The future pricing was normally in implements of $5.00, $10.00, or $15.00, so that the most traded options were the near options that were due the next month. Have you ever traded stock option contracts?
The Chicago Board Options Exchange (CBOE)
The Chicago Board of Trade, one of the oldest futures trading exchanges founded in 1848, established a separate Chicago Board Options Exchange in 1973. They had spun off stock options and set up a whole floor for them. This CBOE was the first exchange to list standardized exchange-traded stock options on April 26, 1973, in celebration of the 125th birthday of the CBOT. In fact, Milton Friedman (1912-2006), the University of Chicago Noble Peace Economist, wrote an article about the importance of stock options in 1971. The first year this new CBOE traded two million contracts on 16 stocks, but by 1978, they traded over thirty-three million contracts on 220 stocks. Stock Options had become a billion-dollar business. The Securities and Exchange Commission (SEC) regulated these markets. Thus, it was member owned for several decades, until March 11, 2010, when the Chicago Board Options Exchange (CBOE) filed paperwork to launch an initial public offering and began trading on the NASDAQ stock exchange on June 15, 2010. In 2011, the CBOE Stock Exchange (CBSX) entered into an agreement to acquire the National Stock Exchange, with both exchanges to operate under separate names. The National Stock Exchange continued to be based in Jersey City, but ceased operations in May 30, 2014. Thus, CBOE operates in North America, Europe, and Asia-Pacific, providing platforms for trading options, futures, equities, and foreign exchange. In addition to its exchanges, the CBOE operates clearing houses. Headquartered in Chicago, the CBOE operates a trading floor for open outcry trading, at 433 West Van Buren Street in Chicago, the largest U.S. options exchange with an annual trading volume of around 1.27 billion. Today, the CBOE offers options on over 2,200 companies, 22 stock indices, and 140 exchange-traded funds. Do stock options have any appeal to you?
The history of stock options
The basic concept of options contracts is believed to have been established in Ancient Greece. The earliest recorded example of options was referred to in a book written in the mid fourth century BCE by Aristotle (384-322 BCE), a Greek philosopher of great influence and writer on many subjects. In this book, entitled Politics, Aristotle included an account about another older philosopher, Thales of Miletus (626-548 BCE), and how he had profited from an olive harvest. Thales paid the owners of olive presses a sum of money to secure the rights to use them at harvest time. When the huge harvest time came around, Thales resold his rights to the olive presses to those who needed them and made a sizable profit. Thales had effectively created the first call option with olive presses as the underlying security. Another relevant occurrence in the history of options was an event in 17th century Holland which is widely referred to as the Tulip Bulb Mania. At that time, tulips were incredibly popular in the region as status symbols among the Dutch aristocracy that also spread throughout Europe. During the 1630s, the demand for tulip bulbs continued to increase and because of this, the price also went up in value. The value of tulip bulb options contracts increased as a result. A secondary market for these contracts emerged which enabled anyone to speculate on the market for tulip bulbs. However, ordinary people lost all their money and their homes when the Dutch economy went into a recession because of this unregulated options market. London, England, banned puts and calls for a hundred years. An American financier by the name of Russell Sage (1816-1900) in the late 19th century began creating calls and puts options that could be traded over the counter in the United States with no formal exchange market. Sage eventually stopped trading in this way because of significant losses. There have always been local brokers but they always had to find individuals on the other side of the trade. The market for options continued to essentially be controlled by put and call brokers with contracts being traded over the counter, so that it was illiquid with limited activity at that time. Even though the Securities and Exchange Commission (SEC) in the United States had bought some regulation into the over-the-counter options market, by the late 1960s the trading of them wasn’t really progressing at any noticeable rate. There were too many complexities involved and inconsistent prices made it very difficult for any investor to seriously consider options as a viable tradable instrument. In 1968, the Chicago Board of Trade saw a significant decline in the trading of commodity futures on its exchange, and the organization began to look for new ways to grow their business. After considering numerous alternatives, the decision was made to create a formal exchange for the trading of options contracts. There were many hurdles to overcome for this to become possible, but in 1973, the Chicago Board of Options Exchange (CBOE) began trading. For the first time, options contracts were properly standardized and there was a fair marketplace for them to be traded. At the same time, the Options Clearing Corporation was established for centralized clearing and ensuring the proper fulfillment of contracts. This removed many of the concerns investors still had about contracts not being honored. Over 2,000 years after Thales had created the first call, the trading of options was finally legitimate. Options trading continues to grow in popularity and shows no signs of slowing down. Have you ever considered trading a put or call stock option?
My introduction to Stock Options in 1979
1979 was a year of options for me. Options means choices. I also found out more about options as a financial tool. Jerry Syndorwicz, who was a furniture salesman at the Montgomery Ward Franklin Park Outlet Store, came up to me one day and asked me if I knew anything about Stock Options. I said that I had some basic idea that people had options to buy stocks. They could either use them or not. That was my limited knowledge. He told me that a classmate of his from Illinois State, was involved with Stock Options at the Chicago Board of Trade. He wanted to know if I was interested. I said that I would take a look at it. I tried to find some information about it, but it was scarce. The Chicago Board Options Exchange began in 1973 by the Chicago Board of Trade. Jerry said that his friend Marshall Katz would help us buy a seat on the Options exchange. It all seemed so simple. I thought about it for a little while and I told Jerry to explore it some more. I came to realize that the Chicago Board of Trade had spun off stock options and set up a whole floor for them. In fact, Milton Friedman (1912-2006), the University of Chicago Noble Peace Economist, wrote an article about the importance of stock options in 1971. Jerry and I finally decided to have a meeting with his friend and some bankers to see what was involved with buying a seat on the exchange. Everything was going fine with this meeting until we got to the question of financing. We could buy a seat on the exchange for $80,000, that meant that I had to come up with $40,000. Both Jerry and I assumed that the co-lateral for the seat would be the seat itself. That was the shocker. We had to put our houses up as co-lateral. That was a non-starter. We both said no. That seemed to put an end to this idea. Jerry was out. I thought that I was out also. How do you finance purchases?
The movie The China Syndrome
In a twist of fate, on March 15, 1979, twelve days before the actual Three Mile Island reactor meltdown, the movie The China Syndrome premiered. It initially met with backlash from the nuclear power industry, claiming it to be sheer fiction and a character assassination of an entire industry. In the film, television reporter Kimberly Wells (Jane Fonda) and her cameraman Richard Adams (Michael Douglas) secretly film a major accident at a nuclear power plant while taping a series on nuclear power with plant supervisor Jack Godell (Jack Lemmon). At one point in the film, an official tells Wells that an explosion at the plant “could render an area the size of the state of Pennsylvania permanently uninhabitable.” Michael Douglas also produced this film. After the release of this film, Fonda began lobbying against nuclear power. I remember seeing this film later in 1979. How ironic that they made a film about a nuclear meltdown before it actually happened. Thus, The China Syndrome became a critical and commercial success, as it grossed $51.7 million on a production budget of $5.9 million. The film received four nominations at the 52nd Academy Awards: Best Actor (for Lemmon), Best Actress (for Fonda), Best Original Screenplay and Best Art Direction, but did not win. Did you ever see the movie The China Syndrome?
The Three Mile Island nuclear accident
The worst accident in American nuclear power plant history took place at 4:00 AM on March 28, 1979, at the Three Mile Island Nuclear Generating Station on the Susquehanna River in Londonderry Township, near Harrisburg, Pennsylvania. On the seven-point logarithmic International Nuclear Event Scale, this was rated Level 5, an “Accident with Wider Consequences,” a partial nuclear meltdown of the Unit 2 reactor, so that radioactive gases and radioactive iodine were released into the environment. This accident began with failures in the non-nuclear secondary system, followed by a stuck-open pilot-operated relief valve in the primary system, which allowed large amounts of water to escape from the pressurized isolated coolant loop. The mechanical failures were compounded by the initial failure of the plant operators to recognize the situation as a loss-of-coolant accident. Those inadequacies were compounded by design flaws, such as poor control design, the use of multiple similar alarms, and a failure of the equipment to indicate either the coolant-inventory level or the position of the stuck-open. An alarm sounded at 4:11 AM, but the operators ignored it. At 4:15 AM, the relief diaphragm of the pressurizer relief tank ruptured, and radioactive coolant began to leak into the general containment building. This radioactive coolant was pumped from the containment building to an auxiliary building, outside the main containment, until the sump pumps were stopped at 4:39 AM. At about 5:20 AM, the primary loop’s four main reactor coolant pumps began to cavitate, so that the pumps were shut down. Soon after 6:00 AM, the top of the reactor core was exposed, and the intense heat caused a reaction to occur between the steam forming in the reactor core and the zircaloy nuclear fuel rod cladding, yielding zirconium dioxide, hydrogen, and additional heat. This reaction melted the nuclear fuel rod cladding and damaged the fuel pellets, which released radioactive isotopes to the reactor coolant and produced hydrogen gas that is believed to have caused a small explosion in the containment building later that afternoon. It was not until 6:45 AM, that radiation alarms activated when the contaminated water reached a detector. However, by that time, the radiation levels in the primary coolant water were around 300 times expected levels. When the plant operator called the Nuclear Regulatory Commission at about 8:00 AM, roughly half of the uranium fuel had already melted. The NRC then called the White House at 10:00 AM. There was some confusion about how bad this accident was. Thus, this accident heightened anti-nuclear safety concerns and led to new regulations for the nuclear industry. It accelerated the decline of efforts to build new nuclear reactors. Anti-nuclear movement activists expressed worries about regional health effects from this accident, but a causal connection linking the accident with cancer was difficult to prove. Cleanup at TMI-2 started in August 1979 and officially ended in December 1993, with a total cost of about $1 billion. TMI-1 was restarted in 1985, then retired in 2019 due to operating losses. Its decommissioning is expected to be complete in 2029 at an estimated cost of $1.2 billion. The most prominent investigation into this crisis was the President’s Commission on the Accident at Three Mile Island, created by U.S. President Jimmy Carter in April 1979. This Three Mile Island accident was a significant turning point in the global development of nuclear power. In total, 51 USA nuclear reactors were canceled between 1980 and 1984. Have you ever heard of Three Mile Island?
Gene Finnegan Remembers Living Eighty Wonderful Years 