X) 476
xxii6.66.76.86.96.106.116.126.136.146.156.166.176.186.196.206.216.226.236.246.256.266.276.286.296.306.317.17.2C.1
LIST OF FIGURESCall Backspread 479Call Calendar Spread 480Comparison of Delta and Time Remaining 487Delta of At-the-Money Option as Time Passes 489Comparison of Delta and Volatility 490Two-Year LEAPS Call Pricing Curve 494Gamma versus Time 496Position Delta of Ratio Spread 500Profit of Ratio Spread 502Profit and Loss of Ratio Spread If Volatility Changes 503Wings Profit and Loss 508Profit and Loss of Double Ratio Spread 510Calendar 512Bell Curve or Normal Distribution 522Lognormal Distribution 522Forward Skew 523Reverse Skew 524Call Ratio Spread 526Put Backspread 526Put Ratio Spread 531Call Backspread 531OEX Backspread—Stage 1 534OEX Backspread—Stage 2 536OEX Backspread—Stage 3 540OEX Backspread—Stage 4 542AMI Short-Term Calendar Spread 557Order Flow 570Examples of Closing Stops 597Binomial Model Lattice 627
1
Option History,Definitions,and Terms
There are many types of listed options trading today: stock options,index options, and futures options are the major ones. The object ofthis book is to explore some of the many ways in which options canbe used and to give practical demonstrations that will help the readermake money.Options are useful in a wide array of applications. They can beused to establish self-contained strategies, they can be used as substitutes for other instruments, or they can be used to enhance or protect one’s position in the underlying instrument, whether that isstock, index, or futures. In the course of this book, the reader maydiscover that there are more useful applications of options than heever imagined. As stated in the Preface, this book is not really meantfor novices but contains all definitions to serve as a platform for thelarger discussion.
UNDERLYING INSTRUMENTSLet’s begin with the definitions of the simplest terms, as a means ofestablishing the basic building blocks. Before even getting into whatan option is, we should have some idea of the kinds of things thathave options. That is, what are the underlying instruments that provide the groundwork for the various listed derivative securities(options, warrants, etc.)? The simplest underlying instrument is common stock. Options that give the investor the right to buy or sellcommon stock are called stock options or equity options.1
2
OPTION HISTORY, DEFINITIONS, AND TERMS
Another very popular type of underlying instrument is an index.An index is created when prices of a group of financial instruments—stocks, for example—are grouped together and “averaged” in somemanner so that the resulting number is an index that supposedly isrepresentative of how that particular group of financial instruments isperforming. The best-known index is the Dow Jones Industrial Average, but there are indices of many other groups of stocks; indiceswith a large number of stocks in them are the Standard & Poor’s(S&P) 500 and the Value Line Index, for example. There are alsomany stock indices that track various groups of stocks that are in thesame industry: Utility Index, Oil Index, Gold and Silver Index, forexample. There are even indices on foreign stock markets, but theyhave options listed in the United States; these include the JapanIndex, Hong Kong Index, and Mexico Index, as well as several others. Indices are not restricted to stocks, however. There are indicesof commodities, such as the Commodity Research Bureau Index.Moreover, there are indices of bonds and rates; these include suchthings as the Short-Term Rate Index, the Muni Bond Index, and the30-Year Bond Rate Index. Options on these indices are called indexoptions. Appendix A contains a list of available index options.Finally, the third broad category of underlying instrument isfutures. This is probably the least-understood type of underlyinginstrument, but as you will see when we get into strategies, futuresoptions are extremely useful and very important. Some people mistakenly think options and futures are nearly the same thing. Nothingcould be further from the truth. The “dry” definition is a futures contract is a standardized contract calling for the delivery of a specified quantity of a certain commodity, or delivery of cash, at somefuture time. In reality, owning a futures contract is very much likeowning stock, except that the futures’ price is related to the cashprice of the underlying commodity, and the futures contract has afixed expiration date. Thus, futures contracts can climb in price infinitely, just as stocks can, and they could theoretically trade all theway down to zero, just as stocks can. Moreover, futures can generallybe traded on very small percentages of margin, so that the risk ofowning futures is quite large, as are the potential rewards. We discussfutures contracts in more detail later, but this brief description shouldsuffice to lay the groundwork for the following discussion of options
OPTION TERMS
3
terms. As might be suspected, options on futures contracts are calledfutures options.
OPTION TERMSAn option is the right to buy or sell a particular underlying securityat a specific price, and that right is only good for a certain period oftime. The specific items in that definition of an option are asfollows:• Type. Type describes whether we are talking about a calloption or a put option. If we are talking about stock options,then a call option gives its owner the right to buy stock, whilea put option gives him the right to sell stock. While it is possible to use options in many ways, if we are merely talkingabout buying options, then a call option purchase is bullish—we want the underlying stock to increase in price—and a putoption purchase is bearish—we want the stock to decline.• Underlying Security. Underlying security is what specifically can be bought or sold by the option holder. In the caseof stock options, it’s the actual stock that can be bought orsold (IBM, for example).• Strike Price. The strike price is the price at which theunderlying security can be bought (call option) or sold (putoption). Listed options have some standardization as far asstriking prices are concerned. For example, stock and indexoptions have striking prices spaced 5 points apart. Moreoverstock options also have strikes spaced 21⁄2 points apart if thestrike is below 25. Futures option striking prices are morecomplex, because of the differing natures of the underlyingfutures, but they are still standardized for each commodity (1point apart for bonds, for example, or 10 points apart for amore volatile commodity, like corn).• Expiration Date. The expiration date is the date by whichthe option must either be liquidated (i.e., sold in the openmarket) or exercised (i.e., converted into the physical instrument that underlies the option contract—stock, index, or
4
OPTION HISTORY, DEFINITIONS, AND TERMS
futures). Again, expiration dates were standardized with thelisting of options on exchanges. For stock options and mostindex options, this date is the Saturday following the third Friday of the expiration month (which, by default, makes thethird Friday of the month the last trading day). However, forfutures options, these dates vary widely. More about thatlater. The most heavily traded listed options usually have lessthan nine months of life remaining, but there are longer-termoptions—called LEAPS options when one is referring to stockoptions or index options—that can extend out to two years ormore.These four terms combine to uniquely describe any option contract. It is common to describe the option by stating these terms inthis order: underlying, expiration date, strike, and type. For example,an option described as an IBM July 50 call completely describes thefact that this option gives you the right to buy IBM at a price of 50,up until the expiration date in July. Similarly, a futures optiondescribed as the U.S. Bond Dec 98 put gives you the right to sell theunderlying 30-year U.S. Government Bond futures contract at aprice of 98, up until the expiration of the December options.
THE COST OF AN OPTIONThe cost of an option is, of course, called the price, but it is alsoreferred to as the premium. You may notice that we have not yetdescribed how much of the underlying instrument can be bought orsold via the option contract. Listed options generally standardize thisquantity. For example, stock options give the owner the right to buy(call) or sell (put) 100 shares of the underlying stock. If the stock splitsor declares a stock dividend, then that quantity is adjusted to reflectthe split. But, in general, stock options are spoken of as beingoptions on 100 shares of stock. Index options, too, are generally for100 “shares” of the underlying index; but since the index is not usually a physical entity (i.e., it does not really have shares), indexoptions often convert into cash. We will describe that processshortly. Finally, futures options are exercisable into one futures con-
THE COST OF AN OPTION
5
tract, regardless of how many bushels, pounds, bales, or bonds thatfutures contract represents in terms of the actual commodity.Only by knowing this quantity can you tell how many actual dollars an option contract will cost, since option prices are quoted inunits. For example, if someone tells you that the IBM July 50 call istrading at 3 (and we know that the option is for 100 shares of IBM),then the actual cost of the option is $300. Thus, one option tradingat 3 costs $300 and “controls” 100 shares of IBM until the expiration date.It is a fairly common mistake for a beginner to say “I want to buy100 options” when what he really means is he wants to buy oneoption (this mistake derives from the fact that if a stock investorwants to control 100 shares of IBM, then he tells his broker to buy100 IBM common stock). This can result in some big errors for customers and/or their brokerage firms, or possibly even worse. Youcan see that if you told your broker to buy 500 of the above IBMoptions, you would have to pay $150,000 for those options (500 ×$300); but if you really meant to buy 5 options (to “control” 500shares of IBM), you thought you were making a $1,500 investment(5 × $300). Quite a difference.Of course, these sorts of things tend to balloon out of control at the worsttimes (Murphy’s Law is what they call it). When the market crashed 190points on one Friday in October 1990 as the UAL deal fell apart, peoplewere genuinely concerned. On Monday morning, a rather large stockholderhad been reading about buying puts as protection for his stocks, so he put ina market order to buy something like 1,500 puts at the market. His brokerwas a little taken aback, but since this was a large stockholder, he put theorder in. Of course, that morning, the puts were extremely expensive aspeople were fearful of another 1987–style crash. Even though the optionshad been quoted at a price of 5 on Friday night, the order was filled onMonday morning at the extremely high price of 12 because of fear thatprices would crash further. Two days later, the customer received his confirm, requesting payment of $1.8 million. The customer called his brokerand said that he had meant to buy puts on 1,500 shares, not 1,500 puts—a difference of roughly $1,782,000! Of course, by this time, the market hadrallied and the puts were trading at only a dollar or two (one or two points,that is). I’m not sure how the lawsuit turned out.
6
OPTION HISTORY, DEFINITIONS, AND TERMS
The cost—in U.S. dollars—of any particular futures option depends, of course, on how much of the commodity the futures control. We have already said that a futures option “controls” onefutures contract. But each futures contract is somewhat different. Forexample, soybean futures and options are worth $50 per point. So ifsomeone says that a soybean July 600 put is selling for 12, then itwould cost $600 (12 × $50) to buy that option. However, Eurodollarfutures and options are worth $2,500 per point. So if a EurodollarDec 98 call is selling for 0.70, then you have to pay $1,750 (0.70 ×$2,500) to buy it. We specify the terms for most of the larger futurescontracts in Appendix B.
THE HISTORY OF LISTED OPTIONSOn April 26, 1973, the Chicago Board Options Exchange (CBOE)opened its doors and began trading listed call options on 16 stocks.From that humble beginning, option trading has evolved to today’sbroad and active markets. We thought it might be interesting toreview how option trading got to where it is today (nostalgic mightbe a better word for “old-timers” who have been around since thebeginning). In addition, a review of the history of listed option tradingmight provide some insight for newer traders as to how and why themarkets have developed the way they have.
The Over-the-Counter MarketPrior to listed option trading, puts and calls traded over the counter.In this form, there were several dealers of options who found both abuyer and a seller (writer) of a contract, got them to agree on terms,and executed a trade between them. The term writer arose from thefact that an actual contract was being “written” and the issuing partywas the seller of the option. The dealer generally took a commissionout of the middle of this trade: for example, the buyer might havepaid 31⁄4 and the seller received 3. The remaining 1 ⁄4 point was keptby the dealer as payment for lining up the trade.
THE HISTORY OF LISTED OPTIONS
7
Options of this type were generally struck at the current stockprice; thus if the stock was selling at 463⁄8 when the contract wasagreed upon, then that would be the striking price of the calls (orputs). This made for some very awkward calculations. Moreover,these over-the-counter options normally had expiration dates thatwere fixed time periods when they were issued: the choices weretime periods of 6 months + 10 days, 95 days, 65 days, or 35 days.One other term that was unusual: dividends went to the holder of thecall upon exercise. Thus, upon exercise, the striking price wouldactually be adjusted for the dividends paid over the life of the option.Besides the relatively arduous task of finding two parties whowanted to take opposite sides of a particular trade, the greatest hindrance to development of the over-the-counter market was that therewas virtually no secondary market at all. Suppose you bought a callon a stock with these terms: strike price 463⁄8, expiration date 35days from trade date. Later, if the stock went up a couple of pointsquickly, you might theoretically have wanted to sell your over-thecounter call. However, who were you going to sell it to? The dealermight try to find another buyer, but the terms would be the same asthe original call. Thus, if the stock had risen to 48 3⁄4 after 10 calendar days had passed, the dealer would be trying to find someone tobuy a call that was 23⁄8 points in-the-money that had 25 days of liferemaining. Needless to say, it would be virtually impossible for abuyer to be found. Thus, option holders were often forced to hold onuntil expiration or to trade stock against their option in order to lockin some profit. Since this was in the days of fixed commission rates,it was a relatively expensive matter to be trading stock against anoption holding. Altogether, this was a small option market, tradingless than 1,000 contracts daily in total.
The CBOE BeginningThis over-the-counter arrangement was onerous for all parties. So itwas decided to put into practice the idea of standardizing things byhaving fixed striking prices and fixed expiration dates, and having alltrades clear through a central clearing corporation. These solutionsall came from the Chicago Board of Trade (CBOT), since standard-
8
OPTION HISTORY, DEFINITIONS, AND TERMS
ization of futures contracts had proven to be workable there. Thefirst president of the CBOE was Joe Sullivan, who had headed theresearch project for the CBOT.However, since over-the-counter option trading was “the way ithad always been,” the idea of standardizing things was met withheavy skepticism. The extent of this skepticism was most evident inone interesting story: the major over-the-counter dealers wereoffered seats on the fledgling CBOE for the nominal cost of $10,000apiece. A seat today is worth over $450,000. Few of them took theopportunity to buy those seats for what turned out to be a paltryamount; many were convinced that the new exchange was littlemore than a joke. In addition, since these new options were tradedon an exchange, the Securities and Exchange Commission (SEC)had to approve them and issue regulations.Nevertheless, the Chicago Board Options Exchange opened itsdoors on April 26, 1973, with first-day volume of 911 calls beingtraded on 16 stocks. Surprisingly—and even some traders who werearound at the beginning may find this hard to remember—IBM wasnot one of the original 16. It was listed in the second group of 16stocks, which were added in the fall of 1973. Given the fact that IBMhas been, by far, the most active equity option stock, it is hard toremember that it wasn’t one of the originals. In fact, the originalgroup was a rather odd array of stocks. If you were around at thebeginning, test your memory. How many of them can you remember? They are listed three paragraphs below.Besides standardizing the terms of options, the CBOE introducedthe market maker system to listed equity markets and also was responsible for the Option Clearing Corporation (OCC), the guarantor of alloptions trades. Both of these concepts were important in giving thenew exchange viability from the viewpoints of depth of markets andreliability of the exercise process. If you exercised your call, the OCCstood ready to make delivery even if the writer of the call somehowdefaulted (margin rules, of course, generally prevented such a default,but the existence of the OCC was an important concept).The second group of 16 stocks that were listed contained some ofthe most active traders over the years, in addition to IBM: RCA,Avon, Exxon, Kerr-McGee, Kresge (now K-Mart), and Sears, to namea few. Another group of eight stocks was added in November 1974,
THE HISTORY OF LISTED OPTIONS
9
and the growth of the listed option market was off and running. TheAmerican Stock Exchange (AMEX) listed options in January 1975,while the Philadelphia Stock Exchange added their options in June1975. Furthermore, the success of this listed market eventuallyspurred the listing of futures options that we have today (agriculturaloptions trading had been banned since the 1920s due to excesseswithin the industry, and there was no such thing as a financial futureat the time). The continued issuance of new products—such as indexfutures and options, exchange-traded funds (ETFs), and financialfutures—and the subsequent growth and revitalization of theexchanges that listed them can be traced to the success of the CBOE.The old over-the-counter market was virtually eliminated, except foroptions on stocks that weren’t listed on the option exchanges.The original 16 stocks whose options were initially listed on theCBOE were: AT&T, Atlantic Richfield, Brunswick, Eastman Kodak,Ford, Gulf & Western, Loews, McDonald’s, Merck, Northwest Airlines, Pennzoil, Polaroid, Sperry Rand, Texas Instruments, Upjohn,and Xerox.
Index OptionsThe next large innovation in the equity markets was the introductionof index trading. This historic type of trading began when the KansasCity Board of Trade listed futures on the Value Line Index in 1982.The CBOE invented the OEX index (composed of 100 fairly largestocks, all of which had options listed on the CBOE) and listed thefirst index options on it on March 11, 1983. Today the OEX index isknown as the Standard & Poor’s 100 Index, but it still trades with thesymbol “OEX.” This has been one of the most successful equity orindex option products ever listed. Meanwhile, the Chicago Mercantile Exchange (Merc) started trading in S&P 500 futures, whose success and power extended far beyond the arena of futures and optiontrading—eventually becoming the “king” of all index trading and subsequently being the instrument that was blamed for the crash of1987 and numerous other nervous days in the market.The reason that these index products were so successful was thatfor the first time it was possible for an investor to have a view on the
10
OPTION HISTORY, DEFINITIONS, AND TERMS
market itself and to be able to act on that view directly. Prior to theexistence of index products, the investor—whether an individual or alarge institutional money manager—had to implement his marketview by buying stock. As we all know, it is often possible to be righton the market but to be wrong on a particular stock. Being able totrade indices directly took care of that problem.
Exchange-Traded FundsIn the 1990s, a new concept was introduced—the exchange-tradedfund. These are merely groups of stocks with a common trait—oilstocks, for example—that are created by large institutions. Theresulting ETF is actually listed and traded on the New York StockExchange (NYSE) or the AMEX. Thus investors can actually buy anindex, where these are listed. Some other similar products have beenlisted as well. These are unit trusts or depository trusts. Again, agroup of stocks is bundled together, and the resulting unit trust islisted and traded on an exchange. In many cases, options are tradedon these entities as well.The most popular and liquid of these products are the SPDRS(S&P 500 Depository Receipts), which are equal to one-tenth thevalue of the S&P 500 Index itself, and the Nasdaq 100 TrackingStock (QQQ). However, there are now literally hundreds of these,many of which are called iShares, originally created by BarclaysGlobal Investors to track all manner of indices.Many institutional and private investors who prefer passive management (an index fund) and diversity are trading these various ETFs.They allow investors to seek out the sectors they desire and to tradethem simply and directly, without having to buy several stocksdeemed representative of the sector.
Futures OptionsThe initial listing of financial futures contracts depends on how youdefine financial futures. If you include currencies, then the 1972 listing of currency futures on the Chicago Merc marked the beginning.
THE HISTORY OF LISTED OPTIONS
11
If, however, you mean interest rate futures, the initial listing was U.S.Government National Mortgage Association (GNMA) futures on theCBOT in 1975. U.S. Treasury Bill (T-bill) futures followed in 1976.However, the most popular contracts, the 30-year U.S. Bond contract and the Eurodollar futures were listed in 1977 and 1981,respectively. Options on these products didn’t appear until severalyears after the futures were listed (1982 for the bonds, 1986 forEurodollars). The first agricultural options were listed on soybeansin 1984.
Today’s Over-the-Counter MarketAccording to the CBOE, there are several hundred million optioncontracts traded annually in the United States today. There are, ofcourse, many foreign exchanges that trade listed options as well,having patterned themselves after the success of the U.S. markets.Ironically, there is a large volume of option contracts trading that isnot counted in these figures, for there is an active over-the-countermarket in derivative products again today!We seem to have come full circle. While today’s over-the-countermarket is much more sophisticated than its predecessor, it has certain similarities. The greatest similarity is that contracts are not standardized. Today’s large institutions that utilize options prefer to havethem customized to their portfolios and positions (for it is unlikelythat they own the exact composition of the S&P 500 or the S&P100 and therefore can’t hedge completely with futures and optionson those listed products); moreover, they may want expiration datesthat are other than the standard ones.A very large difference between the over-the-counter market oftoday and yesteryear is that the contracts today are generally issuedby the larger securities firms (Salomon Brothers, Morgan Stanley,Goldman Sachs, etc.). These firms then employ strategists andtraders to hedge their resulting portfolio. This is a far cry from the olddays where the brokerage firm merely located both a buyer and aseller and got them together for the option transaction. If historyrepeats itself, the exchanges will make attempts to move the currentover-the-counter trading onto the listed marketplace. The CBOE has
12
OPTION HISTORY, DEFINITIONS, AND TERMS
already listed FLEX options (which allow for varying expiration datesand striking prices) as the beginning of the inroad into this market.Thus, option strategies and option trading are an ever-evolvingstory. Those who make the effort to understand and use options willcertainly have more alternatives available to themselves than thosewho don’t.
OPTION TRADING PROCEDURESListed options can be bought and sold whenever the exchange isopen. This is the biggest advantage to trading listed options (asopposed to trading the older style over-the-counter options), and it isthe reason why the option exchanges have enjoyed their success.Thus, if you buy an option in the morning, expecting the market togo higher, but then change your mind in the afternoon, you are perfectly free to go back into the market and sell your option.The concepts of open interest are familiar to futures traders, butnot necessarily to stock traders. When a trader first transacts a particular option in his account, he is said to be executing an openingtrade. This is true whether he initially buys or sells the option. Sucha trade adds to the open interest of that particular option series.Later, when he executes a trade that removes the option from hisaccount, he is said to be executing a closing trade. A closing tradedecreases the open interest. Some technicians keep an eye on openinterest as a possible predictor of futures price movements by theunderlying security. The reason that we mention this is that you mustspecify whether the trade is opening or closing when you place anoption order.An option order must specify the following seven items:1. Buy or sell.2. Quantity.3. The description of the option (e.g., IBM July 50 call).4. Price.5. Type of order (see the next paragraph).6. Whether the trade is opening or closing.7. Whether the account is “customer” or “firm.”
OPTION TRADING PROCEDURES
13
Order types (item 5) for options are just like they are for stocks orfutures. You can use market orders (dangerous in illiquid options),limit orders (probably a good idea most of the time), stop orders(not a good idea with options), and good-until-canceled orders. Ifyou are trading directly through professional traders on the floor, youwill probably want to use market not held orders (which gives thebroker in the crowd the ability to make a decision of his own, foryour account). Only use “market not held” if you know the floor broker and trust his judgment; it is not a good idea to use this type oforder if you’re entering your order through one of the large brokerage firms (they probably wouldn’t accept a “not held” order anyway).Other, more exotic order types, such as market on close, are notavailable for most options, but you can always check with your broker to be sure.Regarding item 6, if you don’t know the difference between “customer” and “firm,” then you’re a “customer.” For the record, a firmtrader is one who is trading the account of a member of theexchange (these are professional traders, many of whom trade fromtrading desks—you don’t necessarily have to be on the trading floorin order to trade for a member firm’s own account). A customer iseveryone else—all the traders who are not members of the exchangeor trading for the account of an exchange member. This distinction isplaced on the order because a “customer” order has priority over a“firm” order in many situations on the trading floor.A typical option order, then, might be “Buy 5 IBM July 50 callsat 3, open customer”; or if you are trading through a brokeragefirm, they will assume you are a customer, so you might need only tosay “Buy 5 IBM July 50 calls at 3 to open.” In either case, this is alimit order because you have specified a price, indicating that youare not willing to pay more than 3 for this option. If you are tradingin a very liquid option (the most liquid options are IBM for stocks,QQQ for Indices, and Eurodollars for futures), you might use a market order: “Buy 10 Eurodollar Dec 98 calls at the market to open.”If you get in the habit of stating your orders correctly and makingyour broker (or floor trader) repeat them back to you, you will eliminate almost all mistakes, or “errors” as they are officially called. I’dbet that more than 75 percent of all errors are caused by confusingbuy and sell: the person stating the order says buy, but the person
14
OPTION HISTORY, DEFINITIONS, AND TERMS
writing it down on the other end of the phone circles “sell” on theorder ticket for some reason; sometimes, even if it’s repeated back,the person giving the order isn’t listening too carefully and the ordergoes in incorrectly.One of the most embarrassing errors in history didn’t involve options. In1994, Bell Atlantic and Telecommunications Inc., a large cable TV operator,announced a merger that would have been very beneficial to Telecommunications Inc.’s stock price. The stock symbol for Telecommunications Inc. isTCOMA (its class A stock is the primary trading vehicle), but among“techies” the stock is known as TCI (this is something akin to Texas Instruments being known as TI to all the research labs guys, but its stock symbol isTXN). Well, as you might guess, the television financial news reporters—whooften like to appear as if they are one of the “inside” guys—repeatedly statedthat Bell Atlantic was buying TCI. As it turns out, there is a stock whose symbol is TCI—Transcontinental Realty Inc., a real estate investment trust, orREIT! Transcontinental Realty was up 3 points in fairly heavy trading beforepeople started to realize their mistake. As soon as they did, it collapsed backto where it was. I have yet to meet anyone who actually admits that theybought TCI when they should have bought TCOMA, but they’re out theresomewhere, and some of them are probably “professional” arbs (or were).
The point is that each aspect of a trade should be handled in aprofessional manner—state the order properly, demand that it berepeated back, listen to the repeat. That’s all you can do; if an orderclerk subsequently types the wrong information into a computer ormistakenly circles the wrong information on the floor ticket, youcan’t control that. But you can demand that restitution be made ifyou handle your end of things correctly. Most brokerage firm officemanagers have no problem refunding a customer the amount of anerror that is clearly the brokerage firm’s fault— you just don’t want tobe in the