Gilbert Leistner – Open Outcry Traders History Project Interview – Part One

John Lothian

John Lothian

Executive Chairman and CEO

Veteran Options Trader Shares Stories from New York to Chicago and Around the World

Gilbert Leistner is a good storyteller and he shared many stories during an interview for the Open Outcry Traders History Project that JLN has broken into three parts. The stories are about his difficulties with the feudal specialist system at the AMEX, coming to Chicago and trading on all three Chicago exchanges, dragons and princes, trading models that don’t work, and figuring out one that changed the way futures options trade. 

Leistner said he wanted to be Davy Crockett when he grew up, but then later took a sojourn into medicine. He ultimately decided to go in another direction and become a freelance writer. As a freelance writer, he helped get hospice services going for one of the first three free-standing hospice programs in the U.S. by getting a grant from the National Institutes of Health.

Based on that experience, he was offered a book contract by an editor of Time Life Books to write about the hospice movement, but then he saw an advertisement in the newspaper for a new membership type at the American Stock Exchange called an options principal membership. Leistner dropped the idea of the book and said YES! to trading. 

He joined the AMEX in June of 1977 and became an options trader. He said he was always drawn to emergency situations and found the floor to be a financial emergency room. 

Leistner said he felt constrained by the feudalistic system at the AMEX, where he said he was a serf. He also liked the more capitalistic free markets of Chicago. Because he also had a girlfriend who lived in California, he applied for a job in Chicago so they could meet in the middle. 

Leistner explained how the specialist system was a feudalistic system and why at times it was not fair for him, especially as he became a more successful trader. 

He said on his first day in Chicago on the floor of the Chicago Board of Trade, he was handed a button by another trader that said, “We don’t care how they do it in New York.”

Leistner said the CBOT was the friendliest for him of all the Chicago exchanges. He traded silver at first. One day he came in to find he had a huge outtrade. He did not know the trade, but he took it. The broker with whom he had the outtrade asked him if he was still trading the spreads he was trading yesterday. Leistner said he was. The broker then asked Leistner what his markets were and Leistner told him. Then Leistner went to breakfast.

When Leistner returned to the silver pit, the broker handed him a stack of cards and told him he had done these trades in the spreads that had earned him a significant part of his outtrade loss back. This showed Leistner something important about Chicago and the CBOT versus the AMEX – that in Chicago, traders took care of each other if you did the right thing. 

Leistner brought many traders to the floor through a trading program he developed. He said he brought more than 100 people into the market and put them into exchanges around the world. 

He said he could not tell who would be a good trader. A woman who came from a white-shoe brokerage firm and was rather meek turned out to be one of his best traders. And it all turned around for her after she was insulted by a broker in the S&P 500 options pit and she got in the broker’s face. From that day on, she was a trader. 

A male trader who Leistner thought would be successful was not and even left the firm with a debit. The trader was trading much larger than he should have, and when the firm sent someone to get him out of the pit, the trader had disappeared. The next spring the trader appeared in a newspaper pictured at Wrigley Field and Les Rosenthal told Leistner to find the trader, which he did. 

When Leistner gave up the book deal to become a trader, he said his father thought he was crazy but later congratulated him on his success. Leistner always had family members wanting to get or give trading advice, he said. He told an uncle his charge for advice was $1000 an hour to stop him asking.  

Leistner said he would not change anything in his career. He learned the hard way, he said. The worst day he ever had came shortly after he started on the AMEX. He was very long a gold mine fund when a news story ran that he said was misinterpreted by the market. 

Leistner bought more as the market went down. He didn’t understand what was really going on, which was that facts didn’t matter, emotions did. This was a pivotal moment for him as he lost 25% of his trading capital in that one day. He learned that day that three things move the market: fear, hope and greed. 

Leistner spoke about how sometimes trading models can be wrong. He gave the example of a trader who sold a box for 25, the maximum width between the strikes of the options. Leistner said he was scratching his head trying to figure out what was wrong. When the trader on the other side exercised the deep in the money options, he figured it out, and why all the option trading models in use at the time in futures were wrong. There was an interest rate play in options on futures that was not a factor in stocks. 

The model that was dominant at the time was based on the stock model. Commodities are different, as futures have cash moving in and out of the account as the underlying moves up and down. 

Based on his realization of this error in the way options were trading, he approached Les Rosenthal and told him about it. Rosenthal asked him how many of the trades they could do. Leistner said, How much money do you have? Rosenthal said put the trades on and let him  worry about the money. So Leistner and a partner put these trades on futures exchanges all over the world. 

Leistner’s trader, who was executing the box trades in the Deutsche Mark pit, was greeted with, “Here comes the candyman, it must be Christmas in July” when he came to put more on more trades. But then after the trades cleared and the deep in the money options were exercised, the trader asked for some time off, as he was not a very popular figure at the moment. 

That day the entire commodity options model was repriced, Leistner said.

In addition to his great stories, Leistner explained more about why models sometimes don’t work, using examples that included princes, dragons and also synthetic currencies. 

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