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Manny Weiss

January 6, 2017

Chapter 56 in the exclusive series for Dynamic Commodities- becoming a commodities trader

Marc Rich was a legend at Philipp Brothers. While he was a fugitive from the law in the United States, accused by the government of treason and tax evasion, he was a Philipp Brother’s lehrling made good.

Marc Rich left the company in the mid-1970s after a dispute about his bonus. He made the firm millions and felt that his compensation did not reflect his talents and performance. He set up shop close by in New York City and began poaching employees from the company at Marc Rich and Company. After his run in with the U.S. authorities, Rich moved himself and his company in the dark of night to Zug Switzerland where he lived out the rest of his days. His company later became the commodities trading giant Glencore, which remains one of the most influential physical commodity merchants in the world today.

During my days at Philipp Brothers on the options market-making desk, when I was not jetting around the globe with Sid, I got involved in trading options on many different commodities aside from the precious metals. The base metals were a market that was well suited to the options business. While copper, aluminum, nickel, lead, zinc and tin metal all trade on the London Metals Exchange (LME), copper and aluminum are the most liquid of the bunch. A thriving options market depends on liquidity so they were perfectly suited for trading put and call options.

Option expiration day in the copper and aluminum markets were generally a nonevent. If a call option was in the money, where the strike price was lower than the market price at the time of expiration, the party holding the long call position would declare the option meaning it would turn into a long forward position on the LME. If the strike price of a put option was in the money, where the strike price was higher than the market price at the time of expiration, the party holding the long put position would declare the option meaning it would turn into a short forward position on the LME. The counterpart on the other side of the trade would receive the opposite position in the case of a declaration or exercise of the option.

Dealers and customers would buy and sell options and if they were in the money the process was a no-brainer. If the price of the underlying metal was close to the market price at expiration time, the party holding the short position in the option would have to wait for the long to declare their intention which led to some tense moments. Trading options meant buying and selling put and call options all the time and many times at expiration, there were longs and shorts in the same option with one counterparty that netted out to zero.

Manny Weiss was the chief aluminum trader for Marc Rich and on one options expiration day he had one of those long and short positions in a call option with Philipp Brothers on the other side of the trade. I was alone in London, covering for a vacationing Peter Grinham when Weiss called close to expiration time and told me we have an offsetting position in a particular aluminum option of 25,000 tons or 800 LME contracts. That meant that he had bought 25,000 tons of the aluminum call from Philipp Brothers and sold back the same amount of the option. The position was supposed to be net or no position at all. However, he told me you tell me first what you are going to do with your long and then I will tell you what I am going to do with mine. He put me in a position where if I said I was declaring the option to buy from him he could then manipulate the market against me and then further exacerbate the situation by abandoning his option and forcing the market lower thus causing a loss on the aluminum I had just exercised and was long. Needless to say, his insistence was manipulative and unethical in my opinion.

I told Manny, “no way, those options net out.” He said, “OK I will declare first and then you can declare.” Again, I said no way. I got Sid on the phone and he read Manny the riot act, later Manny Weiss told me he was playing with me. Manny Weiss was one of the most successful aluminum traders in the world at that time and he made Marc Rich and Company tens of millions of dollars in profit each year. He would have made more that day had I gone alone with his scheme to extract some money from Philipp Brothers.

Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities

Post Series: Origin Of A Commodities Trader

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