Thread by @ThyConsigliori

21 September 2021 #MyStory #23

Having overcome the demons of rudeness by becoming a Courtesy Cop, what were the sales lessons I learned at ITG? Too many to list accurately, I'll identify the smallest number of key lessons.

2) Key Lessons Learned At ITG. Here are just six, but no promises I might not find more...

1) Entertain and Inform
2) Risk/Reward
3) Limit but SELL the Risk
4) Qualify
5) Always Show Up
6) Work Your Numbers

3) What is a commodity? Oil? Gold? Coffee? Corn? Pork bellies (which bacon comes from)? Oh by all means yes, and so many more. A commodity is so much more. It is a contract placed upon future production. That's a Future. It is so much more. What is an option? It is derivative.

4) What is a derivative? It is one financial product based upon another. A Future's Contract is a commitment from buyer to buy and from seller to sell, a certain grade of product at a defined moment, at a set level of quality. These contracts are massively leveraged.

5) They're so leveraged that they hold both unlimited up and down sides. They can make you fabulously rich. They can bankrupt you. Options plummet the downside risk. You can lose the money you put in, but no more. They do not, not on their own, limit your upside.

6) Although I set unequaled records for a newbie, I was NEVER anywhere near the best options salesman. I did, however, master the art, and I'm here to tell you, it was a fun art to master. Selling options rocked. I'll tell you about the rewards another time.

7) The pitch can be reduced to unlimited upside, limited downside. That, plus leverage. When the market moves your way with an option, their truly are no limits on what you can win. Thing is, as previously explained, your option's broker's fee places a limit. I'll explain again.

8) Our firm charged 28.5% commission on every trade. What they never taught us was the simple math. That fee required a market - during the option period - to move 28.5% in the option's favor BEFORE the option even broke even. This virtually never happens.

9) What they also didn't teach us - and I don't believe our management even knew - was that the firm was taking the opposite side of our option's trades. When you buy an option, someone else has to sell it. Our firm sold options, with no commission cost. It had a 28.5% advantage.

10) Forgive me for the technical information. There are, in options, two kinds of "selling." I was a salesman. I sold options to buying clients. The other kind of "selling," is market selling on the trade exchange floor. There are no buys without sells on any exchange.

11) All of us salesmen - brokers - and our management obviously knew we were selling options to clients. What we did not know - at least I didn't - was that our traders on the exchange floors were the sellers of the options our clients purchased. 28.5% advantaged sellers.

12) Math. Alas. While I'm here I might as well go there. We actually marked up the cost of the option by 1.4. That's actually a 40% override. Thing is, if you divide .4 by 1.4 you get 28.57%. We were, by law, required to inform our clients of our 28.5% commission.

13) I confess, I'm still a bit confused these decades later. Was it a 28.5% move required for our clients to win? Or was it actually a 40% move required? I'm guessing the latter, right now, but my math is still not quite strong enough to be sure. Alas.

14) Before I discovered that our clients never won, I master the art of selling risk, limited risk, unlimited upside, unlimited reward. Be clear. Everyone knows about the risk/reward relationship. People rightly love risk, as they rightly love reward.

15) Whatever you sell has risk. You might, as we did, price it so high that the client can never win. That's a risk. Or, the values you believe in may require client action that you fail to teach and coach them over. That is also a risk. All purchases have risks.

16) Wrongly, most salesmen are trained and lean into MINIMIZING risk. This is never a good idea. In the end, sales is a ratios art. It is the ratio of risk-to-reward that must be sold. You sell the risk as much as you sell the reward. There's a type of honesty here.

17) Our firm was GENIUS at disguising the true risk/reward ratio from its management and broker team. The truth is that the risk approached 100% and the reward approached 0%. But we didn't know that. Our job was to talk about market risk, not purchasing risk. Another alas.

18) Here's the key to selling risk. You must state:

"Our service is not for everyone. Many cannot afford the risk our service entails. If, on the other hand, you're one of those who can afford the risk, then we will serve you as no other firm will."

19) Let's go again. There are NO risk-free products or services; no risk-free purchases...period. Every purchase entails risk. That being true, then every salesman must master the art of the risk/reward ratio.

20) Consider options again. In times of war, the price of gold rises. In times of peace, it falls. Generally speaking, you understand. If you're going to sell a gold option, you need to find stories forecasting war. Damn. Options come in two forms: Puts and Calls.

21) When predicting a rising price, in gold's case a coming war, then you purchase an option called a Call. If predicting peace, or falling gold prices, you purchase an option called a Put.

22) The same is 100% true about every single purchase. Consider eggs. If I buy them here, say at Food Lion, at this price for this quality, will I be buying the best value or spending more for less? If I buy my eggs at Giant, might I get a better value? It always entails risk.

23) Buying eggs at Food Lion is a Call for Food Lion, a Put for Giant. Buying eggs at Giant is a Call for Giant, a Put for Food Lion. To so much as purchase a dozen eggs entails what we might call Price Risk. If eggs hold risk, what doesn't?

24) Let's turn to Entertain and Inform. Let's turn to oil contracts. Oil is just like gold. War sends its price up, peace sends its price down. Now, take a headline about the Middle East. Does it call for war or peace? Should we buy Calls or Puts on oil?

25) At ITG, we had a Reuters TV. We could go watch every new story come out on Reuters as it hit the news wires. This was LONG before the Internet, and the TV news had shows at 6:00 and 11:00. Okay, a few had news shows at 10:00. Newspapers came out in morning & evening editions.

26) As brokers, we had live streaming before the term existed. Every morning, after our sales meeting, I learned to go watch the Reuters TV and decide which trade I'd pitch for the day, with the news story to back the recommendation. Let me tell you, my people loved my stories!

27) I had my people reading the local paper, the WSJ, and the NYT with an eye to whatever contract they'd purchased. I explained the relationship between their options purchase and the daily news. Admit it. You'd love that, even now in the 24/7 Internet age. Not to mention TV.

28) Imagine, you could add leverage to your portfolio, while maintaining risk limited to what you invested. Imagine, you have a broker reading you news about your investment BEFORE it hits the news. Imagine the tender care and constant contact. Bathed in service.

29) Now imagine your option goes against you. (I too-late learned it always would.) And imagine your broker always takes your call, always calls you during the process before the option's expiration date. Imagine a friend who cares. That was what I was to my clients.

30) A salesman is more than just a representative of his firm. For his clients he IS the firm. As the value of the purchase rises and falls - as all values do - the salesman's job is to be there. Those factors tie to lesson numbers 1, 2, 3, & 5. We'll pick up with 4 & 6 tomorrow.

Today's thread - 21 September 2021 - ends at #30.

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