Watch out, stock market,, here come the SOES BANDITS

And they're ready to make money the old-fashioned way: By outsmarting the big guys.

Clark has turned out to be particularly good SOES bandit. She has a special talent for short selling, in which she promises to sell a stock at one price, anticipating that she can buy the stock moments later at a falling price. Last fall, the market kept dropping, and by the end of the year, she had made so many trades that she had to hire an accountant to keep track of her money. (Intrigued, the accountant would close his business and become a SOES trader, too.) In December alone, when the market dropped precipitously, she made $75,000 for her account.

Clark sometimes says she is afraid, but she doesn't act like it. SOES trading goes best if you keep cool, and Clark is cool. At her right on Tuesday, May 8, sat Rhett Baker, a friend of Jeff Burke's since they both attended Memorial High School. Baker stays calm by dipping mentholated Skoal, spitting into a James and the Giant Peach soft-drink cup. A couple of chairs to Clark's left sat Phil Naftolin, a short, jolly guy wearing wire-rimmed glasses on a round face sharpened by a goatee. He is a UT law graduate who decided lawyering wasn't for him. He went to high school with Jeff Burke, too. Naftolin takes cigarette breaks in the garage when the pressure is high.

At lunch the day before, Baker, who claims to have enjoyed working in the retail end of Smith Barney, had said, "The thing that drove me away was how I was beating customers. I had to bring in the money; I would make the cold calls. Then I would go to the trading desk and buy a stock, and Smith Barney would make money on the spread. I felt the desk should make money on its volume, not on my client."

Clark trades according to her feel of the market. She gets insight from half a dozen sources on the screens before her, including order flow, knowing the strengths of different market makers, watching the indexes. All this is melded into an intuition heightened by trading the same group of stocks day after day. The first 30 minutes of the trading day are intense, as market makers sort out their positions from the day before, adjust their prices and see what sort of response they get. As the colored columns of figures that show the bid and ask prices rise and fall, the SOES traders prepare their trades by telling their inputters to "load" a certain stock at a certain rate. It might take a retail broker 20 minutes to make a trade by phoning in an order; the broker across the table from a SOES trader makes an order in two seconds.

And often within a few seconds a trader will know if he's made a profit. The worst mistake in SOES trading is to hold onto a position. Better to lose an eighth of a point and get out than let it go to a quarter or a half.

Decent traders react to a rise or fall in prices. The best anticipate the market and act accordingly. On May 8, the Dow swung 78 points and Clark was selling short all the way. She never made it to her workout with her personal trainer, and by the end of the day she was working into a feverish rally. She looked at the spread on U.S. Robotics and said she wouldn't go near it.

"I'm too scared," she noted. "See? Goldman Sachs is offering. They're a power. It's up eight and a half. It has had a huge range. Watch those thousand-share bids. When it hits the bid, it's going to go down. Look. Goldman has switched from the bid side to the sell side."

Suddenly she turned to her inputter and, almost as though the words surprised her, she was saying, "Load to sell Robotics at 141." Then she was looking at another column of figures, and suddenly she sang out, "Sell Robotics."

"We're not day traders," she said, "we're more like minute traders."
By the time the closing bell rang at 3 p.m., she had made 64 trades and was up nine and seventh eighths for the day. She had netted $6,425.

Rhett Baker was also up a few thousand dollars, but Phil Naftolin had left by midmorning. He had been trading long, and "long was wrong" he would say later. By 8:30 a.m. he had been muttering, as though to turn back the tide, "Steph, I'm getting slaughtered."

The market had been moving hard and fast, opportunity sweeping by on the screen, but Naftolin had made all the wrong moves. He was as far down as Clark was up. It happens. Not even bandits are guaranteed a profit.

Well, not all bandits are guaranteed a profit. But if you happen to own the hideout, you can do pretty well. The same day that Stephanie Clark made her $6,425, she paid Block Trading $3,456 in commissions. Compared to large brokerage house commissions, Block's commissions are minimal: $54 for each trade. Since a full-time trader makes anywhere from 20 to 70 trades daily, and a franchise might manage the trades of a couple of dozen traders, it's easy to see where the money is to be made. Burke and Block have nine offices, including four in Houston, one in Tyler and another in San Antonio. They have others coming up in Dallas, Sugar Land, Wichita, Kansas and even New York. This year, the commissions to Block Trading from their various offices should run around $18 million. Even after you take out for overhead, that's not bad.

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