Final Option

the Board of Trade and the Merc are filled with gamblers. Well before harvest time a farmer can contract to sell his crop on one of the futures exchanges at a specified date and price in the future. With the sale price locked in, the bank is happy to lend the money with the futures contract as collateral. In the jargon of the pits, the farmer is a hedger.
    Any producer troubled by the possibility of swings in prices can hedge. Exxon, queasy at the threat of a drop in oil prices, hedges oil. Nabisco, worried that a rise in sugar prices will cut into its profits on cookies and Kool-Aid, buys futures contracts to lock in a price for sugar to be bought in the future.
    Hedgers are, of course, by necessity, only half of the futures equation. People like Bart Hexter and his clients don’t grow soybeans, refine oil, or bake cookies. They couldn’t care less about actually owning boxcars of pork bellies or bushels of soybeans. They are gamblers, speculators, if you will. What they want to do is make money. They do that by gambling on the direction that commodity prices will move. They take on the risks the hedgers want to get rid of.
    Let’s say that last February, Bart Hexter had entered into a contract to purchase $10,000 worth of soybeans to be harvested in October. Assume further that in July, a drought had wiped out half of that season’s crop, driving prices up so that same quantity of soybeans would sell for $30,000. Hexter would then have been able to sell his contracts, finding himself $20,000 richer without seeing a single soybean. By gambling successfully on the movement of prices he would have earned a hefty reward.
    For a big-stakes gambler there is no better game than futures. The pace is breakneck, and the stakes are huge. What makes the game even headier is the fact that players need only a small amount of cash relative to the actual value of the contract he or she wishes to buy. To purchase a futures contract a speculator need only make a “margin” deposit of five percent of the value of a contract. The principal is called leverage, and it is the powerful tool that allows a man like Bart Hexter to buy ten thousand dollars’ worth of soybeans with only five hundred dollars’ cash. The trouble, of course, is that when commodity prices rise dramatically, so do the number of dollars that constitute five percent of the contract price. In the futures game, there is, theoretically, no limit to what you can lose.
    I once paid a call on Bart Hexter on a day when he’d made more than $600,000 by riding the surging prices in the soybean market like a surfer riding out a riptide. I’d found him in an expansive mood, enjoying a cigar, and looking particularly sleek and well pleased with himself. He’d talked about the zen of trading, of the cunning and intuition and mastery of fear that he felt was required for long-term success in his trade. He said a lot of things that afternoon, but he concluded with something I couldn’t help but remember now.
    “In this business,” he had said with a laugh, “you eat the bear until the bear eats you.”
    At the time I took his statement as the natural chest-beating of a man who’d had a very good run in the markets, a man who’d looked ruin in the eye and come up a winner. But that morning, just hours after half of his head had been blown off by a bullet, I found myself wondering who it was who’d invited the bear to breakfast.
     
    * * *
     
    Bart Hexter’s study was the Architectural Digest version of the executive inner sanctum. The walls were covered with bookshelves filled with handsome, calf-bound volumes that Hexter had surely never read. His desk was vast and laden with a full array of presidential cutlery. There were framed photos and a crystal box brimming with smuggled Cuban cigars. The leather swivel chair stood behind it, high-backed like a throne. A library ladder leaned casually against one wall. Beyond a set of intricately paned French doors lay a long, formal garden. The flower beds had been recently turned and lay moist and brown amid the bright grass like newly dug graves.
    I took a seat at Hexter’s desk and began, with more than a little self-consciousness, to go through the dead man’s things. First the piles of papers stacked carelessly on the surface. I found memos and letters, mostly concerning matters of administration at one or the other of the two futures exchanges. Both the CBOT and the Merc are largely self-governing entities, and