[DJ FC]

On Friday, everybody at work exploded into a frenzy of trading. Not the things they were supposed to be trading. Nope, a market, and a rather efficient one at that, came out of nowhere on how many yogurts a friend of ours can consume in a 12 hour period.

I was working on the floor of the Chicago Board of Trade at the time, when I heard over our headset "Hey, some Eurodollar clerk up here is trying to see how many yogurts he can eat in 12 hours, the market is going out 60-70" This was one of our upstairs traders communicating to our pit traders. The pit traders took interest, and I began brokering trades through AIM and over the phone. First an explanation of what is going on:

This guy, Dave, is going to eat as many yogurts as he can in 12 hours. Some people are trading Over/Under contracts, but the vast, vast majority of the trades are futures style. A futures style trade doesn't have a set payout for win or loss, it only merely depends on how many Dave eats. For example: If I buy the 50 yogurt futures contract, I win $1 for every yogurt above 50 that he eats, and lose $1 for every one he doesn't eat. When people say the market is "X Y" it means there are buyers who are willing to pay X in the futures market and sellers who are willing to sell at a price of Y. So the initial market (60-70) means with no negotiations you could bet that Dave would eat more than 70 yogurts or less than 60. Or you could tighten the market, make it 62-68 and see if anybody is willing to sell you 62s or buy your 68s.

Now, people started trading this thing like crazy, and the market tightened up quite a bit. Within an hour it was trading 60-62, and people began trading options on this. Hundred lots of futures were traded. This means that for every yogurt eaten or not eaten $100 changes hands.

A call option gives someone the right to buy at a certain level. A put option gives someone the right to sell at a certain level. So if you pay 5 for the 60 call and he only gets to 60, you only lose your original 5. But if he gets to 61, you get to buy at 60 thus you lose 4. At 65 you break even. Puts are the opposite.

The combination of a call and a put is called a straddle. The 50 yogurt straddle market went out 14 17, meaning people were willing to pay $14 for a 50 yogurt call plus a 50 yogurt put (which implies break even points of 64 yogurts and higher or 36 yogurts and lower) and were willing to sell the straddle for 17. This is the simplest combination of options. People were trading complex option packages trying to "pick off" each other. Things like Call Trees, Butteryflies, Condors, and Iron Flys. This is not important to the story.

So everybody gets into this ferver of trading, and lots and lots of bets are made. By my estimation there must have been $50,000 of bets made, just disgusting. Then the guys in New York and London hear about this, and they want a piece of the action. So New York and London start pushing the market down, and it settled Friday at 50-51, an incredibly tight market for something nobody knows anything about. Lots of things are trading and everybody is talking about it. Everybody stands to make or lose a great deal of money.

This is all going down next Saturday. The contestant is allowed to consume anything over the counter (no prescription medication), is allowed to eat non-fat 6 oz yogurts which are roughly 80 calories each. He is betting a lot of money that he can eat a lot. Above 60 yogurts he earns $100 each.

I'm long, which means I'm betting he will eat a lot. I bought 61 yogurts, bought the 55 yogurt call, and sold the 50 yogurt puts, these are my major trades. I've also sold some straddles and have some minor trades on as well. My break even is 47 yogurts. But I'm confident he can eat a lot more than that.

What do people feel about this? Have I been clear enough? I think its awesome and it's a fuckload of fun.