This is a re-typed version of the excerpt
from the actual newspaper article of Oct 14, 1988,
for simplicity of reading

Black Monday Wasn't Black For Everyone:
Options Traders Win

San Diego Daily Transcript City Editor
Friday, October 14, 1988


The stock market crash didn't hurt everybody.

In fact, some people bet on the bear and came out of Oct. 19, 1987, far richer for it.

Two of those bettors were James A. Shepherd, 33, and David V. Blanton, 39, who with some partners made a mint on that Black Monday.

After the crash, Shepherd and Blanton formed J&D Commodities and have become commodities traders in La Jolla who buy options on futures contracts. Last year they had specifically traded on the S&P 500 Index.

Before Black Monday, Shepherd and Blanton had bought put options that expired the third week in December on the S&P 500 Index that gave them the right to sell those contracts at 270 points. Then the market collapsed Oct 19 and the S&P 500 Index dropped to about 180 points. They sold their contracts when that index averaged 210 points. While they had bought their positions at an average cost of about $200, they sold them off at about a $30,000 net per postion.

While they wouldn't say how many contracts they had, they did say they had anticipated a 50-to-1 return and got even better - some 70 times their original investment. They both made millions.

Such commodity trading, especially on the S&P 500 Index, is often called hedging, often used by institutional traders. Some blamed the crash on the computerized program trading that used hedging; it came under the scrutiny of the Brady Commission following the crash, but so far no regulatory changes have altered the rules.

Such trading is also acknowledged to be highly risky; many investors can lose their entire stakes.

And while many program traders used computerized buying and selling of stock index futures to hedge against market losses, many still lost money during the Crash of '87. So commodity traders, like Shepherd and Blanton, will say it wasn't program trading that caused the crash.

"It's easy to make claims that the October situation was caused by computer program trading and portfolio insurance firms taking positions, "Blanton said last January. "But they didn't cause the crash; they added to the speed but the fundamental problems of the economy (were greater causes)." And Shepherd added, "Had there not been portfolios to hedge, (October) could have been worse."

They pointed out that they had paid attention to those fundamental economic benchmarks which told them when to enter and exit the market.

Shepherd created a computer model that has tracked influences on the market since the late 1800s. He said it has never been wrong since 1880. "It has never failed to track the top or bottom of the market within a 4 percent accuracy," he told the Transcript last January.

And just as that model is proprietary, so is his position in the market now.

"As far as the direction of the market, we don't want to predict," Shepherd said yesterday. "We don't make predictions because we want to maintain our integrity with out clients so that we don't give that information out freely anywhere else."

But he would say that he and Blanton have become licensed as commodity pool operators and commodity trading advisors, and that their firm, J&D Commodities, is currently engaged in investing funds for both a "substantial pool and a large number of individual clients."

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