By Lawrence G. McMillan

The following is a remembrance of the early days of listed option trading, written by my good friend, who was an arb at Paine Webber.

In February of 1974, I finished my four-year hitch in the Air Force and was able to parlay my degree in math into a position in the Arbitrage Department at PaineWebber, which was looking to add options trading to their risk arb and convertible bond efforts.

I was hired on a test basis, and started out doing small ratio hedges and butterfly spreads. Early on, there might have been 10-20 contracts in a given position. This was at a time when the pricing of options was not perfect, before the Black Scholes Model was ubiquitous and before every Chicago market maker had pricing parameters on their little handheld Hewlett-Packard calculators.

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