What’s something most people don’t understand?
The stock exchange scene at the end of ‘Trading Places’ confused me for many years. I learned, many years later, just what was going on and how stock trades aren’t linear in the same way shopping is.
The set up
Trading Places is a 1983 comedy film starring Dan Ackroyd, Eddie Murphy and Jamie Lee Curtis. These younger actors get first class support from Denholm Elliot, Don Ameche and Ralph Bellamy.
Ackroyd plays Louis Winthorpe III, managing director of Duke & Duke Commodity Brokers. The Duke brothers (Ameche and Bellamy) are capricious millionaires who only care about money.
Mother said you were greedy
She meant it as a compliment
Street hustler Billy-Ray Valentine (Murphy) enters the scene and is arrested after a misunderstanding between him and Winthorpe. The Duke brothers decide to run an experiment, to investigate nature versus nurture. They bet on this for “the usual amount”.
They ruin Winthorpe by planting drugs on him. After his arrest he loses his job, his house, his fiancée and has his assets frozen and credit cards cut up. Ophelia (Curtis), a prostitute released from the police station at the same time, lets him stay with her while he gets his life in order.
The Dukes give Valentine a job (Winthorpe’s job) and a house (Winthorpe’s house) with a butler, Coleman (Winthorpe’s butler, played by Denholm Elliot).
At a Christmas party at Duke & Duke, Winthorpe – dressed as Santa Claus – tries to frame Valentine for drug use. This fails. Security eject Winthorpe, but not before he manages to steal a side of salmon to hide in the beard.
In the toilets, Valentine overhears the Dukes discuss their bet. They declare the nature v nurture debate settled and the bet is paid. All $1 of it.
Winthorpe has hit rock-bottom. His suicide bid fails when the gun he traded his watch1 for fails to fire. He takes an overdose of the drugs he used to frame Valentine and passes out in Ophelia’s bath. When he recovers, he finds himself back in his own home, reunited with his butler and less than pleased to see Valentine. Valentine explains how the Dukes did this to them for a $1 bet. The pair seek revenge.
Revenge is ours!
Since the only thing the Dukes care about is money, they decide to ruin them. They give the Dukes false information that the orange harvest will be poor, which leads them to decide to corner the market in frozen concentrated orange juice (FCOJ).
The final scene is where the confusion lies. Trading floors in the early 80’s were high-tension environments. We see traders asking about each other’s stomach ulcers and hypertension before going into the bear pit that is the high-stakes world of trading frozen concentrated orange juice.
The Dukes, confident that the price of FCOJ will rocket because of the bad harvest, start buying FCOJ futures. This creates a speculative bubble and drives up prices. Winthorpe then announces that he will sell 30 April futures, each of 15,000 lbs, at $1.42 a pound. They are mobbed, selling to everyone. The price drops and the Dukes watch in horror as they face ruin.
After an hour of frantic activity the true crop report is broadcast. This forecasts a normal harvest. The price of FCOJ plummets and panic ensues. When the price hits 46c, Winthorpe starts buying from everyone except the Duke’s broker. The final price is 29c a pound.
At the margin call, when all trades have to be settled, Winthorpe and Valentine see the Dukes. They also had a bet; Valentine bet Winthorpe that they could ruin the Dukes. Winthorpe pays up.
Exchange officials confront The Duke brothers. They must pay $394 million (over $1 billion today) to cover their trading losses. This exceeds their assets, and the brothers are bankrupt. Even at the end while one of the Duke brothers collapses with a heart attack, money is first and foremost.
Official: Mortimer, your brother is not well. We better call an ambulance.
Mortimer: Fuck him2! Now listen to me! I want trading reopened now!
The film ends with Winthorpe, Valentine, Ophelia and Coleman on a beach, trying to decide whether to have lobster or cracked crab for lunch.
What I don’t understand…
How trading works is at the centre of this scene. In the world of brokerage buying and selling aren’t necessarily linear. You can sell things you haven’t yet bought. If you think the price will fall, you sell as many of a thing as possible with a promise to supply at an agreed time. Then you have to buy the thing and if the price has dropped, you get profit.
The Dukes think that a poor harvest will mean frozen juice will be in demand. So they think that the price of FCOJ will be high in April. They tell their dealer to keep buying, no matter what.
Winthorpe sells 30 contracts, each containing 15,000 lbs of juice for $1.49 a pound – that’s $639,000. This is a promise to sell that juice in April at that price. How much he eventually pays for the juice is not the buyer’s problem. A poor harvest would indicate that this could be a good price. No wonder they get mobbed.
The real crop forecast is released after an hour’s trading. Winter storms have not affected the harvest, so the value of the frozen juice plummets. Panic ensues, the FCOJ price tanks until it reaches 29c a pound. Winthorpe and Valentine start buying the juice that they will sell in April at a much reduced price. Nobody will want frozen juice in April when there is plenty of fresh juice.
Had Winthorpe and Valentine only done that first trade they would have made $508,500 by buying at 29c and selling at $1.42. but they did many more trades than that – it’s never clear how many, but it’s a lot.
On the other hand, the Dukes are in the hole for $394 million. They bought a huge amount of stock at the high price and couldn’t sell it before the end of trading. They need to pay for the juice they bought at $1.42 a pound.
If only the Dukes weren’t so greedy. But then, if they weren’t there wouldn’t have been a moral for this story.
- A Rochefoucauld, the thinnest waterproof watch in the world. Retails for $6955. Bo Diddley gave him $50 for it. ↩︎
- Don Ameche apologised to the crew for swearing. ↩︎
