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Atmel AVR Microcontroller Primer Programming and
Interfacing 1st Edition Steven F. Barrett Digital Instant
Download
Author(s): Steven F. Barrett, Daniel Pack, Mitchell Thornton
ISBN(s): 9781598295412, 1598295411
Edition: 1
File Details: PDF, 10.20 MB
Year: 2007
Language: english
A Trader’s First
Book on
Commodities
This page intentionally left blank
A Trader’s
First Book on
Commodities
An Introduction to the World’s Fastest
Growing Market

Carley Garner
Vice President, Publisher: Tim Moore
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© 2010 by Pearson Education, Inc.

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This book is sold with the understanding that neither the author nor the publisher is engaged in
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Library of Congress Cataloging-in-Publication Data

Garner, Carley, 1977-

A trader’s first book on commodities : an introduction to the world’s fastest growing market / Carley Garner.
p. cm.
Includes index.
ISBN 978-0-13-701545-0 (hardback : alk. paper) 1. Commodity futures. 2. Commodity options. 3. Commodity
exchanges. 4. Investment analysis. I. Title.
HG6046.G373 2010
332.63’28—dc22
2009035270
This book is dedicated to DeCarley Trading
and its loyal clients and supporters.
Contents

Introduction: The Rise and Fall of Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A Commodity Rally for the History Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A Day of Reckoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Speculators’ Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Fortunes Made and Lost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Chapter 1: A Crash Course in Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

How It All Began . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The CME Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Evolution of the Forward Contract into a Futures Contract . . . . . . . . . . . . . . . 18
Cash Market Versus Futures Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Contract Expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Mechanics of Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Futures Spreads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
A Brief Introduction to Commodity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Chapter 2: Hedging Versus Speculating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Commodity Hedgers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Commodity Speculators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Chapter 3: The Organized Chaos of Open Outcry and the Advent of Electronic Trading . . . . 45
The Pit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Electronically Traded Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
“Side by Side” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Contents vii

Chapter 4: Account Access, Trading Platforms, and Quote Vendors . . . . . . . . . . . . . . . . . . 53

Costly Commodity Quotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Open Outcry Quote Reporting and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Electronic Quote Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Subscribing to Quotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Charting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Free Trading Platforms and Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Paid Trading Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Auto Approval Versus Manual Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Order Desk (“The Desk”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Is It Worth Paying Platform Fees or Subscribing to Quotes? . . . . . . . . . . . . . . 63

Chapter 5: Choosing a Brokerage Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Introducing Brokers, Futures Commission Merchants,
and Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Fill Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Behind the Scenes of Transaction Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Discount Brokerage or Full-Service Specialization . . . . . . . . . . . . . . . . . . . . . 71
What You Should Know About Commission Structure:
Blanket or Variable Rates? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Beyond Your Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Chapter 6: Finding a Broker That “Fits” and Choosing a Service Level . . . . . . . . . . . . . . . . 81

Understand Your Broker’s Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Get to Know Your Futures Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Full Service Broker or Self Directed Online? . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Why Using a Broker May Be a Good Idea . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
viii A Trader’s First Book on Commodities

Chapter 7: Order Types and How to Use Them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Order Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Placing a Trade with Your Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Placing a Trade Online . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Chapter 8: Making Cents of Commodity Quotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Quoting Grain Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Not All Grains Are Created Equal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
The Meats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Foods and Fiber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Precious Metals Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Gold, Platinum, and Palladium Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
The Other Metal Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

Chapter 9: Figuring in Financial Futures—Stock Indices, Interest Rates,

and Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
The Boring but Necessary Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Stock Index Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Dow Jones Industrial Average Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
NASDAQ 100 Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
S&P 500 Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Russell 2000 Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Interest Rate Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Treasury Bond and Note Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Eurodollar Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Currency Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Chapter 10: Coping with Margin Calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

What Is Margin? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Day Trading Margin Versus Overnight Margin . . . . . . . . . . . . . . . . . . . . . . . . 172
 Contents ix

What Are Margin Calls? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

How to Handle a Margin Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
The Margin Call Countdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Accepting Margin Calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Chapter 11: The Only Magic in Trading—Emotional Stability . . . . . . . . . . . . . . . . . . . . . . . 179

Three Emotions in Trading: Fear, Greed, Frustration . . . . . . . . . . . . . . . . . . . 181
Revengeful Trading Is Counterproductive . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Capital Preservation aka Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . 188

Chapter 12: Trading Is a Business—Have a Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

The Trading Game Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
A Trading System Alone Isn’t a “Business Plan” . . . . . . . . . . . . . . . . . . . . . . 191
Constructing a Business Plan in Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Price Speculation (Ideally Prediction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
Choosing a Trading Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Chapter 13: Why You Should Speculate in Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Speculating in Futures Versus Speculating in Equities . . . . . . . . . . . . . . . . . 208
Risk Capital Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

Chapter 14: Futures Slang and Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

Bull Versus Bear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Contract Month Slang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Red Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Fill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Blow Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
Blow Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
x A Trader’s First Book on Commodities

Keypunch Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

Busted Trade or Moved Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Net Liq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
Beans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Commodity Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Dead Cat Bounce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Bottom Fishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Chasing the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Limit Moves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
The Tape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Trading Solution and Front-End Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Proprietary Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Running Stops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Short Squeeze . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Babysitting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Scalp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Slippage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Working Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
Unable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
Handle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
Overbought/Oversold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Debit/Account Debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Round Turns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Trading Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Acknowledgments
I would like to thank Pearson and the FT Press publishing production team for
bringing this book together.
I am grateful for my friends and family, who have always been by my side and
for encouraging me to keep pushing.
Most of all, I appreciate free market capitalism; without it none of this would
be possible.

About the Author

Carley Garner is Senior Market Analyst and Broker with DeCarley Trading and
a columnist for Stocks & Commodities. The author of Commodity Options,
Garner writes two widely distributed e-newsletters, The Stock Index Report and
The Bond Bulletin.
Her work has been featured in Stocks & Commodities, Futures, Active
Trader, Option Trader, Your Trading Edge, and PitNews Magazine. She has been
quoted in media ranging from Reuters to Investor’s Business Daily and The Wall
Street Journal.
Garner provides free trading education to investors at www.decarleyrading.
com.
This page intentionally left blank
 1

chapter #
introduction

(a)Introduction:

The Rise and Fall of

Commodities

It was nothing less than breathtaking to witness the grain

complex shatter all-time high price records and continue to “There is no tool to change
human nature…people are
climb during the 2007/2008 rally. However, by late 2008 the prone to recurring bouts of
party had ended. Many retail traders and fund managers optimism and pessimism
watched in horror as the grains made their way relentlessly that manifest themselves
lower. The selling pressure and losses in the commodity from time to time in the
buildup or cessation of
markets was so profound that hedge fund managers experi-
speculative excesses.” Alan
enced unprecedented numbers of redemption requests, which Greenspan
added fuel to the already raging fire.
Ironically, the same asset class that investors swarmed to for
“diversification” from stocks later played a role in the demise of equities. As
investors pulled money from hedge funds, margin issues and client redemptions
forced funds to liquidate positions in both commodity-related and noncom-
modity-related speculative bets.

A Commodity Rally for the History Books

Several theories attempt to explain the now infamous commodity rally,
including ethanol demand, long only hedge funds, ETFs, shear market
exuberance in the absence of an attractive equity market, and sidelined cash
looking for a home. One thing is certain…the euphoria caused the agricultural,
energy, and metals markets to overshoot their equilibrium prices.
2 A Trader’s First Book on Commodities

In the midst of the excitement, the lure of the commodity rally clouded the
judgment of many. Looking back, it seemed obvious that expecting market
fundamentals to maintain $7 corn, $13 wheat, $17 soybeans, and my favorite,
$148 crude oil, was simply unrealistic. However, nobody knew just how high
prices might go before coming to a more rational level, and those that entered
the market “early” with bearish strategies likely paid a high price. Yet, when the
tides turned they did so in a vicious fashion; the stunning fall from grace was
even steeper than the preceding rally.

The Perfect Storm of Fundamentals

The perfect storm is a term used to refer to a series of simultaneous events that,
if occurring individually, would have little impact on their surrounding circum-
stances. However, by chance combination of such events, the net result can be
dramatic. I believe this to be the best explanation for the magnitude of price
volatility in the commodity markets during the 2007/2008 rally. Under the
influence of increasing demand, tight supplies, roaring energy costs, and a weak
dollar among others, logic had little control over the outcome.

The Demand Side of the Equation

The commodity rally that began in 2007 and evaporated in 2008 was originally
sparked by considerable increases in global demand for agricultural and energy
products. Much of the fundamental price support was the direct result of a
swiftly growing Chinese economy, combined with technological advances and
rapidly growing infrastructure in developing countries. Furthermore, improved
diet and nutrition in the emerging markets, along with U.S. mandates for bio-
fuels such as ethanol, were catalysts for soaring prices in markets such as corn
and soybeans.

The Supply Side of the Equation

Along with increased demand for commodities due to global economic growth
and modernization, many commodities suffered from tight supplies and this
aggravated the upward price pressure. For example, the wheat harvest suffered
from freeze, drought, and flood throughout various growing regions. The odds
of such widespread damage to crops were rather minute, but as we have said,
this was the perfect storm of fundamentals.
Additionally, floods and droughts plagued other agricultural commodities
such as corn and soybeans; whereas petroleum products began to feel the supply
pinch on OPEC manipulation and dwindling sources of fuels. Consequently,
The Rise and Fall of Commodities 3

tight supplies along with unprecedented demand gave investors the green light
to pour money into the sector, and they did so in droves. Nonetheless, what I
believe to be the silent culprit behind a rallying grain market was the implica-
tions of higher energy costs.

The Crude Reality

According to many analysts, the world is said to be beyond peak oil, which is the
point in time when the maximum rate of global petroleum extraction is reached.
Beyond peak oil, the rate of production is said to be terminally in decline
because the supply of fossil fuels is limited and is no longer being naturally
formed.
As you can imagine, in an environment such as 2007 and early 2008 in which
undeveloped nations quickly crossed over into industrialization, declining
supply can be a significant issue. Specifically, as the population in China and
India have begun looking toward motorized transportation, a dwindling supply
of crude oil grows increasingly critical. For instance, the global consumption rate
for crude oil was roughly 80 million barrels per day in early 2009. Many reports
suggest that production near 75 million barrels per day could easily drop to 60
million per day should OPEC (Organization of Petroleum Exporting Countries)
dramatically cut output.
OPEC is an oil cartel consisting of twelve countries that are large exporters
of crude oil and believed to maintain a significant amount of price control. This
reputation is deserving; OPEC countries account for about two-thirds of the
world’s oil reserves, and a disruption of their production, or an intentional
decline in the amount produced, can have a considerable impact on crude oil
prices.
Another undeniably bullish factor in crude oil pricing is the political unrest
in many of the world’s largest oil producers such as Iran, Iraq, Venezuela, and
Russia. The high demand for energy experienced in 2007 and 2008 created a
situation in which any disruption of production could have a noteworthy impact
on already tight supplies, and in such a volatile political atmosphere, disruptions
seemed likely. Accordingly, speculators bid the price of crude oil higher to
compensate for the risk of such an event actually occurring. For traders that
were involved in commodity speculation in the 1970s, it seemed like the
beginning of what might have been a repeat of the now infamous oil embargo in
which OPEC refused to ship oil to western countries that supported Israel in the
Yom Kippur War.
4 A Trader’s First Book on Commodities

It is easy to see how all these factors combined could have triggered a large
rally in the energy markets. However, what might not be as obvious is the impact
that higher crude oil and gasoline prices had on other commodity markets.
Many grains that were considered viable candidates for alternative fuel
gained strength as scientists and consumers scrambled to find “cheaper” and
domestically produced sources of energy. Some of the largest gains were
witnessed in the corn market, which happened to be the lucky beneficiary of the
ethanol hype.
Ethanol is a fuel created as an alternative to gasoline and is derived from
purely renewable resources such as sugar, corn, and even potatoes. Although it
was later determined that the use of corn in producing ethanol isn’t necessarily
efficient, as it turns out, sugar is a much better alternative to producing ethanol.
Similarly, the sudden interest in biodiesel fuels created from plants with high
amounts of vegetable oils, namely soybeans, paved the way for new all-time
highs in soybeans and bean oil.
In addition, not only did ethanol and other bio fuel hopes increase the
demand for grain products, but higher crude and gasoline prices also amplified
the costs associated with growing agricultural products. For instance, if farmers
must pay more in fuel costs to operate their tractors and other necessary farm
equipment, they will then be forced to charge more for the goods that they
produce.
Furthermore, many farmers dedicated relatively more acreage to crops that
could see higher demand and prices due to their alternative food uses. Mean-
while, the price of commodities unrelated to energy or bio fuel, such as cotton,
benefited from tighter supplies resulting from less dedicated acreage.

Plummeting U.S. Greenback

There’s more. Along with supply and demand fundamentals, the U.S. dollar
witnessed a significant devaluation. The Dollar Index, now traded on ICE (Inter-
continentalExchange) but previously traded on the NYBOT (New York Board of
Trade), fell from a value above 90 in late 2005 to the low 70s by the end of the
first quarter in 2008 (see Figure I.1).
A declining greenback offers underlying support in grain prices because it
makes U.S. grain exports more competitive on the world market and, in turn,
increases demand for those products. Likewise, crude oil is quoted in U.S.
dollars and cents and reacts positively to a cheaper dollar.
With this simple rule in mind, it is important to realize that grain prices are
extremely complex, and price movements can’t be attributed to any single
The Rise and Fall of Commodities 5

factor. Grain prices are highly dependent on weather and growing conditions;
at times they will be minimally influenced by currency fluctuations. Equally,
crude oil is often driven by geopolitical tension. With the dollar considered a
“flight to quality” currency, it is likely that crude and the greenback can move
higher together if Middle East turmoil occurs. Nonetheless, in general,
commodity traders should keep the strength of the U.S. dollar in mind when
constructing their analyses because it is part of the equation. During the 2007
commodity rally, it appears as though dollar weakness played a significant role.

Figure I.1 A lower domestic currency makes goods and services produced in that
country more affordable for foreign buyers and, therefore, increases the demand and
price for such.

The Overflow
The commodity bull overflowed into the precious metals markets, namely gold
and silver. Although, cash market supply-demand fundamentals weren’t neces-
sarily as intriguing as the others, the market psychology was.
Conversely, industrial metals such as copper were seeing incredibly high
levels of demand as China and India raced to modernize. Thus, investors were
convinced that the fundamental picture was supportive of $4 copper. We now
know that this wasn’t necessarily sustainable.
6 A Trader’s First Book on Commodities

The New Investment Fad

In addition to the swirling newscasts and financial newspaper editorials
regarding the emerging opportunities in the commodity markets, an enormous
amount of unallocated funds were looking for investment opportunities. At the
time, the stock market had essentially made little to no progress over the span
of nearly a decade. Frustrated investors were easily intrigued by the commodity
story and began allotting large amounts of capital to commodity hedge funds,
commodity equity products such as electronic traded funds (ETFs), and
Commodity Trading Advisors (CTAs). The simplicity of participating in this
alternative asset class with the advent of ETFs greatly benefited the industry and
likely played a part in the relentless rally. In many cases, money flowed into
commodities from both retail and institutional investors with little experience in
the futures of markets and limited knowledge of the high levels of risk involved
in participating.
Not only do I believe that many speculative investors were relatively unedu-
cated about the futures markets, I argue that many of the money managers were
as well. There were a few things that many of them failed to recognize, such as
the fact that the commodity market isn’t as deep as equity markets, and prices
normally trade in envelopes as opposed to ongoing inclines as stocks tend to do.
In the aftermath, these simple concepts seem obvious, but at the time commodity
newcomers ignored the red flags, and the concerns of commodity veterans were
going unheard.
In some of the smaller commodity markets, such as rough rice futures, it is
possible for prices to make substantial moves on the buying or selling of a
moderate number of contracts. In other words, it isn’t difficult for deep-
pocketed speculators to temporarily alter the price of a commodity. With droves
of cash making its way to the long side of commodities, it is easy to see that it
didn’t take long for things to get out of hand.
It is important to realize that this is my personal perception, and it is in stark
contrast to the opinions of some other analysts. In fact, well-respected and
known analysts believe that the commodity boom was purely the result of tight
supply and high demand. Although I agree 100% that this was the initial cause
of the skyrocketing prices, I am not convinced that it was fundamentals alone
that blazed the trail for such unprecedented high pricing.
The Rise and Fall of Commodities 7

Unfortunately, markets and their participants are complex, and this often
makes it impossible to pinpoint the driving force behind any price move.

A Day of Reckoning
What goes up must eventually come down…and
commodity prices weren’t an exception. Although At first it is easy to confuse a
some are reluctant to refer to the 2007/2008 rally as a bull market with trading
bubble, I am not. In finance, a bubble is defined as a genius, but it can’t last.
scenario in which market prices rise and become
overvalued by any measure of valuation, and in my opinion this seems to fit the
bill.
A market bubble is a rally that is artificially and temporarily driven by a mob
mentality of market participants. In reality, it is difficult to quantify and analyze
the true driving force behind prices as they are moving, but what happens next
can provide insight. I believe that what ultimately categorizes a market move as
a bubble is the manner at which prices adjust to more realistic levels. The sharp
price decline that succeeded the 2007/2008 commodity rally suggests that the
market was grossly overvalued and this conforms to the characteristics of a
bubble.
During the commodity “bubble,” the benchmark index for commodity
prices, the Reuters-Jefferies CRB Index, nearly doubled in value. Commonly
referred to simply as the CRB, it is designed to provide a representation of a
diversified holding of long-only futures.
The CRB reached its peak of nearly 475 on July 3, 2008. From there the
commodity bull came crashing down in a magnificent fashion. In December
2008, the Reuters-Jefferies CRB Index had fallen more than 50% from its peak
and was valued near 200. This was the lowest level in 6 1⁄2 years and became the
perfect example of the tendency for market prices to go down faster than they
go up regardless of the slope of the incline, as shown in Figure I.2.
As prices deflated to what were debatably more rational levels, traders were
faced with difficult decisions in terms of speculation. Historical price envelopes
had been intensely magnified; thus, in a post-bubble world, speculation in the
commodity markets potentially became more lucrative, but the risks were
exaggerated as well.
8 A Trader’s First Book on Commodities

Figure I.2 The irrational exuberance in commodities can best be depicted by the
rally and subsequent plunge in the CRB Index.

The Speculators’ Role

There is much debate as to the speculator’s role in the commodity markets. You
likely witnessed Congressional testimony and other hearings regarding the
matter. For those of us with the luxury of being within the industry and under-
standing the nature of the marketplace, it was nothing short of scary to see our
elected leaders making such uninformed assumptions and eventually decisions
about what are intended to be free markets.
The commodity markets are built on speculation;
“If the models are telling you without it there would be no market. The futures
to sell, sell, sell, but only markets were formed to facilitate the transfer of risk
buyers are out there, don’t be from producers and users to unrelated third parties
a jerk. Buy!” —William Silber hoping to profit from price changes; I cover this in
(NYU) detail in Chapter 1, “A Crash Course in Commodi-
ties.” Nevertheless, many would argue that in 2007
and 2008 the speculators contributed to artificially inflated commodity prices to
unsustainable levels.
There seems to be some evidence suggesting that this is the case. After all,
commodities boomed as anxious investors poured money into the alternative
asset class in search of higher returns. How much capital made its way into
commodities is unknown, but some have estimated $30 billion in the first
quarter of 2008. (Don’t forget about the leverage.) Additionally, what was once
The Rise and Fall of Commodities 9

an investment arena utilized only by the über-rich and risk hungry investors,
began to see money inflows from average retail investors and even pension
funds. However, as investors began redeeming funds from their commodity
holdings, it was as if someone had pulled the floor from underneath the markets.
In my opinion, speculators didn’t cause the bubble, but unfamiliar and inexpe-
rienced speculators might share some of the blame for the size of it.
Without support from basic supply-and-demand fundamentals, a market
cannot sustain pricing in the end. Thus, if and when speculation does move
prices beyond what the equilibrium price might be, it eventually has to correct
itself. The problem is that there is no telling how far and how long prices can
remain distorted; unfortunately, many traders were introduced to this the hard
way. This is a phenomenon that is not exclusive to commodities; I am sure that
you remember the tech bubble in the 1990s in which similar market actions took
place.
Perhaps the single largest contributing factor to the speculator’s role in the
commodity bubble was the increasing popularity of the Electronic Traded Fund.
Before the existence of commodity related ETFs retail investors were largely
excluded from the asset class due to fears of the futures markets in terms of
leverage, margin calls, and perceived risk.
During the 2007/2008 commodity frenzy, investment firms issued several
new commodity-based ETFs. This should have been a warning sign as fund
companies are notorious for providing sector-specific products near the bursting
of a bubble. This makes sense; by the time that a firm identifies the trend,
assembles the fund, and gets approval from the Securities and Exchange
Commission (SEC), the sector might have exhausted its popularity.
Keep in mind that the magnificent rally and retreat was highly correlated
with available leverage. Many of the gains made on the way up were backed by
leverage as opposed to actual capital. As traders and fund managers de-levered,
the markets suffered dramatically.
The role of speculators in the commodity rally was exacerbated by the toll
that margin calls took on the markets. As the commodity boom began to fizzle,
exchanges and brokerage firms began issuing margin calls to those that entered
long positions at the tail end of the rally. As positions were liquidated to satisfy
margin calls, prices dropped sharply, and new margin calls were issued. It isn’t
difficult to identify the snowballing effect of such events and how they could
quickly alter the mentality of the market and, more important, prices.
It is critical that you realize that from a trading standpoint, it doesn’t neces-
sarily matter whether the market is driven by fundamentals, technicals, specu-
lators, or hedgers. What does matter is that prices move, and it is up to you to
10 A Trader’s First Book on Commodities

be on the right side of it or at least get out of its way. Markets are unforgiving,
regardless of how strongly that you feel that prices are overvalued due to
irrational speculation; they might remain so for much longer and much farther
than you can financially and psychologically afford to be involved.

Fortunes Made and Lost

By nature, when we think of a bull market, we assume that there are riches to be
made. However, in an arena such as commodities in which it is just as common
for traders to be short (sold futures in anticipation of lower prices) as it is to be
long, this isn’t necessarily the case. Additionally, the media’s arguments against
“greedy” speculators seem to imply that a majority of
For every winner, there is a traders make money, and it is somehow easy to do so.
loser. Nonetheless, the This couldn’t be further from the truth.
winners get all the attention. I learned this lesson the hard way in 2007. What I
thought was going to be one of the best times in
history to be bearish in the wheat market quickly turned into a nightmare as
prices made new all time highs and didn’t look back. Suddenly prices were
moving more (against our clients’ positions) in a single trading session than was
often the case in an entire year. I recall our inaccurate speculation being made
even more painful by the media euphoria in regards to the “riches” to be made
in commodities.
Because of its profound impact on the economy and our daily lives, crude oil
futures were in the center of the debate. Believe me, not all speculators in the
energy complex made money as crude oil tripled in price. Crude oil is one of the
most difficult markets to trade successfully, regardless of whether you are a
futures or options trader. The margin requirement is extremely high, and so is
the volatility and risk.
Unless you have deep pockets or a high tolerance for risk, energy futures are
a treacherous market in which to be a speculator. A crude oil price chart can be
deceiving in that it seems as though it would have been “easy” to make large
profits by simply being long. Nevertheless, for the average retail trader, the
intraday and daily price swings can be financially unmanageable and psycholog-
ically unbearable.
Try to imagine being long in crude oil futures as it bounced between $130
and $140 on its way up to nearly $150. A trader would have made or lost
$10,000 per contract several times over, and that is hard to watch. It is likely
that many retail traders gave up on the position before the market ever made it
to its all-time high price. In theory, a trader might have been able to buy the dips
The Rise and Fall of Commodities 11

to $130 and sell the rallies. Knowing what we know now, this would have been
lucrative enough to afford a savvy trader a new luxury-priced car, but for many
trading it in real time, it might have been pure agony. Better yet, imagine being
long crude from the high $140s after hearing predictions for $200 crude oil
from some of the industry’s most respected analysts. We all know what
happened next (see Figure I.3).
The oil futures “tycoons” that you hear about on TV rumored to have netted
millions of dollars buying crude oil futures contracts are few and far between.
Those who were the beneficiaries of the now infamous energy rally were likely
people who had significant risk capital backing their speculation or simply a
magnificent streak of luck and an incredible amount of fortitude. Unlike you and
me, the success stories were, based on my observations, traders that executed a
position and stepped back without micromanaging the details or even losing sleep.

Figure I.3 This chart is a continuous front month futures chart and is therefore an
approximation and might not represent the most-active contract data. Nonetheless,
the magnitude of the move is identifiable by this depiction. A trader exposed to the
market during the entire move would have made or lost approximately $116,000 per
contract!

I will be the first to admit that I was wrong in my expectations of crude oil
in 2007/2008. I never anticipated to see prices above the $100 mark, or at least
not in such a short time frame. Clearly, I was wrong. Luckily, I was wise enough
12 A Trader’s First Book on Commodities

to realize that that the energy markets aren’t for everyone. Although I recognize
that my clients are free to speculate in any market that they choose, and there
can be great opportunities in energies, I took the opportunity to kindly remind
them of the potential hazards.
Ironically, based on my experience and conversations with those within the
futures and options industry, the commodity rally was paralyzing for many
veteran traders. The price moves were impossible for those unfamiliar with the
markets to fathom, but for those that have been trading grains and energies for
many years, it was not only unimaginable but in some cases career-ending.
Traders that spent the bulk of their adulthood speculating as grain prices
moved from high to low within their historical price envelopes, quickly
discovered that the markets no longer had boundaries. For example, prior to
2007 wheat was a commodity that was most comfortable trading between $2.00
and $4.00 per bushel with a few brief stints in the $6.00 range. Looking at a
long-term wheat chart, it is easy to see how a trader could unexpectedly get
caught on the wrong side of a move that eventually got close to doubling the
previous all-time high of the commodity. Those that did find themselves in such
positions were in a state of denial and had a difficult time liquidating positions
with large losses. As a result, the situation became even worse as losses mounted,
as did margin calls (see Figure I.4).

Figure I.4 Few could have predicted the magnitude of 2007/2008 wheat rally that
made a mockery of its previous all-time high.
The Rise and Fall of Commodities 13

You might have heard about the rogue (unauthorized and reckless) wheat
trader whose actions resulted in a large loss at a major financial institution. The
trader, without permission, greatly exceeded his trading limits due to a loophole
in the trading platforms. The culprit was a commodity broker located in
Memphis, Tennessee, who reportedly put his account, and ultimately his
brokerage firm, in the hole more than $141 million. The broker had been a
registered participant of the futures industry for more than 15 years at the time
of the incident; perhaps in this case his experience worked against him in that
he was overly bearish in a market that simply wasn’t “playing by the rules.”
Keep in mind that in a precommodity boom world, the margin to hold a
wheat futures position overnight was less than $1,000. During its “hay day” it
was in the neighborhood of several thousand dollars. Therein lies much of the
problem, as commodities became more and more expensive to hold, short
traders were forced to fold their hands. The liquidation of short positions added
to the buying pressure of speculative long plays, and prices became astro-
nomical.

Conclusion
Throughout this text you find what I believe to be a realistic and candid view of
the commodity markets. My intention isn’t to deter you from trading
commodities. In fact, I am a broker that makes a living from commission and
would love nothing more than to attract traders into what I believe to be some
of the most exciting markets available to speculators. However, as a broker, it is
also my job to ensure that you are aware of the potential hardships and, accord-
ingly, will properly prepare yourself before putting your hard-earned money at
risk.
If you walk away from this book with something, I hope it is the realization
that anything is possible in the commodity markets. Never say never because if
you do, you will eventually be proven wrong. Additionally, the markets, and
trading them, is an art not a science. Unfortunately, there are no black–and-
white answers nor are there fool-proof strategies—but that does not mean that
there aren’t opportunities.
I am often asked what is the best technical tool or indicator to use when
speculating in a market. My answer is always the same; there isn’t a “best tool,”
only a best way to use the tool. The paramount approach to any trading tool,
whether technical, seasonal, or fundamental, is to use it—or better yet, a combi-
nation of a few—to form an educated opinion in your expectations of market
14 A Trader’s First Book on Commodities

price. With their findings, traders should approach the market with a degree of
humbleness and with realistic expectations.
Remember, as a trader you compete against the market, specifically each
participant in that particular market. Therefore, assuming that you can always
beat the markets is assuming that you are somehow smarter and better informed
than all other participants. Not only is this arrogant, it also might be financial
suicide. Instead, you should approach every trade with modesty and with the
understanding that you could be wrong. Having such an attitude might prevent
you from sustaining large losses as the result of stubbornness or a lack of ability
to admit to being incorrect in your speculation.
With that in mind, in its simplest form, trading is a zero sum game. Aside
from commissions paid to the brokerage firm and fees paid to the exchange, for
every dollar lost in the market, someone else has gained a dollar. Becoming a
consistently profitable trader isn’t easy, but it isn’t synonymous with chasing the
proverbial end of the rainbow either. With the proper background, hard work,
and the experience that comes with inevitable tough lessons; long-term success
is possible. I hope that this book will be the first step in your journey toward
victory in the challenging, yet potentially rewarding, commodity markets.
 15

chapter 1

A Crash Course in
Commodities

How It All Began

Given the urban nature of the city of Chicago, we often forget that it is located
in the agricultural heart of the mid-West. In the mid-1840s the windy city
emerged as the agricultural market center for neighboring states. Chicago was
the meeting place for farmers looking for buyers of their crops and grain mills
looking to purchase product for their operations. However, despite the central
location, timing and logistic issues created inefficient means of conducting
business and thus inflated commodity prices.
At the time, grain elevators were sparse, which
made it critical that a farmer sell his crop upon harvest Commodity prices have
at the annual meeting in Chicago due to a lack of always been a function of
storage. Even for those who did have a method of supply and demand, but
before the futures markets,
storing the grain, frozen rivers and roadways made it excess and shortages
nearly impossible to travel to Chicago during the wreaked havoc on
winter months. Likewise, the springtime trails were consumers and producers.
often too muddy for wagon travel. Thus, during and
immediately after harvest, grain supply was in such abundance that it was
common for unsold grain to be dumped into Lake Michigan for lack of means
to transport and store unsold portions.
As you can imagine, as the year wore on, the grain supply would dwindle to
create shortages. This annual cycle of extreme oversupplies and subsequent
undersupplies created inefficient price discovery and led to hardships for both
16 A Trader’s First Book on Commodities

producers and consumers. The feast-or-famine cycle created circumstances in

which farmers were forced to sell their goods at a large discount when supplies
were high, but consumers were required to pay a large premium during times of
tight supplies. Luckily, a few of the grain traders put their heads and resources
together to develop a solution…an organized exchange now known as the
Chicago Board of Trade.

The Chicago Board of Trade

The Chicago Board of Trade (CBOT) was created by a handful of savvy grain
traders to establish a central location for buyers and sellers to conduct business.
The new formalized location and operation enticed wealthy investors to build
storage silos to smooth the supply of grain throughout the year and, in turn, aid
in price stability.
The CBOT is still located in downtown Chicago
and is the world’s oldest futures exchange. After
The CBOT is the world’s oldest
spending the last decade and a half as one of the
futures and options exchange.
largest futures trading organizations in the world
Native Chicagoans describe
and a direct competitor to the Chicago Mercantile
the organization as “old
Exchange (CME), the CBOT and the CME merged
money.”
July 9, 2007, to form the CME Group, creating the
largest derivatives market ever.
The CBOT division of the CME Group is the home of the trading of agricul-
tural products such as corn, soybeans, and wheat. However, the exchange has
added several products over the years to include Treasury bonds and notes and
the Dow Jones Industrial Index.

The Chicago Mercantile Exchange

The success of the CBOT fueled investment dollars into exchanges that could
facilitate the process of trading products other than grain. One of the offsprings
of this new investment interest is the Chicago Mercantile Exchange. The CME
was formed in 1874 under the operating name Chicago Produce Exchange; it
also carried the title Chicago Butter and Egg Board before finally gaining its
current name.
The contract that put this exchange on the map
Local Chicagoans refer to the was frozen pork belly futures, or simply “bellies” as
CME as “The Merc.” many insiders would say. Hollywood and media
portrayals of the futures industry is often encom-
passed by the pork-belly market. How could anyone
1 A Crash Course in Commodities 17

forget the infamous scene in Trading Places in which Billy Ray Valentine plots his
speculation of belly futures? Ironically, pork belly futures are among the least
traded contracts on the CME today in terms of volume and open interest.
The CME is responsible for trading in a vast variety of contracts including
cattle, hogs, stock index futures, currency futures, and short-term interest rates.
The exchange also offers alternative trading vehicles such as weather and real-
estate derivatives. At the time of this writing, and likely for some time to come,
the CME has the largest open interest in options and futures contracts of any
futures exchange in the world.

The New York Mercantile Exchange

Although the futures and options industry was born in
According to New Yorkers,
Chicago, New York was quick to get in on the action. In the
there is only one “Merc,”
early 1880s, a crop of Manhattan dairy merchants created the and it isn’t in Chicago.
Butter and Cheese Exchange of New York, which was later
modified to the Butter, Cheese and Egg Exchange and finally
the New York Mercantile Exchange (NYMEX).
The NYMEX currently houses futures trading in the energy complex.
Examples of NYMEX-listed futures contracts are crude oil, gasoline, and natural
gas. A 1994 merger with the nearby Commodity Exchange (COMEX) exchange
allowed the NYMEX to acquire the trading of precious metals futures such as
gold and silver under what is referred to as its COMEX division.
In March 2008, the NYMEX accepted a cash and stock offer from the CME
Group that would bring the New York futures exchange into the fold along with
the CBOT and the CME. On August 18, 2008, the proposal was approved by
NYMEX seat-holders and shareholders. It is expected that by late 2009, the
NYMEX systems will be fully integrated into the CME Group.

The CME Group

The CME Group is the world’s largest derivatives exchange. As previously
mentioned, on July 12, 2007, the merger of the CBOT and the CME created the
CME Group, but the NYMEX was acquired in 2008 to create a powerful and
innovative entity.
The CME Group currently operates the CME, CBOT, and the NYMEX and
serves the speculative and risk management needs of customers worldwide.
Between the three divisions, the CME Group offers derivative products across
all the previously mentioned major asset classes.
18 A Trader’s First Book on Commodities

Upon merger, the CBOT and the CME consolidated all floor-trading opera-
tions into a single location; the historic CBOT. The actual move took place over
three weekends, and no details were spared. The new combined trading floor
spans 60,000 square feet and facilitated the execution of nearly 3.3 million open
outcry contracts in the first quarter of 2008.

IntercontinentalExchange
The newest player in the U.S. futures trading industry is the IntercontinentalEx-
change, most often referred to as ICE or simply “ice.” In stark contrast to the
original models of the CBOT, CME, and NYMEX, ICE facilitates over-the-
counter energy and commodity contracts. This simply means that there is no
centralized location; instead all trading takes place in cyber-
ICE is a newcomer to the
space.
domestic futures markets
and wasn’t necessarily
ICE was established May 2000, with the mission of trans-
welcomed with open arms. forming OTC trading. By 2001, it acquired an European
However, recent platform energy futures exchange, but it didn’t dig its claws deep into
improvements, such as the the heart of the U.S. futures industry until its acquisition of
acceptance of Good ‘Til
the New York Board of Trade (NYBOT) in 2007, along with
Canceled orders and stop
orders, have improved the responsibility to facilitate trading in the softs complex.
popularity of the exchange. The term soft is generally used to describe a commodity that
is grown rather than mined; examples of contracts catego-
rized as soft and traded on ICE in the United States include sugar, cocoa, coffee,
and cotton. More recent additions are the Russell 2000 and the U.S. Dollar
Index.

Evolution of the Forward Contract into a Futures

Contract
The futures markets and the instruments traded there, as we know them today,
have evolved from what began as private negotiations to buy and sell
commodities between producers and users. The agreements that resulted from
these negotiations are known as forward contracts. Fortunately, efficient-
minded entrepreneurs discovered that standardized agreements can facilitate
transactions in a much quicker manner than a privately negotiated forward
contract, and thus, the futures contract was born. Next we take a look at the
advent of the forward contract and how the concept eventually bred the futures
contract.
1 A Crash Course in Commodities 19

The Forward Contract

The ingenuity of agricultural trade didn’t end with the creation of organized and
centralized grain trade in the 1800s. Although this certainly worked toward
price stabilization by leveling shortages and surpluses throughout the growing
and harvest cycles, other factors worked against price efficiency. As a means to
mitigate price risks, farmers and merchants began dealing in forward contracts.
A forward contract is a private negotiation developed to establish the price
of a commodity to be delivered at a specific date in the future. For example, a
farmer that has planted corn and expects it to be harvested and ready to sell in
October might locate a party interested in purchasing the product in October.
At that time, both parties may choose to enter an agreement for the transaction
to take place at a specific date, price, and location. Such an agreement locks in
the price for both the buyer and the seller of the commodity and, therefore,
eliminates the risk of price fluctuation that both sides of the contract face
without the benefit of a forward contract.
Along with a centralized grain trade, the forward contract was another big
step toward price stability, but there was a problem. Forward contracts reduce
price risk only if both parties to the arrangement live up to their end of the
agreement. In other words, there is no protection against default. As you can
imagine, a farmer that locks in a price to sell his crop in the spring through a
forward contract and discovers that he can sell the product for considerably
more in the open market might choose to default on the forward contract.
It is easy to see the lack of motivation for parties to a forward contract to
uphold their end of the bargain. Even the most honest man would be tempted
to default if it means a better life for his family.
To resolve the issue of merchants and farmers defaulting on forward
contracts, the exchanges began requiring that each party of the transaction
deposit a good-faith deposit, or margin, with an unrelated third party. In the case
of failure to comply with the contract, the party suffering the loss would receive
the funds deposited in good faith to cover the inconvenience and at least part of
the financial loss.

The Futures Contract

Exchange-traded forward contracts were extremely
In its simplest form, a futures
helpful in reducing the price risk that farmers and
contract is a standardized
merchants would normally be exposed to. Additionally,
forward contract.
with the advent of exchange-traded forward contracts
along with good-faith deposits, much of the default risk
20 A Trader’s First Book on Commodities

was eliminated. However, because forward contracts were negotiations between

two individuals, it was a challenge to bring buyers and sellers together that
shared the same needs in terms of quantity, timing, and so on. Also, forward
contracts were subject to difficulties arising from uncontrollable circumstances
such as drought. For example, a farmer obligated to deliver a certain amount of
corn via a forward contract might not comply due to poor growing conditions,
thus leaving the counter-party to the transaction in a dire predicament.
The exchanges’ answer to problems arising from forward contracts was the
standardized futures contract. In its simplest form, a futures contract is a
forward contract that is standardized in terms of size, deliverable grade of the
commodity, delivery date, and delivery location. The fact that each contract is
identical to the next made the trading of futures much more convenient than
attempting to negotiate a forward contract with an individual. It is the concept
of standardization that has allowed the futures markets to flourish into what
they have become today.
According to the CME, the formal definition of a futures contract is as
follows:
A legally binding, standardized agreement to buy or sell a standardized
commodity, specifying quantity and quality at a set price on a future
date.
In other words, the seller of a futures contract agrees to deliver the stated
commodity on the stated delivery date. The buyer of a futures contract agrees to
take delivery of the stated commodity at the stated delivery date. The only
variable of a futures transaction is the price at which it is done, and this is deter-
mined by buyers and sellers in the marketplace.
Although the futures contracts bought or sold represent an obligation to take
or make delivery, according to the CME approximately 97% of futures contracts
never result in physical delivery of the underlying commodity. Instead traders
simply offset their holding prior to the expiration date. We discuss this in more
detail later in the chapter.
In the evolution into the futures contract and away from the forward
contract, exchanges also eliminated default risk associated with buying or selling
futures contract by guaranteeing the other side of the transaction. Thus, unlike
a forward contract, or early versions of the futures contract, in which each
parties are left to depend on the other to live up to their end of the contract; a
futures contract is backed by the exchange. This exchange guarantee covers the
entire value of the position as opposed to being limited to the margin posted by
participants.
1 A Crash Course in Commodities 21

Thanks to the standardization of each contract, the subsequent ease of

buying or selling contracts, and a lack of default risk, futures trading has
attracted price speculation. Participation is no longer limited to those who own,
or would like to own, the underlying commodity. Instead unrelated third parties
can easily involve themselves in the markets in hopes of accurately predicting,
and therefore profiting from, price fluctuations.

Cash Market Versus Futures Market

There are currently two separate, yet related, markets in which A cash market transaction
commodities are traded; the cash market and the futures occurs in the present, but a
market. The cash market refers to the buying and selling of futures market transaction is
physical commodities. In a cash market transaction, the price an agreement for an
exchange of the underlying
and exchange of product occurs in the present. In contrast, the asset in the future.
futures market deals with the buying or selling of future obliga-
tions to make or take delivery rather than the actual commodity.

Cost to Carry
Prices in the cash and futures market differ from one another as a direct result
of the disparity in the timing of delivery of the underlying product. After all, if
a commodity is going to be delivered at some point in the future, it must be
stored and insured in the meantime. The costs associated with holding the
physical grain until the stated delivery date is referred to as the cost to carry.
Specifically, the costs to carry include items such as storing and insuring the
commodity prior to the date of delivery.
Naturally, in normal market conditions, the cash price will be cheaper than
the futures price due to the expenses related to carrying the commodity until
delivery. Likewise, the near-month futures price will be cheaper than a distantly
expiring futures contract. The progressive pricing is often referred to as a
normal carrying charge market (see Figure 1.1). You might also hear this
scenario described by the term contango.
Normal carrying charge markets are only possible during times of ample
supply, or inventory. If there is a shortage of the commodity in the near term,
prices in the cash market increase to reflect market supply-and-demand funda-
mentals. The supply shortage can reduce the contango, or if severe enough it can
actually reverse the contango should the spot price, and possibly the price of the
nearby futures contract, exceed the futures price in distant contracts, as shown
in Figure 1.2.
22 A Trader’s First Book on Commodities

Figure 1.1 Normal carry charge market, or contango.

Figure 1.2 The opposite of contango is sometimes called backwardation and

involves higher spot prices than futures prices.

It is important to understand that the contango can’t exceed the actual cost
to carry the commodity. If it did, producers and consumers would have the
opportunity for a “risk-free” profit through arbitrage.
 1 A Crash Course in Commodities 23

Arbitrage
Arbitrage is a “risk free”
Arbitrage is the glue that holds the futures markets together. profit, but for most of us
Without arbitrage there would be no incentive for prices in the it might as well be a
mirage. Markets are
futures market to correlate with prices in the cash market, and
quick to eliminate such
as I discuss in Chapter 2, “Hedging Versus Speculating,” opportunities.
arbitrage enables efficient market pricing for hedgers and
speculators. Specifically, if speculators notice that the price
difference between the cash and futures prices of a commodity exceeds the cost
to carry, they will buy the undervalued (cash market commodity) and sell the
overvalued (futures contract written on underlying commodity). This is done
until the spread between the prices in the two markets equals the cost to carry.
The true definition of arbitrage is a risk-free profit. Sounds great doesn’t it?
Unfortunately true arbitrage opportunities are uncommon, and those that do
occur are only opportunities for the insanely quick. The chances are that you
and I do not possess the speed, skill, and resources necessary to properly identify
and react to most arbitrage opportunities in the marketplace.
An example of an arbitrage opportunity
“If you can take advantage of unrelated to cash market pricing would be a scenario
a situation in some way, it’s in which the e-mini S&P is trading at 1080.50 and
your duty as an American to the full-sized version of the contract is trading at
do it.” C. Montgomery Burns 1080.70. In theory, if you noticed this discrepancy in
(The Simpsons) a timely fashion, it would be possible to buy five mini
contracts and sell one big S&P. (The mini contract is
exactly one-fifth of the size of the original and is fungible.). Consequently, a
trader that can execute each side of the trade at the noted prices can request for
the positions to offset each other to lock in a profit of .20 or $50 before trans-
actions costs. It doesn’t sound like much, but if it truly is an arbitrage oppor-
tunity, a $50 risk-free profit isn’t such a bad deal.

Contract Expiration
By definition, futures contracts are expiring agreements for buyers and sellers of
those contracts to exchange the underlying physical commodity. Most market
participants choose to avoid dealing with the underlying assets by offsetting
their obligation at some point prior to expiration of the futures contract, or in
some cases prior to first notice day. I cover the process of offsetting positions
later in the chapter.
24 A Trader’s First Book on Commodities

First Notice Day

First notice day occurs prior to expiration of the corresponding futures contract.
The official definition of first notice day is the day in which the buyer of a futures
contract can be called upon by the exchange to take delivery of the underlying
commodity. On this day, the exchange estimates the number of traders that are
expected to make delivery of the commodity (those short futures) and
distributes delivery notices to those long futures on a first-in basis. Simply put,
traders that hold long positions into the first notice day run the risk of being
delivered upon but might not be depending on the amount of time that the
position has been open. For instance, a trader that has been long a futures
contract for several weeks will receive a delivery notice before a trader that has
established a position the day before first notice day. Please note that the danger
of receiving a delivery notice applies to those long the market only. Short traders
don’t have to worry about delivery until expiration day. Yet, they should be out
of the market well before expiration because market volume and liquidity will
dry up immediately preceding and beyond the first notice day.
After a delivery notice is distributed, a trader isn’t forced to accept it, so
panicking is unnecessary. Instead, he can instruct his brokerage firm to
“retender” the notice, which equates to selling it in an open market to an inter-
ested party. Although the trader will avoid being forced to find a home for 5,000
bushels of corn, or whatever the commodity might be, he will face substantial
processing fees. With that said, being a part of the delivery process is something
that all speculators should diligently avoid.
Not all futures contracts have a first notice day; some stipulate a cash settle-
ment process as opposed to delivery of the underlying product. Cash settlement
is just as it sounds and will be explained next.

Futures Expiration
Expiration is the time and day that a particular delivery month of a futures
contract ceases trading and the final settlement price is determined. The actual
delivery process begins at expiration of the futures contract for those markets
that involve a physical commodity exchange. Conversely, a select number of
futures contracts are cash settled. If this is the case, those holding positions into
expiration are agreeing to allow the exchange to determine a final valuation for
the futures contract at hand and adjust the value of individual trading accounts
accordingly. In my opinion, it is generally a bad idea to hold positions into
expiration in cash settled markets because it leaves the fate of profit and losses
1 A Crash Course in Commodities 25

in the hands of a relatively arbitrary exchange derived contract value. Likewise,

unless you are willing to make, or take, delivery of the underlying commodity,
you shouldn’t have an open position in a deliverable commodity contract into
expiration, either.

The Mechanics of Futures Contracts

So far we have learned that futures contracts are standardized and are
guaranteed by the exchange. However, there is a lot more to be taught, and
before you can expect to be a successful futures trader you must fully understand
the basics.

The Long and Short of It

Commodity trading is a world full of insider lingo; it is
almost as if the industry created a language of its own. In futures market slang, long
If you want to be a participant, I suggest that you and short are used to describe
become familiar with commonly used terms and a speculative position.
phrases. Doing so will avoid miscommunication
between yourself and your broker.
I cover several commonly used phrases and terms in a later chapter; however
the two most critical terms to be aware of are long and short. In essence, the term
long is synonymous with buy, and the term short is synonymous with sell. This
is the case whether the instrument in question is a futures contract or option.
Specifically, if a trader buys a futures or option contract, he is going long. If a
trader sells a futures or option contract, he is going short.
It is important to realize that you will sometimes hear industry insiders say
that they are long the market with options, futures spreads, and such. Although
in strict context of the phrase, long implies that something has been purchased;
in loosely used lingo, being long a market might simply mean having a bullish
stance. This can mean long call options, short put options, bullish options, or
futures spreads, or any other speculative play that profits from an increase in
prices. Consequently, you might hear a trader mention that she is short the
market, and this might mean that she is short futures, short call options, long
puts, or engaged in a bearish option or futures spread. Despite the alternative
uses, however, beginning traders should first be comfortable using long in the
context of buying and short in the context of selling.
26 A Trader’s First Book on Commodities

Buy or Sell in Any Order

One of the most difficult concepts for beginning commodity traders to grasp is
the fact that a futures contract can be bought and sold in any order. The common
thinking is that you can’t possibly sell something before you own it, and even if
you could there would likely be some interest
Futures traders don’t have to charged for borrowing the asset that you intend to
own, or borrow, assets before sell. Although that might be true in stock trading,
they can sell. that logic doesn’t apply to the futures markets. Let’s
take a look at why this is the case.
Unlike stocks, futures contracts are not assets;
they are liabilities. The purchase of a futures contract does not represent
ownership of the underlying commodity; instead it represents an obligation to
take delivery of the underlying commodity at a specified date. Likewise, the
seller of a futures contract isn’t selling an asset; he is simply agreeing to make
delivery of the stated asset on the appropriate date.
Because there is no ownership or exchange of the asset at the time the futures
trade is made, it isn’t necessary to own the underlying commodity or even be
prepared to take ownership. Thus, buying or selling in any order isn’t an issue
for futures traders.

Offsetting and Rolling Over Trades

As mentioned, most of those participating in the futures
When a trade is offset, the
markets are simply attempting to profit from variations in
trader is said to be flat the
price movement and are not interested in taking or making
market. This means that all
positions are closed and delivery of the underlying commodity. Again, to avoid the
there is no exposure to delivery process, it is necessary to offset holdings prior to
price risk…aside from a expiration, or more specifically the first notice day.
potential “missed trade.”
The notion of offsetting is simple: To offset a trade it is
necessary to execute a position opposite of the one that you
originally entered the market with. To illustrate, if you bought a December Corn
futures, you would need to sell a December corn futures to get out of the
position. After you are out of the market, you are said to be flat. This means that
you do not have any open trades and are no longer exposed to price risk or
margin. Of course, being flat the market doesn’t necessarily mean that the “risk”
of emotional turmoil is eliminated. Unfortunately, many beginning traders
incorrectly look at missed opportunities as monetary losses. We look at the
psychological impact of such emotions in Chapter 11, “The Only Magic in
Trading: Emotional Stability.”
1 A Crash Course in Commodities 27

The concept of offsetting can be best explained by an example. In August

2008, the corn futures contract expiring in December 2008 experienced a
healthy correction and seemed to be approaching trend line support. A trader
that believed that prices would appreciate might purchase a futures contract in
hopes of a rally. At that point, the trader has an open long position with the
exchange and continues to have an open position until it is offset. As mentioned,
the only way to offset an open position is to execute a transaction opposite to
the one used to enter the market. Looking at Figure 1.3, you can see that the
trader purchased a December 2008 corn futures contract at $5.18 1/4, or as
shown on the chart as 518.25. In Chapter 8, “Making Cents of Commodity
Quotes,” I explain the details in quoting and calculating grain futures.
To get out of the market, the trader must sell a
December 2008 corn futures contract, hopefully at a Trading futures and options is
higher price. Naturally, if a trader can buy low and sell as simple as buying low and
high, regardless of the order, he will be profitable (see selling high…but simple
Figure 1.4). As simple as this premise is, execution can doesn’t mean that it is easy.
be challenging. In fact, a majority of speculators walk
away from the game with less money than they started with merely because they
couldn’t find a way to consistently buy low and sell high.

Figure 1.3 Futures traders can buy and sell in any order but must take the
opposite action to exit. This trader is going long December corn and will later
have to sell it to offset the position.
Exploring the Variety of Random
Documents with Different Content
 — Taikka kenties pastori tahtoi suoda hänellekin antamisen ilon.
Sillä mielellään hän kumminkin antoi.

Irenestä oli mieluista, että Harald oli kaikki antanut, ja tarkasti hän
rupesi hameita tutkimaan, sanoen:

— Tuo harmaa varmaankin kaunistaa sinua eniten.

— Mutta näetkö tämän valkoisen, sanoi Stella äkisti. Se ei ole ollut

vielä ylläni; säästän sen, kunnes menen ensi kerran ripille.

Ja nyt hänen veitikkamaisuutensa ja lapsellinen hilpeytensä väistyi

vakavuuden ja ilon tieltä, joissa tosin lapsen mieli myös ilmeni,
ehkäpä puhtaammassa ja hartaammassa muodossa. Hän kertoi
pastorin arvelleen hänellä jo olevan tarpeelliset tiedot, voidakseen
mahdollisesti nauttia Herran pyhää ehtoollista. Siitä hän ei mitään
maininnut, ettei pastori itse tulisi häntä ripittämään, mutta tuohon
pyhään toimitukseen verraten se olikin vain sivuasia. Stellan mieleen
muistuivat pastorin sanat: Jumalan puhuessa kaikki muu raukeaa
mitättömäksi.

— Oi, kuinka selvästi minä muistan sen päivän, sanoi Irene ja

hänen tummansiniset silmänsä säteilivät ilosta, ikäänkuin se olisi
ollut eilen tahi tänään. Se oli ihanin päivä elämässäni, sillä Vapahtaja
asui silloin sydämessäni.

Innostuksella Stella häntä kuunteli. Sitä, minkä Irene kertoi

kokeneena, ei hän vielä ollut kokenut, mutta hänkin toivoi saavansa
pian maistaa samaa autuutta. Tämä toivo ilahutti hänen sydäntänsä,
jota mikään maallinen rakkaus ei vielä ollut saastuttanut, hän kun oli
rakastanut vain Jumalaa.
 Kotvan he vielä keskustelivat hengellisistä asioista, kunnes sanat
eivät enää riittäneet ilmaisemaan heidän tunteitansa ja heidän täytyi
palata jokapäiväisiin oloihin.

Pastorin ja Haraldin astuessa sisään, he heti huomasivat, että tytöt

jo olivat kuin vanhoja tuttuja, mikä tietysti miellytti heitä.

— Näetkö, etten enään ollenkaan pelkää Ireneä, sanoi Stella.

Enkä enää sano häntä neidiksikään.

Näin sanoen hän pienillä, valkoisilla käsillään taputteli Irenen

hienoja, punaisia poskia, tekipä sen melkein läimäyttämällä, mutta
soma tuota oli katsella.

Jos Irene olisi ollut parikymmentä vuotta vanhempi, niin häntä olisi
voinut luulla hyväksi äidiksi, jota hänen hemmoteltu tyttärensä
nuhteita saatuaan koettaa lepyttää. Mutta nyt hän Haraldista näytti
nuorelta naiselta, jota hänen viaton ja kokematon nuorempi
sisarensa koettaa jonkun erehdyksen johdosta lohduttaa ja
viihdyttää.

Sekä pastori että Harald olivat niin kiintyneet tuota katselemaan,

ettei kumpikaan tullut puhuneeksi mitään. Stella itse, joka oli
kuvaelman päähenkilö, katkaisi myös äänettömyyden. Istuen hiljaa
ja levollisena Irenen vieressä, hän ikäänkuin itsekseen puhuen
virkkoi:

— Ihmeellistä, että ensimäinen samanikäinen tyttö, jonka kanssa

olen tullut tekemisiin, on sellainen, että kohta saatoin häneen
tutustua ja pitää hänestä.
 — On vieläkin merkillisempää, jos tämä ensimmäinen myös tulee
olemaan ainoa, josta voit pitää, sanoi Harald.

— En ymmärrä, mitä tarkoitat, mutta ehkä Irene sen ymmärtää.

Mutta,
Irene, miksi et puhu mitään?

— Olemme tässä herrojen poissa ollessa tarkastaneet Stellan

hameita, sanoi Irene, joka ujoudessaan ei oikein tietänyt, mitä olisi
sanonut.

Harald rupesi puhumaan ilmasta, mikä aihe ei tänään tuntunut

niinkään joutavalta, koska helteinen kuumuus ja mustat pilvet eivät
ennustaneet hyvää.

Stella pyysi Ireneä katsomaan hänen lemmikkejänsä. Ensiksi

menivät he kanakoppiin, sillä sellainenkin oli kappalaistalossa. Siellä
hän näytti, mistä kukosta ja mistä kanoista hän eniten piti, ja sitten
siirryttiin navetan puolelle, jossa ihmeteltiin kaunista vasikkaa, jolla
oli valkoinen tähti otsassa. Stella nosti sen etujaloista pystyyn ja pisti
kätensä sen suuhun. Lapsista näet on aina hauskaa antaa vasikkain
imeä kättänsä. Mutta Stella meni niinkin pitkälle, että suuteli
vasikkaa, jolle tämä näytti olevan niin mieluista, että se alkoi juosta
ja hypellä tuolla hauskalla tavalla, joka on vasikoille ominainen.

Surumielin Irene tuota katseli. Alituinen kaihomielisyys oli estänyt

häntä ottamasta osaa lapsuusajan viattomiin iloihin.

— Kuinka oletkaan onnellinen! ajatteli hän Stellaa katsellessaan.

— Tänään olen Irene-neidin opas, sanoi Harald tyttöjen palattua,

ja vaikka täällä olisi hauska viipyä vieläkin, niin meidän kuitenkin
täytyy lähteä, koska rajuilma varmoista merkeistä päättäen pian on
tulossa.

Irene ei vastannut, vaan otti kiltisti saalinsa ja alkoi hankkia lähtöä.

Pastori, joka myös ennusti myrskyn puhkeavan, oli käskenyt

valjastaa hevosen viheriäisiksi maalattujen yhdenistuttavien kääsien
eteen, koska ei katsonut sopivaksi vaatia vieraitaan jäämään yöksi.

Pian oli sanottu hyvästi ja kiesit läksivät liikkeelle. Poika, jonka piti
tuoda hevonen takaisin, ei mahtunut kapealle taka-istuimelle, vaan
kulki jalan, milloin juosten, milloin kävellen jälessä. Sillä vaikka pilvet
nousivat yhä korkeammalle, ajoi Harald vain hiljaista hölkkää.

Nuoren, miellyttävän naisen kyytimiehenä olemisessa on aina

jotakin viehättävää, vaikka ei olisikaan häneen rakastunut, saatikka
sitten, jos jo tuntee itsessään selviä lemmenoireita.

Paljoa ei matkalla puhuttu, mutta Harald oli mielissään siitä, että

Irene aina vastatessaan puoleksi käänsi kasvonsa häneen päin,
heittäen harson syrjään, jotta hän hyvin voi katsoa häntä silmiin. Eikä
hän siksi ollut niin iloinen, että Irene täten tahtoi osoittaa hänelle
kohteliaisuutta, vaan siksi, että hän sai katsella hänen ihania
kasvojaan.

Ukkonen jylisi jo jotensakin lähellä, mistä Harald sai syytä kysyä,

peloittiko häntä.

— Muulloin olen kyllä pelännyt, mutta en nyt.

Tämä vastaus miellytti Haraldia kahdesta syystä.

 Ensiksikään hän ei pitänyt naisista, jotka pelkäsivät ukkosta, ja
toiseksi hänen itserakkautensa selitti tämän vastauksen hänen
toiveilleen mitä suotuisimmalla tavalla.

Kiesien pysähtyessä portaitten eteen, alkoi sataa ryöpyttää ja

puhkesi myrsky, joka yksinkertaisessa mahtavuudessaan yleensä
vaikuttaa katsojaan valtavammin kuin monimutkaisimmatkin
murhenäytelmät.

Kylmästi ja ylhäisesti vapaaherra otti heidät vastaan.

— No, mitenkä tuo mainio vierailunne päättyi?

— Hauskemmin kuin se, joka ei ole ollut sellaisissa mukana, osaa

aavistaakaan. Toivonpa Irene neidin olleen siihen tyytyväisen.

— Tyytyväisenkö? Oi, se on liian vähän sanottu!

— Tuo löytölapsiko sinua niin huvitti.

— Hän juuri. Oikein rupesin hänestä pitämään.

— No, kuinka pitkälle tuttavuutenne kehittyi?

Isänsä kanssa kahden Irene tuskin olisi uskaltanut tunnustaa

tällaista asiaa, mutta Haraldin läsnäolon rohkaisemana hän vastasi:

— Me jo sinuttelimmekin toisiamme.

Se ei johtunut harhaan suuntautuneesta isänrakkaudesta, ettei

vapaaherra yleensä antanut tyttärensä seurustella kaikellaisten
ihmisten kanssa, vaan pelkästä ylpeydestä, kun hän oli Irenen isä.
 — Vai sinä, ärjäsi hän vihoissaan, mutta samassa salama leimahti
ja kuului niin kauhea ukkosenjyrähdys, että vapaaherra sortui
lattialle.

Kamarijunkkari v. Assar, joka myös oli saapuvilla, sanoi:

— Näin salaman iskevän vasempaan siipirakennukseen, mutta

kuitenkin sitä sytyttämättä.

— Vai vasempaan? ihmetteli herra v. Nit.

— Entä sitten, vastasi vapaaherra vaivoin tointuen, mitä se meihin

kuuluu? No niin, Irene. Minä en ole mikään sellainen pedantti, että
tahtoisin säätää lakeja nuoren tytön välittömille ja arvaamattomille
päähänpistoille. Saat siis mielesi mukaan häntä sinutella. Ymmärrän
kyllä, että täällä maaseudulla ajankuluksi tarvitset samanikäistä
leikkikumppania ja, niinkuin jo sanoin; en kiellä sinua häntä
sinuttelemasta.

— Kiitoksia, isä, vastasi Irene, jota tällainen aulius hämmästytti,

varsinkin kun hän äsken oli pelännyt kiivasta kohtausta.

Haraldiakin tällainen odottamaton muutos kummastutti. Hän luuli

sen ukkosenjyrähdyksen vaikuttaman säikähdyksen vaikutukseksi,
että vapaaherra näin oli muuttanut mieltänsä. Hän ei kuitenkaan
pitänyt siitä, että tämä näin viekkaasti osasi puolustaa asiaa, josta
äsken oli niin silmittömästi suuttunut. Mutta hän näkyi olevan
sellaisia ihmisiä, jotka kameleontin tapaan muuttavat väriänsä ja
osaavat viisasteluilla salata aikeitansa.

Illallinen syötiin erityisettä ruokahalutta ja perästäpäin vapaaherra

ehdotti, että Harald vähän laulaisi, rauhoittaaksensa niitä, jotka
pelkäsivät ukkosen voimaa.

— Ukkosen käydessä en tahdo laulaa, vastasi Harald.

— Vai niin. No, jokaisellahan on omat mielipiteensä. Entä sinä,

Irene, tahdotko sinä laulaa?

— Ukkosenilmalla en voi laulaa.

— Hänelle joka ei voi annetaan kernaammin anteeksi kuin sille

joka ei tahdo. Siis meidän on tyytyminen ukkosen tarjoamaan
musiikkiin.

Jos joku toinen olisi tämän lausunut, olisi se ehkä Haraldia

miellyttänyt, mutta vapaaherran suussa se kuulosti herjaukselta.

Irene istui vähän loitompana, pikku Ulla sylissään. Harald otti

tilaisuudesta vaarin ja kuiskasi hänelle:

— Älkää pelätkö. Muistakaa… — mutta samassa hän vaikeni.

Sitten hän toivotti hyvää yötä ja alkoi vitkalleen nousta ylös

portaita, mennäkseen ullakkokamariinsa. Viimeisellä askelmalla
pysähytti hänet v. Nit.

— Olisiko maisteri hyvä ja tulisi minun huoneeseeni? Minun olisi

silloin parempi olla, koska suoraan sanoen pelkään ukkosta.
Salamat leimahtavat eteläpuolella, joten olisi sopivampi istua minun
huoneessani.

Harald ei ollut ennen käynyt herra v. Nitin huoneessa, koska ei

kutsumatta ollut tahtonut sinne mennä ja kernaasti hän nyt suostui
häntä seuraamaan.
 Vanhan juopon huone näytti hyvin siivottomalta, siellä kun ei ollut
minkäänlaista järjestystä. Vaatekappaleita ajelehti hujanhajan, yksi
siellä toinen täällä, vieläpä sängyn alla; peili oli tuolilla, eikä vuodetta
ollut pitkään aikaan korjattu. Kirjakaapin ovien päällä riippui vanhoja,
hiestä kellastuneita sukkia ja lattialla makasi vesipullon vieressä
katkonaisia, Voltairen ja Lafontainen romaanien osia, mikä kaikki
näytti hyvin vastenmieliseltä. Sen ohella tuntui huoneessa
tympäisevä väkijuomien haju, jota ei edes tupakan savu ollut
haihduttamassa, koska herra v. Nit käytti tupakkaa ainoastaan
nuuskan muodossa, pitäen myös joskus pikanellia suussaan.

— Suokaa anteeksi tämä siivottomuus, herra maisteri, mutta

minun ikäiseni vanhapoika ei kaipaa sen parempaa. Tämän
madeirapullon ääressä voimme unohtaa, että huone ei ole kovinkaan
hyvässä järjestyksessä.

Siitä huolimatta, taikka ehkä juuri siitä syystä, että oli tullut
huomanneeksi hänen salaperäisen suhteensa vapaaherraan,
Harald, tavattuaan von Nitin ullakolla kummittelemassa ja kuultuaan,
mitä hän unissakäydessään puhui, oli ruvennut pikemmin häntä
surkuttelemaan kuin pelkäämään ja inhoamaan. Ja näin ollen
hänellä ei ollut mitään sitä vastaan, että ryhtyi pitämään hänelle
seuraa.

Väkijuomien nauttimisesta on se hyvä tai paha seuraus, että

yleisistä ja arvottomista asioista siirrytään keskustelemaan
yksityisistä ja mieskohtaisemmista. Harald, joka ei ollut ehdottomasti
raitis, vaikka ei mikään juopottelijakaan, kesti väkijuomia paremmin
kuin v. Nit, osoittamatta kuitenkaan vähemmän avomielisyyttä kuin
tämä.
 Huomaamatta kääntyi puhe onneen ja onnettomuuteen, kuinka
edellinen ilman ihmisen omaa ansiota hymyilee toisille, kun taas
toiset jäävät siitä aivan osattomiksi, vieläpä joutuvat syyttömästi
onnettomuuteenkin. Onnelliset ovat kadehdittavia, onnettomat
surkuteltavia.

— Mutta jos ihminen itse on ollut syypää onnettomuuteensa, mitä

hänestä on ajateltava ja kuinka hänen suhteensa on meneteltävä?
kysyi v. Nit.

Harald ei ollut koskaan pitänyt n.s. opettavaisista kertomuksista

lapsille, koska niissä siveysoppi yleensä on hyvin arveluttavaa
laatua. Äskettäin oli hän kieltänyt nuorempaa oppilastansa, pikku
Solmua, lukemasta erästä kirjaa, koska sitä silmäillessänsä jo alussa
oli tavannut kertomuksen, jonka sisältö oli lyhyesti sanoen seuraava.
Eräs isä oli kieltänyt lapsiaan menemästä pimeässä lyhdyttä ulos.
Yksi pojista ei kuitenkaan totellut: hän lankesi ja vahingoitti toisen
silmänsä, niin että tuli silmäpuoleksi. Mutta ei siinä kyllin. Sitäpaitsi
hän "kilteiltä" sisaruksiltaan alinomaa sai nuhteita: „Jos olisit isää
totellut, niin sinun ei olisi käynyt, niinkuin nyt kävi. Tottelemattomuus
vanhempia kohtaan on tosin suuri vika, mutta yllämainitun kirjan
tekijällä ei näyttänyt olevan aavistustakaan siitä, että on paha
suurentaa onnettoman kuormaa, moittimalla häntä siitä, jota hän ei
enää voi auttaa, ja että nuo kiitit lapset siis olivat todellisia hylkiöitä.

Tämä kertomus johtui samassa Haraldin mieleen ja hän vastasi

ystävällisesti:

— Jos ihminen itse on ollut syypää onnettomuuteensa, vaikka

siihen olisikin ollut syynä jotakin vielä pahempaa kuin
ajattelemattomuus ja äkkipikaisuus, niin meidän kuitenkin täytyy
surkutella sellaista ihmistä… juuri hänen onnettomuutensa takia.
 — Mutta entä jos tämä onnettomuus juuri onkin törkeitten
rikoksien synnyttämä omantunnon tuska?

— Sitä onnettomampi on hän, jonka täytyy sitä kärsiä ja sitä

suurempi oikeus hänellä on vaatia lähimmäiseltään sääliä ja
myötätuntoisuutta. Hänen onnettomuutensa syy olkoon meille
sivuasia ja itse onnettomuus pääasia. Eikö siinä kyllin, että hän on
onneton, pitäisikö meidän vielä tutkia sen syytä?

Nämä suorat sanat, jotka lausuttiin jalon sielun hyvyydellä ja

lempeydellä, tekivät herra v. Nitiin omituisen vaikutuksen. Hän nojasi
päänsä käsiinsä ja vaipui äänettömyyteen, mikä tuntui sitä
merkillisemmältä, kun hän jo oli juonut puolet madeirapullosta.

— Hyvää yötä, herra v. Nit, sanoi Harald.

— Kiitän nöyrimmästi tästä hauskasta hetkestä. Au revoir!

VIII.

IRENE STELLAN SIJALLA.

Kului muutamia viikkoja ilman muuta huomattavaa, kuin että

Harald ja Irene päivä päivältä katsoivat toisiansa lempeämmin silmiin
ja että Harald oli muuttunut entistään vielä harvapuheisemmaksi. He
tapasivat toisensa vain soittotunneilla taikka käydessään
tervehtimässä ystäviään pappilassa. Tosin v. Assar
taudinkohtauksen takia oleskeli kaupungissa, saadakseen siellä
lääkärinhoitoa, mutta siitä huolimatta menetteli Harald samoin kuin
sitä ennenkin, tahtomatta liian usein jäädä kahdenkesken Irenen
kanssa, joko hän sitten pelkäsi vapaaherran rupeavan epäilemään
tyttärensä ja hänen välillään jotakin läheisempää suhdetta, jota
Harald itsekään ei rohjennut toivoa ja jonka mahdollisuus täytti
hänen sielunsa synkillä taistelun ja onnettomuuden aavistuksilla —
taikka lieneekö hän käyttäytynyt täten, suojellaksensa sekä Ireneä
että itseänsä joutumasta kovan kohtalon kolhittavaksi.

Oli tullut se päivä, jolloin Stella saisi notkistaa polvensa armon

alttarin juurella.
 Rukouksissaan hän myös lapsellisesti oli anonut, että tämä päivä
tulisi olemaan kirkas ja kaunis. Pitäen kanssapuhetta Jumalan
kanssa, hän oli anonut: ellei tällainen rukous kelpaa sinulle,
Jumalani, niin ilmoita se tunnossani. Mutta hänen omatuntonsa ei
vaivannut häntä ja rauhassa hän lopetti viattoman rukouksensa.

Ja päivä olikin ihana ja kirkas. Se oli syyskuun alussa.

Pastori Ortman saarnasi, mutta toinen pappi oli jakamassa Herran

ehtoollista.

Emme tahdo ryhtyä erittelemään Stellan tunteita, sillä niistä on

yleensäkin vaikea kertoa, saatikka sitten nyt. Kuitenkin Harald ja
Irene kyllä huomasivat, mitä hänen sielussaan liikkui.

Yksin, kuten oli tullutkin, palasi Stella kotiin. Kirkkoväki, joka

enimmäkseen oli herrasväkeä omasta ja naapuripitäjistä sekä
sellaista talonpoikaiskansaa, joka oli ymmärtävinään ruotsia, jäi
katselemaan tuota ihanaa rippilasta sekä antoi hänelle tietä.
Ompelijarouva, joka myös oli saapuvilla, ihmetteli jälleen itsekseen:
"merkillistä, kuinka hän on jonkun näköinen, jonka olen nähnyt
ennen". Mutta ketä Stella muistutti, se jäi kun jäikin rouvalta
selittämättä.

Astuessaan omaa tietänsä, ikäänkuin olisi kuulunut toiseen

maailmaan, ei Stella huomannut, mitä huomiota hän herätti
kirkossaolijoissa. Hän ei ollenkaan ollut itkenyt. Hänen kasvoistaan
loisti taivaallinen ilo, kehottaen enemmän hartauteen kuin itkeväin
kyyneleet.

Yksin, niinkuin oli tullutkin, ajoi myös Irene kotiansa. Harald lähti
molempain pappien seurassa kappalaistalolle ja palasi kotiin vasta
myöhään illalla.

*****

Vapaaherra oli saanut kuulla, että pastori Ortmanin kasvattitytär oli

kaunis. Tämä sekä vaihteleva seikkailuelämä, jota tyttö tätä ennen
oli viettänyt ja josta vapaaherra myös oli kuullut huhuttavan,
herättivät hänessä halun saada nähdä hänet. Eräänä päivänä hän
siis sanoi Haraldille:

— Maisteri on niin usein käynyt pastori Ortmanilla, mutta hän ei

kertaakaan täällä. Vaikka hänellä olisikin jotakin minua vastaan, niin
teidän tähtenne hänen kuitenkin pitäisi rohkaista mielensä,
tehdäkseen meille sen kunnian, että tulisi vierailemaan.

Vapaaherra arvasi aivan oikein, ettei pastori oikein voinut häntä

sietää, eikä siitä syystä tullut. Hän siis naurahti ivallisesti ja pureskeli
alahuultaan. Mutta kun Harald ei heti vastannut, niin hän jatkoi:

— Eikö hän voisi pariksi tunniksi irrottautua herttaisesta

holhotistaan, jonka sopisi jättää vanhan emännöitsijän turviin?

— Miksi ei sitä voisi tehdä, vastasi Harald, joka ei viitsinyt panna

vastaan.

Vapaaherra, joka tällä kertaa olisi suonut, että häntä olisi

vastustettu, alkoi uudelleen.

— Mutta jos pastorin mielestä tuon vanhan sivistymättömän

naisen seura yhtenä iltapäivänä voisi jollakin tavoin olla nuorelle
naiselle vahingoksi…

— En luule pastori Ortmanin olevan sitä mieltä, keskeytti Harald.

 Ikäänkuin ei olisi kuullut jatkoi vapaaherra:

— Täydellä syyllä pastori ehkä tahtoo käyttää joka tunnin ja

minuutin holhottinsa sivistyttämiseen ja eikö hänen siis sopisi… eikö
kävisikin laatuun, että hän toisi hänet mukanansa tänne? Vai eikö
hän uskalla.

Kun Harald vain katsoi vapaaherraa suoraan silmiin, eikä heti

vastannut, niin tämä jatkoi:

— Tai ehkä pastorin mielestä liian lyhyt aika on kulunut siitä, kun
tyttö kävi ensi kerran ripillä. Mutta…

— En usko, että sekään on syynä, keskeytti Harald uudelleen,

eihän silti sovi muuttua erakoksi — hän melkein kevytmielisesti
lisäsi, ikäänkuin aavistaen, mitä vapaaherralla oli mielessä sanoa ja
antaen hänelle sanat suuhun.

— Tai ehkä ei tyttö hänen mielestään vielä ole tarpeeksi

perehtynyt seuraelämän tapoihin. Mutta tällaiset luonnonlapset
esiintyvät usein paremmin kuin me tavalliset ihmiset, jotka teemme
kaikkea matkimalla isää ja äitiä sekä muita esikuvia, ja jos he joskus
vähän eroavatkin muista, niin se vain tekee heidät miellyttävämmiksi
ja kiihottavammiksi. Mutta tästä päättäen maisteri ehkä luulee tuon
tytön tulon olevan minulle suuremman arvoisen kuin itse pastorin
tulon?

Vapaaherran lopettaessa juuri tähän ja kun hän oli lausunut tuon

minulle-sanan perin pontevasti, niin Harald erehtyi hänen suhteensa
niin suuresti, että luuli vapaaherran muka asettuneen hänen
asemaansa, niinkuin hän äsken vapaaherran ja vastasi senvuoksi:
 — Minun on myönnettävä, että pidän pastori Ortmanin
kasvattitytärtä suuressa arvossa.

Vapaaherra vastasi melkein niin kuin asia oli:

— Saan kiittää tuosta tunnustuksestanne, joka pelasti minut

uskomasta, että kentiesi epäilette minua. Mutta olin vähällä jättää
erään asian koskettamatta — jatkoi hän muuttaen leikillisen
puhetapansa totisemmaksi. — Tyttärenikin näkyy niin mieltyneen
tuohon leikkitoveriin, että tämä hänenkin vuoksensa on tervetullut.
Pyydän maisteria hyväntahtoisesti viemään minulta pastori
Ortmanille terveiset, että hän olisi hyvä ja tulisi käymään täällä sekä
että hän kaikin mokomin toisi holhottinsa mukanaan.

Nämä viimeiset sanat vapaaherra lausui hyvin veitikkamaisesti,

ikäänkuin saattaaksensa Haraldin hämilleen, koska tämä muka
puoliksi oli antanut siihen aihetta. Tämä vapaaherran epäluulo oli
Haraldista hyvin mieluinen, ja siis tämä keskustelu, jonka kestäessä
kumpikin viekastelemalla koetti toistansa eksyttää, päättyi
molemminpuoliseen tyytyväisyyteen. Harald ajatteli Irenen
huvittamista, vapaaherra vain omaa itseänsä. Tosin Haraldissakin
liikkui joitakin itsekkäämpiä tunteita, mutta koska nämä olivat
vähemmän selviä ja jotensakin epämääräisiä, niin ainakin tällä
kerralla jätämme ne sikseen.

*****

Harald toimitti vapaaherran asian sillä seurauksella, että pastorin

epäröinti Stellan suhteen haihtui ja hän päätti tämän kanssa käydä
Ristilässä. Mitä Stellaan tulee, niin hän vähän kammoksui tuota
harmaata linnaa, vaikka tunsi sinne salaista vetovoimaakin.
 Matkalla he tavallisuuden mukaan vilkkaasti ja innokkaasti
keskustelivat toinen avomielisesti kysellen, toinen lempeästi
vastaten. Välistä pastorikin vuorostaan teki jonkun kysymyksen ja
Stella vastasi.

Mutta sikäli kuin he lähestyivät Ristilää, menetti Stella

kyselyhalunsa eikä pastorinkaan tehnyt mieli puhua. Heidän tultuaan
puistoon, Stella kuitenkin, oltuaan kauvan ääneti, ryhtyi jälleen
puhumaan:

— Niinkuin ehkä huomasitte, tuntui mieleni niin oudolta,

nähdessäni tuon kivirakennuksen yhä lähenevän. Mutta nyt, kun se
on aivan edessäni ja me jo olemme puistossa, niin se yht'äkkiä alkaa
tuntua minusta aivan tutulta. Uskallanpa sanoa, etten enään pelkää
ollenkaan.

— Samoin on vaarankin laita. Kun se vielä on kaukana, emmekä

tiedä mitä laatua se on, niin pelkäämme enemmän kuin silloin, kun
se on meitä lähellä ja me olemme saaneet siitä selvän käsityksen.

— Ymmärrän kyllä, että puhutte vertauksin. Taikka… ettehän toki

tarkoita että täällä olisi joku vaara tarjona?

Pelokkaasti Stella katsahti ystäväänsä, joka tämän katseen

lumoamana unohti vastata. Eikä se ollutkaan tarpeen, sillä tuolla jo
Irene tuli heitä vastaan, ollen ikäänkuin rauhoittavana vastauksena
Stellan arasti kysyvään katseeseen. Unohtaen pelkonsa rientää
Stella hänen luoksensa, tarttuu hänen käsiinsä ja syleilee häntä.
Irene suutelee hänen kaulaansa ja silloin pälkähtää heidän
päähänsä suikata suutakin.
 Oli keskiviikkopäivä, jolloin Irenellä oli ollut soittotuntinsa, mihin
hän oli niin suuresti innostunut, ja siis oli hänellä nyt kaunis
päivänsä. Jos pastori olisi ollut puolueeton katselija, niin hän olisi
ollut kahdenvaiheilla, kumpaisenko julistaisi kauniimmaksi.

— Tiedätkö, Irene, että tämä kolkko puisto vaikutti minuun lopen

ahdistavasti, mutta heti kun näin sinut, haihtui kaikki tuollainen.
Kuinka hauskaa olikaan, että tulit meitä vastaan. Mitenkä satuit
tulemaan juuri nyt?

— Minähän odotin teitä, kun puolenpäivän aikaan kuulin sen

Har… maisteri Thalbergilta, ja tulin tänne lehtimajaan odottamaan.

— Varmaankin tämä on oma lehtimajasi ja kai sinä useinkin istut

täällä.
Erkki, eiköhän mennä sinne hetkeksi lepäämään?

Sopivampaa olisi ollut mennä ensin vapaaherraa tervehtämään,

mutta pastori ei hennonut evätä Stellalta näin viatonta pyyntöä.
Irenen puolelta olisi myös ollut kohteliaampaa pyytää vieraitaan
astumaan sisään, mutta hän jäi niin mielellään ystäväinsä kanssa
ulos lehtimajaan. Hän tunsi jonkinmoista vaistontapaista pelkoa
esitellä isänsä ja Stella toisilleen. Tai lieneeköhän hän odottanut, että
Haraldkin tulisi puistoon vastaanottamaan odotettuja vieraita. Jos
niin kävisi, niin sopisihan heidän neljän ensin viettää muutamia
hauskoja hetkiä lehtimajassa, ennenkuin siirtyisivät synkkään ja
juhlalliseen salonkiin.

Mutta Haraldia ei näkynyt, ei kuulunut ja pastorin täytyi muistuttaa,

että oli jo istuttu täällä kolme neljännestuntia ja että jo oli aika mennä
talon isäntääkin tervehtimään.
 Noustessaan ylös portaita Stella kalpeni ja vapisi huomattavasti.

— Oi, kuinka minun tekee pahaa, sanoi hän — jäädään tähän

hetkiseksi.
Näettekö, kuinka vapisen?

Hellästi ja ihmetellen pastori ja Irene katselivat häntä. Pian hän

kuitenkin toipui ja sanoi hymyillen:

— Minä, nähkääs, ensi kerran eläessäni käyn vieraissa!

Sitten hän keveästi juosta sipsutti jälelläolevat portaat ja nyt tultiin

salonkiin. Vapaaherra ei ollut siellä, mutta askeleita kuullesssan hän
omista huoneistaan pian saapui sinne.

Pastorin tervehdykseen hän vastasi hyvin kohteliaasti, mutta kun

ensinmainittu tarttui Stellan käteen esittääksensä hänet, niin olisipa
kelvannut katsella vapaaherraa! Hän kalpeni ja häntä alkoi miltei
puistattaa. Ellei pastori olisi ollut niin ällistyksissään, niin vapaaherra
olisi hänestä muistuttanut kiinnisaatua rosvoa. Stella oli ulkona,
ennenkuin näki vapaaherran, kalvennut ja vapissut, mutta oli jo aivan
tyyni. Nyt oli vapaaherran vuoro kalveta ja vapista.

— Suokaa anteeksi, hyvä herrasväki, sanoi vapaaherra

irrottauduttuaan lumouksesta, joka muutamaksi sekunniksi oli hänet
vallannut — pastorin holhokki, Stella neiti… sehän on hänen
nimensä… muistuttaa ulkonäöltään niin ihmeellisesti erästä
nuoruudenystävää, joka oli minulle hyvin rakas, oi, ehkäpä liiankin
rakas… Minussa on yleensä se heikkous, mikä luultavasti riippuu
ylen vilkkaasta mielikuvituksesta, että usein olen huomaavinani
yhdennäköisyyttä rakkaitten vainajien ja sellaisten henkilöiden välillä,
jotka näen ensi kerran. Maisteri Thalberg, joka, paha kyllä, ei satu
olemaan saapuvilla sitä todistamassa, muistaa kyllä, kuinka hänet
ensi kerran nähdessäni ällistyin. Niin kovin kuin nyt en kuitenkaan
silloin hämmästynyt.

Irenekin muisti kyllä, kuinka Haraldinkin ulkomuoto silloin oli

hämmästyttänyt sekä hänen isäänsä että herra v. Nitiä, joskaan se ei
ollut koskenut edelliseen niin omituisesti kuin tällä kertaa, se täytyi
Irenen myöntää. Tuota heikkoutta, jonka vapaaherra
puolustuksekseen mainitsi, ei Irene kuitenkaan sitä ennen koskaan
ollut huomannut, vaikka vapaaherra oli kertonut siitä niinkuin se olisi
ollut jotakin hyvin tavallista, ja sitä Irene ei voinut käsittää.

Taitavammin ja kevyemmin kuin edellisestä päättäen olisi sopinut

odottaa, käänsi vapaaherra nyt puheen muihin asioihin. Hän ja
pastori kiintyivät pian keskustelemaan maanviljelyksestä, hallan
panemasta viljasta ynnä muusta semmoisesta, mutta heti kun Harald
ilmestyi saliin, ei kauvan viipynyt, ennenkuin vapaaherra poistui
seurasta.

Ensin hän astuskeli edestakaisin kukkatarhassa, joka oli aivan

salin ikkunain alla, josta hyvin saattoi nähdä, kuinka hän milloin
katkaisi jonkun tuoksuvan kukkasen, milloin suvaitsi nyhtäistä irti
jonkun rikkaruohon, tirkistäen sillä välin puutarhan pystö-aitaa
tutkiaksensa, olisiko muutamain säleitten välinen aukko ehkä niin
suuri, että porsaat pääsisivät tunkeutumaan siitä sisään. Mutta kun
hän huomasi, että nämä, kyllästyneinä turhiin ponnistuksiinsa,
röhkien vetivät päänsä pois, hän näytti rauhoittuvan ja läksi pois
kukkatarhasta.

Mutta sitten hän hiljaa nousi herra v. Nitin ullakkokamariin. Tämä

oli vastikään ryhtynyt juomaan totiansa. Vapaaherran silmät iskivät
tulta ja hän sanoa tokaisi:
 — Eipä juuri usein haluta käydä siivottomassa, haisevassa
huoneessasi ja vanhastaan kai tiedät, etteivät asiat silloin ole hyvällä
tolalla.

— No, sano sitten pian, mikä lempo nyt taas on hätänä!

— Pistäydypä alhaalla vilkaisemassa pastori Ortmanin

kasvattitytärtä. Mutta sen sanon sinulle: älä joudu hämillesi, tai
ainakaan et saa sitä näyttää, vaikka hän liiaksi olisikin maanalaisen
tuttavamme näköinen… Älä minua noin katsoa töllistele, eihän se
mitään hyödytä. Ota aika kulaus ja lähde alas.

Herra v. Nit näytti vähän säikähtäneeltä eikä häntä näyttänyt

haluttavan mennä. Mutta vapaaherran kehoituksesta hän otti vieläkin
kulauksen ja rohkaisi mielensä.

— Poistu sieltä niin pian kuin suinkin sopii, mutta älä aivan heti, ja
palaa sitten tänne. Minä jään tänne odottamaan. Onneksi olkoon!

Tehtyään salissa kumarruksensa, jolloin ei hämmästynyt yhtä

silmittömästi kuin vapaaherra, koska edeltäpäin tiesi olla varuillaan ja
sitäpaitsi konjakkiryypyistä oli saanut rohkeutta, hän vähäksi aikaa
jäi puhelemaan ja palasi sitten huoneeseensa, jossa vapaaherra
läpitunkevin katsein otti hänet vastaan.

— No, mies, mitä ajattelet?

— Mitäpä muuta, kuin että minäkin huomasin tuon

yhdennäköisyyden. Suuri se kyllä on, mutta olisipa se voinut olla
suurempikin.

— Älä sotke asiaa! Sanon sinulle, Ptolemaeus Seth v. Nit, että tuo
yhdennäköisyys on niin selvä kuin se ikinä voi olla. Juuri sellainen
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