17.

  Mr. Bergman came to class clean shaven for a change today. Instead of his usual half tucked navy polo or express for men button-down shirt and six-dollar tie. He was dressed in a tailored silver-grey pinstriped suit, a black silk button-down shirt, and a grey striped tie in a Windsor knot. Completing the ensemble were oxford shoes. Johnny could tell that his outfit was worth more than the entire stash of drug money he spent on the convoy operation.

  Mr. Bergman’s hair was well combed, parted, and slicked back with expensive product.

  “Mr. Bergman?” Gretchen said, stunned by his uncharacteristically dapper appearance.

  “Good morning class,” Mr. Bergman smiled.

  “Oh my god,” Tracy said, her jaw dropping as she marveled at her teacher's stunning appearance.

  Mr. Bergman noticed Tracy’s eyes moving up and down his suit, “Careful Tracy,” he grinned, “Don’t stand so close to me.” He said as he turned to the whiteboard and with a green marker wrote across the top of the board one word, OPTIONS, he underlined it.

  “Take your seats, kids, let me teach you something,” Mr. Bergman said.

  The kids all took their seats as Mr. Bergman leaned against the blank whiteboard, “I know you kids having a good time in this class, get a free period, get some homework done here, more time to party at home,” he smiled and had a quick laugh to himself as he looked down.

  “I know I may seem like a fuck up to you kids, a loser, I know I’m a dirtbag. I know that it looks like I don’t take care of myself because I don’t,” he looked over his class.

  “I don’t give a fuck, because I’m wealthy enough not to give a fuck,” he said. “As I’ve explained, my money is a little tied up right now, which is why I still do this, but I’m so god damn close to ending this silliness I’ve found myself in, and when I do I am going to go stratospheric, I’ll have over a dozen suits this nice,” he said putting his hands down showing off his high end suit.

  “I want that for you guys, I want that for every student I’ve ever taught, that’s why I started teaching,” he said.

  “I hope you have all your homework done, and I hope you’re ready to brace yourselves because we’re going to have a boring class today,” Mr. Bergman shrugged his shoulders.

  “Should we take notes today?” Gretchen asked.

  “You can try I encourage you to try. It won’t make a difference though. I guarantee that you probably won’t understand most of this. Not because you can’t, just because you haven’t been taught enough to yet,” Mr. Bergman laughed.

  “Taught enough about what?” Rob asked.

  “We're talking about trading stocks,” Mr. Bergman said as he turned to the whiteboard and started to write.

  “We’re going to talk about how the stock market works? We’ve learned that in other classes,” Lewis said.

  “Correct Lewis,” Mr. Bergman said as he finished writing. Usually, when Mr. Bergman told someone they were correct, it was followed by the awarding of a gold star. Not today.

  “But we’re not talking about the stock market, we’re talking about trading stocks,” Mr. Bergman turned back to the class, “You can take the things you’ve learned in the various business classes you’ve taken here at Reagan High, use them to get three weeks ahead of your classmates if you decide to major in one of the various business fields in college, or use them as general life advice. You’re all Americans. Business advice is some of the best advice you can get in this country no matter what line of work you’re in. I know all of you might not pursue careers in business. I know most of you take these classes for the easy A’s. I think it makes sense that the business classes provide such easy A’s. Because business is easy, that’s the dirty secret about America. Everyone can make it in this country, everyone,” Mr. Bergman’s tone got serious as he looked at the class, taking time to make eye contact with all five of his students.

  “My father provided for our family, he did. We always had food. We always had clothes. We always had a roof. Anyone in America can get that. In a way, that’s the most important lesson I want to impart on you. Now that I’ve said that I want to tell you the other dirty secret about America. You can get more. You can always get more,” he said.

  “The stock market is the number one generator of wealth in this country. Capital is the same whether you work in cubical, a retail gig, or a construction site. Historically the S&P 500 will generate seven percent interest a year, if you’re lucky a bank these days will give you just under two.” Mr. Bergman turned to the whiteboard. “With that interest, if you diligently invest monthly in it in forty years when you’re sixty and want to retire, you will quadruple your money. You’ll have a nice nest egg. Enough to supplement whatever of social security is left after my generation gets done with it. It’s a foundation I would suggest for anyone’s portfolio. But it’s not enough. As I said, you can always get more. I want to see how much you kids know about the stock market. How does the stock market work? How do you make money in stocks?” he asked.

  “You buy low, and sell high,” Rob said.

  “Simple and concise as always Rob,” Mr. Bergman smiled. “You can buy, you can sell, but there are other things you can do too. If it were that easy the people who did it for a living wouldn’t be making over six figures a year now, would they? You can do more than buy and sell,” he pointed at the whiteboard, “You have options.”

  “I’m about to teach you something complicated. Don’t worry this won’t be on a test. I’m not teaching you this for school, I’m teaching you this for life. I want you to see how complex the business world is. If you think this is complicated, know, it gets ten times more complex when it’s applied, so, good luck,” Mr. Bergman said as he turned to the whiteboard and took a green marker. He drew a line down the middle of it. On the left side, he wrote the word CALL, then he wrote the word PUT on the right side.

  “In addition to buying and selling stocks, you can also buy and sell thing’s called options, they are called that because instead of buying or selling the stock, you are instead buying and selling the option to buy or sell a stock,” he said. He turned to the class, “Did that make any sense to anyone?”

  Johnny sheepishly raised his hand halfway up, and Mr. Bergman looked at him surprised before he could say anything Johnny shook his head and lowered his hand.

  “That’s what I thought,” Mr. Bergman said.

  “I could try to explain this, but I think it’s just easier to give a crude, slightly inaccurate example to give you an idea of what I’m talking about. Let’s say that people want to buy candy bars. The price of a candy bar is nine dollars. I go to the guy who sells candy bars and tell him, I would like to purchase a candy bar one month from now, and I will pay you ten dollars for it. He agrees, we sign a contract, and one month from today I buy a candy bar for ten dollars. Over the course of the month, market forces have caused the price of a candy bar to rise to eleven dollars, but I have a contract guaranteeing I can buy the eleven-dollar candy bar for ten dollars. And I have just profited one dollar. Does that make any sense?”

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  Lewis raised his hand, “A little bit, but wouldn’t it make more sense to just buy the candy bar outright for nine dollars and hold it until it’s 11, you would make two dollars that way, wouldn’t you?”

  “You have a point Lewis, but not a good enough one to get a gold star, let me explain to you where the magic happens. In Lewis’s example, I buy a candy bar in the hopes its value will go up, I’ve invested nine dollars, and I make a profit of two dollars. That’s a 22% return, that’s impressive. But it’s a 22% return on only one candy bar. I have to invest a whole nine dollars to make two, it may be a decent return, but it’s not enough.” Mr. Bergman said as wrote Lewis’s scenario in a math equation on the board.

  “Let’s say we only have nine dollars to invest, so buying that one candy bar ties up all my capital. Forget about buying the candy bar, instead of spending nine dollars buying a candy bar, I will instead use my capital to buy one hundred and eighty options to buy the candy bar in one month at five cents each,” Mr. Bergman began to write out another equation, “So if I profit one dollar off of every option, and I buy one hundred and eighty of them, when the price goes to eleven, I borrow money from the bank to buy the candy bars for ten dollars then turn around sell them for eleven and off of my nine dollar investment I have just made one hundred and eighty dollars giving me a 2000% return on my investment,” he said smiling as he turned back to the class, “Sounds much more impressive than 22% doesn’t it?”

  “How is that legal?” Tracy asked.

  “It’s legal because this is America,” Mr. Bergman laughed.

  “What happens if you’re wrong?” Gretchen asked.

  “Excellent point Gretchen,” Mr. Bergman said, “That point brings us to the second half of our lesson, the other side of the coin. It’s called a put. Since it involves the price of something going down, we’re going to use Oatmeal Cookies for this example. Let’s say an Oatmeal Cookie costs nine dollars. No one likes oatmeal cookies, so the price is probably going to go down. You buy an option to sell a cookie for eight dollars one month from now. Now let’s say the price of a cookie falls to seven dollars. You can then execute the sale and buy a cookie for seven dollars and then flip it for eight. Congratulations, the asset’s price went down, and you just made a dollar,” Mr. Bergman said, writing out the equation on the right side of the board.

  “Woah! You can make money when a stock goes down?” Rob asked.

  “You can make money when a stock does anything,” Mr. Bergman said, “To Gretchen’s point, what happens if we’re wrong. Let’s go back to the Call option on the Candy bar, say the price of a candy bar goes to eight dollars instead of eleven. Our call says we can buy them for ten, so we’ve lost two dollars a bar when the option is exercised. At one hundred and eighty options, we’re out three hundred and sixty dollars. If the bottom of the candy bar market completely falls out and they go to zero, now you’re out eighteen hundred dollars. Sounds scary right? That’s a lot of money to lose because of candy bars. I want to tell you something even scarier, what if the price of a cookie made the same move in the opposite direction, they’re worth eighteen dollars now. You’ve lost eighteen hundred dollars, what if keeps going up though? A stock’s price and only fall so much, a candy bar can’t be worth less than nothing. But we live in America, the land of opportunity, that humble oatmeal cookie you bet against can prove you wrong, it can prove you very wrong, what if it goes to twenty-five? Thirty? One-hundred? There’s no ceiling on achievement in this country. If the oatmeal cookie goes to one hundred dollars a share, you have now lost over sixteen thousand dollars and probably your house and the shirt off your back.”

  “This sounds scary,” Gretchen said.

  “It is if you had to execute the trade. Most of these options contracts don’t come with a mandate to execute the deal. You would be out the five cents you spent on each option. As usual, the real world is utterly more complex than what a high school class is capable of teaching you. These are very simplified examples with nice big round numbers to make it easy to process. When you’re trading stocks, you need to think in pennies and percent’s instead of dollars and fractions.”

  The class was intrigued and intimidated. Johnny was at his desk, scribbling a math problem of his own on his notebook. He looked up at his teacher and raised his hand.

  “Vincent,” Mr. Bergman pointed at Johnny.

  With curiosity in his voice, he asked, “Could you do both at the same time?”

  Mr. Bergman’s eyes lit up, “That’s quite a complex trade you’re thinking of. Why don’t you elaborate for your classmates what you’re talking about,” Mr. Bergman held out a blue marker for Johnny, “Come on up to the board, enlighten us,” Mr. Bergman said.

  Johnny took a quick look at Gretchen as he ripped the page out of his notebook and got up and walked to the front of the class, taking the marker from Mr. Bergman. He approached an empty space on the board and began to write out his equation.

  “Okay, so what if we bought a, put? The one where we make money if it goes down right?” he turned to Mr. Bergman.

  “Correct,” the teacher said.

  “Okay, we buy a put on rice crispy treats, they cost ten dollars, so we’ll put a put on them for nine dollars,” Johnny said as he started to show his work with the blue marker, “Then we’ll get a call on the same stock for eleven dollars,” he turned to Mr. Bergman, “You said you don’t have to execute an options trade if it’s bad right?”

  “In most cases,” Mr. Bergman said, just as enthralled.

  “So that means that if I buy both a put and a call, so long as the price changes either way if it changes, I’ll have a trade I can execute to make a profit? Right?”

  Mr. Bergman sat back in his chair, cracked his knuckles and smiled, “Very astute of you Johnny,” He turned to the other students, “Class, Johnny has just discovered a foolproof method to beat the market, he’s going to be a millionaire someday,” he smiled.

  Gretchen’s eyes went wide as she looked over towards Johnny. Their eyes met, and Johnny did his best to keep from blushing and do nothing more than give her a sly grin.

  “At least that’s what it looks like,” Mr. Bergman said getting up and heading towards the whiteboard. “It’s a good effort, Vincent, it is,” he said as he reached out to take the marker from Johnny.

  “Class, what Johnny is talking about is called a Wingspread trade,” he turned to Johnny, “It’s a very advanced trade, one that requires a lot of skill to pull off. Who can tell me what Johnny’s little equation here is missing?” Mr. Bergman asked.

  Gretchen raised her hand, “You said earlier that you have to buy the actual contract, right? Didn’t you say they cost five cents each?”

  “Correct, Gretchen,” Mr. Bergman said, “You see, Johnny is buying a lot of options to do this, he has to double his initial investment to buy the options necessary,” He turned to Johnny, “Tell me, Vincent, run me through your trade if at the time to exercise one of your options the price of a rice crispy is, ten dollars and fifty cents.”

  “Well, that’s not enough to execute with either option, so, that means, um…” Johnny looked at his equation, trying to figure out what he would do in that situation.

  “That means you take a bath,” Mr. Bergman said, “If you paid a nickel for one hundred of each option you’re out ten dollars if you paid a quarter, you’re out fifty. That money is just gone, and you don’t even have the benefit of still having equity in the stock like you would if you just bought it outright. It was an impressive effort, Johnny, you have the mind of a trader,” Mr. Bergman smiled as he reached over and patted Johnny on the shoulder.

  “Remember, don’t use these little examples you’ve gotten today as fact, the real market is orders of magnitude more complex then what I’ve explained here. It takes research, tons, and tons of research to make the right trades. And even if you’re the greatest investor in the world, you will make mistakes. You will get killed out there occasionally. But the opportunity is always there. The stock market is like a casino that simultaneously has both more and less rules. Like I said earlier, the people doing this don’t make six figures for doing nothing,” As Mr. Bergman finished, the bell rang, “Don’t worry, tomorrow we’re back to free period, I’ll see you kids later,” he said as the students left for lunch. Mr. Bergman saw Gretchen walking up to Johnny and tapping his shoulder to talk to him as they left together. After the student’s left, Mr. Bergman walked into the hallway and turned the other direction to head to the teacher’s lounge. As he turned the corner in the hallway he ran into Ms. Raymond.

  Ms. Raymond’s jaw dropped, seeing Mr. Bergman in his designer outfit, “Chet?” she said, shocked.

  “Hello Elizabeth,” Mr. Bergman said, giving Ms. Raymond a grin and a wink.