Assaf Gavron - The Hilltop

To counter such risks, the investment bank had several safeguards. One was the requirement that they maintain a special account, a margin account, with sufficient money to cover the risks. A debt could swell to terrifying proportions and have to be paid immediately, so the bank didn’t permit going into the red. A second safeguard was the company’s risk-management department, whose job it was to control and oversee transactions to prevent mishaps — to stop a trader from buying a large amount of options of the same kind without spreading the risks. Roni made an effort to get to know the department’s personnel at Goldstein-Lieberman-Weiss.

He continued to make moves and yield profits. His network of ties at that stage was extensive enough to snare interesting snippets of information and translate them into cash almost every week. It was safe, because his informers were also invested in the fund. Everyone shared the same interests. But there were scary moments. There were fluctuations that momentarily carried him to the edge of debt. At those moments, Idan Lowenhof’s words flashed through his mind. As the market turned more and more insane, people were being fired en masse, and the pressure he was under to turn a profit became overwhelming.

The story with the options of RIM, the company that manufactured BlackBerry devices, began at the Sunday pickup basketball game with some Israelis on the Upper West Side. He still went there whenever possible, to stay in shape and sweat a little, and also because he liked most of the guys.

A chance remark by one of them at the end of the game initiated the ballistic path that would end in Roni’s crash: “Fuck this motherfucking iPhone, what a piece of shit.”

“Is it new? You don’t like it?” Roni asked as he browsed through the e-mails on his BlackBerry.

“Yeah, I got it a week ago. The Internet connection is a joke, never works. And look at this.” He held out the device to Roni and turned it over. Pink stains had appeared on the smooth white plastic backing. Roni took hold of the device and frowned. “What’s this, is it blushing?” He smiled.

“Can you feel how hot it is? I’ve read a bunch of complaints on the Internet. They said they’d exchange it for me at the Apple store.” He looked at the device in Roni’s hand. “Fuck it, I don’t understand why I gave up my BlackBerry. This iPhone is nothing but noise and ringtones.”

Roni didn’t give it much thought when he got a call the following day from his Bosnian friend from school, Sasha. Sasha was working now at a large consulting company in San Francisco. He was in New York for a few hours en route to Bosnia for a visit — his grandfather had died — and asked Roni if he had time for a quick lunch, for old times’ sake.

“You’ve gotten fat!” Sasha said on seeing Roni. They ate at Mister Mei, an Asian bistro they’d enjoyed back in their school days. “You’re not doing any sports?”

“I played basketball yesterday.” Roni examined his increasingly round stomach. Spending hours in front of monitors year after year was not a recipe for a healthy, slim body. Many of his colleagues went to the gym a few times a week after trading hours, but he couldn’t be bothered. “What’s happening in San Francisco?” he said, changing the subject.

Sasha was working too hard. “My grandfather was always good to me,” he joked, “and now he died at precisely the right time.”

Sasha’s team worked with a company from San Jose, a manufacturer of microchips for digital cameras. They did business with some of the leading camera manufacturers in Korea and Japan. The company had hired Sasha’s consulting firm to streamline procedures between the manufacturing plants in China, the development center in San Jose, and clients in Japan, Korea, and the United States.

“You can’t imagine just how boring the work is, and hard. No one wants to help us help them improve the way they operate.”

“What about the U.S.?” Roni wondered. “Aren’t there manufacturers of digital cameras in the United States?”

“There’s Kodak,” Sasha replied, “and now Apple has brought out the iPhone, with their camera. Turns out the chip heats the devices more than they expected, and everybody’s complaining, and that’s why the guys there are freaking out and have zero time for us.”

Roni froze in the middle of shoving a forkful of General Tso’s chicken into his mouth and looked at Sasha wide-eyed. He recalled the weird color on the basketball friend’s device from the previous evening.

“What happened, did you choke?” Sasha asked.

“No, no,” Roni waved his hand, “go on. So, the thin telephones aren’t coping with the cameras?”

“Don’t know. All these devices that are trying to be everything, maybe it won’t work. A strong communications device with telephone, e-mail, SMS”—he picked up his BlackBerry and gestured toward Roni’s—“I don’t believe there’ll ever be a real substitute for it, as long as it works as well as these. Steve Jobs hasn’t always been right, you know.”

When Roni got to work, he set one of the monitors to keep track of the Apple and RIM stocks. Apple had remained pretty fixed, but the fluctuations of RIM were interesting. From late June to mid-July it lost some 20 percent of its value, but then regained the same over a similar period of time. From late August to September, it fell sharply again. He read a commentary in BusinessWeek that concluded that “the iPhone will never be a threat to the BlackBerry,” and articles about intrinsic faults with the iPhone— MarketWatch dubbed the device “a ridiculous idea.”

Roni messaged Meir Foriner on the chat screen, in Hebrew: “The Maccabi game?” The Maccabi game was code for a landline-to-landline call from home at nine in the evening.

Foriner replied: “With the grace of God.”

Roni called him that evening and spoke to him about his ideas. Foriner came back the following day with information he’d managed to gather at his credit-rating company. The sales figures for the new iPhone in the first three weeks were indeed a little disappointing. The BlackBerry remained strong, encouraging reports and favorable reviews had been published about new devices released in response to the iPhone. Google, too, Foriner added, was a player worth keeping an eye on. It planned to release its own operating system for mobile phones that fall. Which would also adversely affect the iPhone, at some point, Meir assessed. It could be worthwhile going with Google against Apple.

Mid-September. Roni and his colleagues watched, astonished, as Lehman Brothers collapsed and the entire market entered a downward spiral. Roni spotted an opportunity. People were fleeing banking and insurance company stocks, he analyzed, but there was no reason for that to affect a manufacturer of mobile devices — on the contrary, people would be looking for real, working, successful products. Roni took a combined position. The RIM share was trading at a price of 105. He assessed that within a month the smoke would have cleared and it would rise to somewhere in the region of 125–130 and perhaps even 140, its value three months earlier.

He played his gamble two ways: by purchasing “call” options, which would allow him in a month to buy the share at $115, which was lower than the value he assumed it would be. And by selling “put” options, which required him to buy the same share for $80, an even lower value. The expiration date for the options was a month into the future: Friday, October 17. From Roni’s perspective, it was a good bet. In addition to his theory about people fleeing the bank shares in favor of commodity stocks, he believed the faults and complaints concerning the iPhone and the disappointing sales figures would be all over the financial news, and maybe even the mainstream media, and that BlackBerry would go to town over it and pump out publicity for its new products and good sales. It was a rather confident position — Roni gambled in one direction only and didn’t hedge his bets. He was one thousand percent sure of himself, and he took money that belonged to the bank, the bank’s clients, Foriner and the rest of the Israeli clients, and his own, and he invested it. The position, according to the complex mathematical models he ran, had the potential to yield millions in a single month.