https://www.npr.org/sections/money/2013/07/19/201430727/what-actually-happens-at-the-end-of-trading-places

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What Actually Happens At The End Of 'Trading Places'? : Planet Money
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Radio

What Actually Happens At The End Of 'Trading Places'?

July 12, 20134:37 PM ET
Heard on All Things Considered

By 

Robert Smith

What Actually Happens At The End Of 'Trading Places'?

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[trading-pl]

Feeling good. Paramount/The Kobal Collection hide caption

toggle caption
Paramount/The Kobal Collection

It's been 30 years since Trading Places came out. And, to be honest,
I never really understood what happened at the end of that movie.
Sure, Louis Winthorpe (Dan Aykroyd) and Billy Ray Valentine (Eddie
Murphy) get rich, and the Duke brothers lose all their money. But
what actually happens? How does it work?

I recently talked to Tom Peronis, a guy who has spent years trading
OJ options. He walked me through every step of Winthorpe and
Valentine's plan.

1. Give The Duke Brothers Bad Information

The Duke brothers -- two old, rich guys -- have bribed someone to get
an advance copy of a government report on the orange crop. This will
give them inside information on what's going to happen in the market
for frozen concentrated orange juice. But Winthorpe and Valentine
find out what the Dukes are up to, and they manage to steal the crop
report before the Duke brothers get it.

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The report says the orange crop is strong. When the rest of the world
learns this, the price of OJ will fall. So Winthorpe and Valentine
create a fake crop report that they put into the hands of the Duke
brothers. The fake crop report says the crop was bad. The Duke
brothers see this, and believe the price of OJ will rise.

2. Drive Up The Price Of Orange Juice Futures

The setting, the floor of the commodities exchange. The Duke brothers
have told their trader to buy orange juice futures, and to keep
buying no matter how high the price goes.

The market opens, and the Duke brothers' trader starts buying.
Everybody else sees this and thinks the Dukes know something.
Suddenly, everybody's buying. The price goes up and up and up, and
the Dukes keep buying.

3. Sell To The Suckers

Then comes the key line for the entire movie -- a line that's almost
unintelligible. Standing on the floor of the exchange, Winthorpe (Dan
Aykroyd) yells out:

    Sell 30 April at 142!

Here's what that means: He wants to promise to sell orange juice in
April for $1.42 per pound. The "30" in his line means he wants to
start by selling 30 contracts. (One contract = many, many pounds of
OJ.) (Also, that "30" might be some other number. It's hard to
understand what he's saying. But it doesn't really matter -- they sell
a lot of contracts.)

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All the other traders think the price in April will be higher than
$1.42. The traders mob Winthorpe and Valentine, agreeing to buy lots
and lots of OJ from them at $1.42 a pound.

4. Wait For The Other Shoe To Drop

A minute later, everything on the trading floor goes quiet. Everybody
looks at the TV. On the TV, the secretary of agriculture walks up to
a podium and reads the orange crop report. The guy tells the world
that the orange crop is fine.

5. Buy Low, Get Rich And Bankrupt Your Enemies

To the traders, this means that the price of OJ is not going to go
through the roof. All those traders who, a minute ago, were buying
all they could, now suddenly need to sell. So the price starts
falling. When the price hits 29 cents a pound, Winthorpe and
Valentine start agreeing to buy orange juice in April.

In other words, Winthorpe and Valentine have contracts allowing them
to buy millions of pounds of orange juice in April for 29 cents a
pound, and to sell it for $1.42 a pound. They sold high and bought
low. They're rich. The Dukes made the opposite bet and went broke.

Bonus: The Eddie Murphy Rule

One interesting kicker to the story: Trading commodities on inside
information obtained from the government wasn't actually illegal when
the movie came out, but it's illegal now. It was banned in the 2010
finance-overhaul law, under a special provision often referred to as
the Eddie Murphy Rule.

Note: This story was originally posted on July 12. It was updated on
July 19 to add audio from the radio version.

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