Trading Places: How Winthorpe and Valentine Pulled It Off

I was watching Trading Places a while back, for about the sixth or seventh time, and it occurred to me that I still didn't know exactly how Winthorpe (Dan Aykroyd) and Valentine (Eddie Murphy) did what they did to make a gazillion bucks and simultaneously break Duke and Duke. Well, thanks to detailed analysis of the tape, computer modeling, and psychological simulations, I now have the answer:

The Dukes' agent has the fake crop report saying that the weather was bad and the harvest was less than normal. Therefore, he is expecting high prices. Valentine and Winthorpe have the real crop report and know that prices will go down when it is revealed.

The agent wants to own as many contracts as possible before the crop report is revealed, since (he thinks) once it is, the price will go up and he can sell at a profit. Once everyone sees that the agent is trying to corner the market, they all want a piece of it, forcing the price up since more people are buying than selling.

At a moment timed for maximum dramatic impact, Valentine and Winthorpe begin selling short as fast as they can write the orders.

The crop report is revealed and the price starts dropping as everyone tries to get rid of their contracts before the bottom drops out.

At a moment timed for maximum dramatic impact, Valentine and Winthorpe, having sold short, say, 100,000 contracts at $105 apiece, now jump in to buy. Say that they can buy them back at $85, and they don't buy any from the Dukes' agent.

At the end of trading, Valentine and Winthorpe have delivered on all short- sold contracts with a $20 profit on each one. They're up $2M. The Dukes' agent is left holding 100,000 contracts bought at $105. He's out $10.5M, and the margin call of that $10.5M breaks Duke and Duke.

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