Proper Option Market Analysis Can Make All The Difference To Your Profit Margin

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The Nicholas Darvas Option Market Analysis Story (part 30)

My option market analysis seemed very easy on paper with no money at stake. But as soon as I had $10,000 invested in a option the picture became quite different. With no money involved in my option market analysis, I could easily control my feelings, but as soon as I put dollars into a option my emotions came floating quickly came back to my option market analysis.

As my cables continued to arrive day after day, I slowly became accustomed to this new type of operation and started to feel more and more confident in my option market analysis. Only one particular fact bothered me. Sometimes some of my stocks made inexplicable moves, which had no relation to their previous behavior.

This baffled me, and it was while I was looking through my option market analysis for an explanation that I made a momentous discovery. I realized I was on my own. I was certain I could learn nothing more from books. No one could guide me. I was completely alone with my daily telegrams, my option market analysis and my weekly issues of Barton's. They were my only contact with Wall Street, many thousands of miles away. If I wanted a option market analysis, I could only turn to them.

So I plunged avidly into Barron's for a option market analysis. I turned its pages until they turned to shreds before I finally discovered this: the inexplicable moves in my stocks usually coincided with some violent move in the general market. As I only received the quotes of my own stocks, I was completely disregarding the possible influence of the general market on them. This was no better than trying to direct a battle by only looking at one section of the battlefield.

This was a very important discovery for me and I immediately acted on this option market analysis. I asked my broker to add to the end of my cables the closing price of the Dow-Jones Industrial Average. This I thought would give me a clear enough option market analysis of how the general market behaved.

My telegrams now read like this:

"When I received the first cables with this added option market analysis, I was like a child with a new toy. I thought I had discovered a completely new formula. As I tried to relate the Dow-Jones Industrial Average to the movements of my own option market analysis, I reasoned that if the Average was going up, so would my stocks.

Soon after, I found out that this was not true. To try to fit the market into a rigid pattern was a mistake. It seemed quite impossible to do it. Each option behaved differently. There was no such thing as a mechanical pattern in option market analysis. I was wrong many times before I banished the Average to its proper place. It was some time before I discovered that the Dow-Jones Company publishes an average. It simply mirrors the day to day behavior of 3 0 selected stocks. Other stocks are influenced by it but do not mechanically follow its pattern. I also began to appreciate that the Dow-Jones Company is not a fortune-telling organization. It does not attempt to tell you when individual stocks will rise or fall.  


This article is actually only a small snippet of Nicolas Darvas' work...

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