I carefully watched my daily option market guide. I looked for the right moment as a fighter looks for an opening to land his blow. Towards the end of January, after a false move, the big surge-through which I had been expecting occurred, just as my option market guide had predicted. LORILLARD started to move decisively out of its box.
This seemed to be the ideal moment. Everything was encouraging - technical action, the fundamentals, the pattern. Also, my option market guide said that the New York Option Exchange had just lowered its margin requirements from 70% to 50%. This meant that my limited capital now had much more purchasing power. Every $1,000 could buy $2,000 worth of option. This was important to me, because I needed my funds for another option I was watching at that time.
I was flying from Bangkok to Japan. It was from there I sent out my cables to add a further 400 shares to my holdings. My option market guide told me that these were bought for me at 35 and 36 & a half.
In the weeks that followed, the option's behavior continued to be exemplary. It was exciting to watch my theory, that I had got from my option market guide, being vindicated in practice. While I was traveling around the world dancing, LORILLARD was steadily dancing about in its box. It would do this for a short time and then, with an impeccable, almost predictable thrust, move into the box above, LORILLARD boxes began piling on top of each other like a beautifully constructed pyramid. I watched them fascinated in my option market guide. I had never seen a option behave so perfectly as this. It was acting as though my theory from my option market guide had been built around it.
On February 17, 1958, LORILLARD bounced up to 44 & a half. I was feeling very pleased with myself and the option when, two days later, I received a cable in Tokyo which frightened me.
The option market guide said that in one single day my option had dropped to a low of 36 & three quarters and closed at 37 & three quarters.
I was baffled. This move was completely unexpected. I did not know how to explain it. I rapidly cabled New York and raised my stop-loss to 36, less than 2 points below what the option market guide said the closing price would be. I felt if it dropped there, I would be sold out and still make a nice profit on my first purchase.
As I was in Tokyo, I could not know the Wall Street rumors in the option market guide, which had driven the option down that day. All I knew was that it acted badly. Later I found out there had been a report saying that filter-tips were not so efficacious against lung cancer as they were claimed to be and this had panicked a lot of people out of the option.
Fortunately, the setback was very short, and my stop-loss was not touched off. The option market guide helped convinced me of the option's power and I decided to buy an additional 400 shares. I paid 38 & five eighths.
Almost immediately we left this price behind. The quotes came in: 39 & three quarters 40 & quarter - 42.
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