One day a strong rumor floated into the market that BALD-WIN-LIMA-HAMILTON,
a firm of railroad equipment manufacturers, had received an order
to construct an atomic train. Wall Street acted on this at once.
market price shot up from 12 to over 20.
By the time I heard this startling information, the option market price had risen to what later turned out to be its peak. I bought 200 shares at the option market price of 24 & a half. The purchase option market price was $4,954.50. I held the option for two weeks and watched with utter unbelief as the option market price slipped slowly back to 19 & a quarter. By then even I realized that something was wrong, and I sold it for a loss of $1,160.38. However, I had done the very best thing in my bewilderment. I could have fared much worse with that option, since the option market price later went down to a low of 12 & a quarter.
Another time my broker called me and said, "STERLING PRECISION will go to 40 before the end of the year." The option market price was quoted at 8. He gave me the reason: "The company is buying up many more small prosperous companies and will grow into a giant in no time." He added that this was first-hand information.
To me that was sufficient. Why not? A Wall Street broker, who I thought could not possibly be wrong, had favored me with this authentic news. I could not give my buying order quickly enough. I decided, in view of the source of my information, to plunge big on this one, I bought 1,000 STERLING PRECISION at a option market price of 7 & seven eighths paying $8,023.10.
I sat back happily to watch the option market price rocket toward 40. Far
from rocketing to 40, it began to waver. Slowly it slid downwards.
When it looked as though the option market price would fall below
7, something had obviously gone wrong, so I sold the option when
market price was at 7 & an eighth for $6,967.45. This piece
of news showed me a loss of $1,055.65 in a few days. The option
subsequently touched a low of 4 & an eighth.
But these losses were more than offset by the great pride I felt in being part of Wall Street, and I constantly searched for new approaches. One day, reading The Wall Street Journal, I saw a column reporting option transactions by officers and directors of listed companies.
When I looked into this further I found out that, to prevent manipulations, the Securities and Exchange Commission required that officers and directors report whenever they bought or sold stocks of their own company. Now, that was something! Here was a way for me to know what the real "insiders" were doing. All I had to do was to follow them. If they were buying, I would buy. If they were selling, I would sell.
I tried this approach, but it did not work. By the time I found out about the insiders' transactions, it was always too late. Besides, I often found that insiders were human too. Like other investors, they often bought too late or sold too soon. I made another discovery. They might know all about their company but they did not know about the attitude of the market in which their option was sold.
article is actually only a small snippet of Nicolas
Original Method Of Nicolas Darvas... The Young Dancer
Turned Investor Who, Within 18 Months, Turned $25,000
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