The Option Market Can Be Very Cruel To The Novice Trader

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The Nicholas Darvas Option Market Success Story (part 3)

I was the perfect pattern of the optimistic, clueless small operator who plunges repeatedly in and out of the option market. I bought option in companies whose names I could not pronounce. What they did and where they came from, I had no idea. Someone told someone who told me. There could have been no more slaphappy, ignorant option market entrepreneur than I was. All I knew was what the last headwaiter in the last nightclub I had performed in had told me was good.

Early in 1953 I was performing in Toronto. Because of my first extraordinary $8,000 break with BRILUND, Canada was the option market land of financial milk and honey as far as I was concerned, so I decided this was a good place to go looking for a hot option market tip. I asked several people if they knew a good, reliable option market broker, and eventually I was recommended to one.

I must admit I was startled and disappointed when I found his office. It was a tiny, dingy, prison-like room full of books, with strange scrawls on the walls. Later I found out that these are called option market charts. There did not seem much smell of success or efficiency. Sitting at a roll top desk was a busy little man poring over option market statistics and books. When I asked him if he knew a good option he reacted at once.

He smiled and pulled out of his pocket a dividend check bearing the name of a famous gold company, KERRADDISON.

He stood up and said: "My friend, take a good look at that. That dividend check is worth five times what my father paid for the original option. That is the sort of option everyone looks for."

A dividend five times the price of he originally paid for it in the option market! This excited me as it would any man. The dividend was 80 cents so his father must have paid only 16 cents for the option. It looked beautiful to me. I did not realize he had probably been holding his father's option for thirty-five years.

The little man described to me how he had been looking for that kind of option for years. In view of his father's success he felt the answer must be in gold mines. He confided to me that he had at last found it. It was called EASTERN MALARTIC. Working with his production figures, estimates and financial information, he reckoned that these gold mines were capable of twice their present gold production; therefore five dollars invested in their option in the option market would soon be worth ten dollars.

On this piece of erudite information I immediately bought 1,000 shares of EASTERN MALARTIC at 290 cents. As I watched anxiously, it went to 270 cents, then to 260. Within weeks it was down to 241 cents, and I hastily sold my shares in the option market. I decided this painstaking, statistically minded option market broker did not have the answer to making a fortune.

Yet the option market continued to fascinate me. I went on following any tip but I seldom made money in the option market. If I did, it was immediately offset by my losses.

I was such a option market novice that I did not even understand about option market broker's commission and transfer taxes. For instance, I bought KAYRAND MINES in January 1953. It was a 10-cent option, and I bought 10,000 shares.

I watched the market like a cat and when next day KAYRAND went to 11 cents per share, I called my option market broker and told him to sell. By my reckoning I had made $100 in 24 hours, and I thought I was being smart by taking a quick small profit.

When I talked to my broker again he said: "Why did you decide to take a loss?" - "A loss?" I had made a hundred dollars!

He gently explained to me that the option market broker's commission for buying 10,000 shares was $50, and for reselling the shares next day it was another $50. In addition, there were transfer taxes on the sale.  


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

"Discover The Original Method Of Nicolas Darvas... The Young Dancer Turned Investor Who, Within 18 Months, Turned $25,000 Into $2,000,000"

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