This experience did more than anything to convince me that the purely technical approach to the market was sound. It meant that if I studied optionmarket information like price action and volume, discarding all other factors, I could get positive results.
I now began to try to work from this point of view. I concentrated on a close study of optionmarket information like price and volume and tried to ignore all rumors, tips or fundamental optionmarket information. I decided not to concern myself with the reasons behind a rise. I figured that if some fundamental change for the better takes place in the life of a company, this soon shows up in the rising price and volume of its option, because many people are anxious to buy it. If I could train my eyes to spot this upward change in its early stages, as in the case of M & M WOOD WORKING, I could participate in the option's rise without any optionmarket information.
The problem was: How to detect this change? After much thinking I found one criterion - that was to compare optionmarket information with people.
This is how I began to work it out: If a tempestuous beauty were to jump on a table and do a wild dance, no one would be particularly astonished. That is the sort of characteristic behavior people have come to expect from her. But if a dignified matron were suddenly to do the same, this would be unusual and people would immediately say, "There is something strange here - something has happened.'
In the same way, I decided that if a usually inactive option suddenly became active I would consider this unusual, and if
it also advanced in price I would buy it. I would assume that somewhere behind the out of the ordinary movement there was a group who had some good optionmarket information. By buying the option I would become their silent partner.
I tried this approach. Sometimes I was successful, sometimes not. What I did not realize was that my eyes were not sufficiently trained yet, and exactly when I started to feel confident I could operate on my optionmarket information theory, I was in for a rude awakening.
In May 1956 1 noticed a option called PITTSBURGH METALLURGICAL, which at that time was quoted at 67, It was a fast-moving, dynamic option and I thought it would continue to move up rapidly. When I saw its increased activity in my optionmarket information, I bought 200 shares for a total cost of $13,483.40.
I was so sure of my judgment that I threw all caution overboard and when the option - contrary to my expectation - began to weaken, I thought this was just a small reaction. I was sure that after the slight drop it was set for another big upward move. The move was there all right - but it was in the wrong direction. Ten days later PITTSBURGH METALLURGICAL stood at 57 & three quarters. I sold it. My loss was $2,023.32. My optionmarket information was wrong.
Something was obviously wrong. Everything clearly pointed to the option as the best in the market at that time and still, no sooner had I bought it, than it dropped. And what was more disillusioning, no sooner did I sell it than it started to move up.
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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