According to option exchange rules, if the rights were being used to purchase
the company's tech
analysis option you could take advantage of what they called
a special subscription account. When you deposited your rights in
this account, the broker was permitted to lend you up to 75% of
the current market value of the tech analysis option. In addition,
there was no commission charge on the purchase.
I jumped on this eagerly. Here was a unique opportunity for me to buy a great deal of tech analysis option on credit. I decided to plunge into this with all my free cash. I made a quick rough accounting of my position. Here is how I stood:
But now a curious situation developed. As I tried to make my arrangement with New York, I discovered that - in spite of the regulation permitting a 75% loan - there was wide disagreement among brokers concerning the amount that I could borrow from them in a special subscription account. While one broker was only willing to lend 75% of the purchase price of the tech analysis option, another was willing to advance a full 75% of the market value of the tech analysis option, THIOKOL being quoted around 55, the latter proposition was an extraordinarily attractive credit situation. I proceeded to take advantage of it.
I bought 36,000 rights at an average price of l 5/16 for which I paid $49,410. They entitled me to buy 3,000 THIOKOL at $42 per share. These cost me $126,000, but under the rights-subscription I only had to add another $6,000 cash. The rest of the money was loaned to me by one of my brokers.
This arrangement looked so favorable that I made up my mind to take further advantage of these unique credit conditions and buy more tech analysis option.
I figured out that by selling my original lot of 1,500 THIOKOL tech analysis option I could buy twice as much back under the special subscription rules.
I sold my tech analysis option at an average price of 53. This gave me a new buying power of $57,000. With this I bought a second block of 36,000 rights. Just as in the previous operation, I converted them into a second block of 3,000 shares of THIOKOL tech analysis option.
The operation looked like this:
(a) Sold 1,500 shares THIOKOL tech analysis option;
(b) Bought 36,000 THIOKOL rights, and with these
(c) Bought 3,000 shares THIOKOL tech analysis option.
My total cost for 6,000 shares was $350,820.
In the second week of December, THIOKOL shifted from the American to the New
York Option Exchange. It immediately moved up 8 points and the following
week it was touching the 100 mark. As it continued its upward move,
my broker must have become nervous, because I received a telegram
"YOUR THIOKOL PROFITS NOW $250,000"
This came to me while I was staying at the Georges V Hotel in Paris. I suddenly
realized I had been so busy watching the quotes that I had almost
forgotten about the paper profits piling up. Added to my profits
in BRUCE, I now had a profit of over half-a-million dollars! This
was much more money in fact than I ever thought I would make through
analysis option. It would make me a rich man for life.
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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