How I Sold My Tech Analysis Option Stock At An Average Price Of $53

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The Nicholas Darvas Tech Analysis Option Market Success Story (part 50)

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 which said:


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 trading tech analysis option. It would make me a rich man for life.  


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

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