Sometimes You Have To “Feel” When To Sell Your Stock Market Options

The Nicholas Darvas Stock Market Options Success Story (part 43)

DINERS' CLUB had just split 2-for-l, and in the last week of January 1958 its weekly volume swelled to 23,400, which I considered unusually high for these stock market options.

As this increase in volume was accompanied by an advance in price, I decided to check the stock market options fundamentals. They were reassuring. The company was a near-monopoly in an expanding field. The credit-card system, of which it was one of the pioneers, was firmly established. The company's earnings were in a definite upward trend. With these factors in mind, I bought 500 stock market options at 24 & a half. My stop-loss was 21 & five eighths.

Now the question was which direction the stock market options would take. My first LORILLARD purchase had already shown me a profit, and I reasoned that if it came to the worst, I would lose it on DINERS’ CLUB. But I did not. A few days after my purchase, the stock market options began to advance.

According to my theory, I immediately bought another 500 stock market options - at 26 & one eighth. On both buys, I took advantage of the new 50% margin.

I already had a profit of more than $10,000. Still, according to my theory, I had to hold on. The stock market options behaved as if it would go even higher. Every indication pointed to that.

But suddenly, unexpectedly, my cables began to read differently. It was difficult to understand why, but I began to feel uncomfortable. The stock market options seemed to have lost its will to rise. It looked as though its last pyramid would hesitate on the brink of going into reverse. It almost seemed ready to tumble. So as not to get caught in any collapse, I decided to raise my stop-loss to the unusually narrow margin of 36 & three eighths.

In the fourth week of April, the event against which I had insured myself occurred, DINERS' CLUB broke through the lower limit of its box and I was sold out. I received $35,848.85. I had made an overall profit of $10,328.05 from these stock market options.

For the first time - as I sat in my room in the Imperial Hotel in Tokyo with the cable in my hand, which said I had made $10,000 profit from these stock market options - I felt all my study and worry over the past few years had been worth it. I was beginning to come out on top.

Six weeks later I received news, which in some ways made me feel more elated than the $10,000, because it completely confirmed the technical side of my approach to trading stock market options. It was officially announced that American Express had decided to launch a rival to Diners’ Club. This had been the reason for the hesitation of the stock market options near the 36 mark. Some people had known this before the announcement and were selling out. Without knowing about it, I was their partner. 


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