An amazing comeback

Reggie

Well-Known Member
#1
Mark Cook interview in Stock Market Wizards by Jack D. Schwager :

In April 1978 I made my first option trade. I bought two Teledyne calls at $9 for a total premium of $1,800. I sold the options two days later for $13, earning a total profit of $800 on my $1,800 investment. I said to myself, Boy this is a lot easier. I again bought Teledyne calls again, and again I made money. I thought I was going to be a millionaire in no time flat. I was doing so well I thought. 'Why trade with only a small part of my capital; I might as well use all of it.' I put all my money on an option position and it went down. I thought I would hold it till it came back. It went to zero and expired on me. I lost all the money I had i.e $23,000. I remember filing my income tax for that year. I made $13,000 in income and lost $23,000 in stock option trading. The worst thing was that I was only able to deduct 3,000 of losses against my income. So I had to pay income tax, even though I had a negative income.

.....Later, trading options I had built up my account back to $115,000. That month I made additional $50,000 using the same strategy. I reached greater depths of greed. I thought again that I had perfected this and it was working great. and I stepped up trading in my and my family's account.

A company called Cities Services was trading at $27 at that time, and the 35, 40 and 45 call options were selling for premiums far exceeding the model-implied price with a week left for expiry. I could'nt believe the option prices; I felt that they were giving me money. I sold hundreds of these options.

Before expiry, there was an announcement that Cities Services was going to be bought out for $20 more than my highest strike price option. The exchange shut down trading in the stock, and did'nt resume trading till after option expiry. The options I sold got excercised and I lost $165,000 of my profits and had an additional deficit of $350,000 in my account which included the loss of money my parents had put in.

Five years later, I resumed trading. In May 1987 I saw what I believed was a phenomenal buying opportunity in stock index call options. I put $55,000 in long-term out of the money stock index calls trading at 1/2 to 5/8th. I bought well over a thousand options. During the next few months, stock prices exploded and volatility shot up - a combination that caused the value of my options to soar.

I had wanted to demonstrate to my parents that I wasn't a failure. On Aug. 7, 1987 I went over to see them. I told them 'I am trading options again'
'Oh no' exclaimed my dad. What's the bad news this time.?
'Well Dad, that is why I am here' I answered.
'Why do you trade those things, Mark? Did'nt you learn your lesson? Do you have a problem again?'
'Yes, I have an income tax problem' I answered. 'The calls I bought are worth over $750,000'
'How much did you invest' my father asked.
'55,000 dollars' I answered.
'Gosh, take it' he said.
'No', I said 'they are going up more tomorrow' The next day I cashed out of the position for a $1.4 million profit'
 

Reggie

Well-Known Member
#4
Ofcourse, nobody will tell what exact strategy they use. However, what's described in the interview :

'I began keeping a daily trading dairy, and every day I wrote down the recurring patterns in the market. One indicator that appeared to be useful is called the tick. It is the number of stocks on the exchange whose last trade was uptick minus the numer whose last trade was downtick. When the market is going up, the tick is positive, and when it's going down, it will be negative. I noticed whenever the tick became very negative, the market would tend to snap back on the upside. Conversely, stongly positive tick reading seemed to be followed by sell-offs.

I asked a broker who had been in the business for thirty years what it meant when the tick got very positive or negative. He said, 'A negative tick means the market is going down, and a positive tick means it is going up. So when the tick is very positve you buy, and when it is very negative you sell.'

I asked a number of other brokers the same question and they game me the same advise.

Since the advise contradicted my observation, I did just the opposite. When the tick went above 400 plus, I would sell and when it when below minus 400 I would buy. I recorded the results in my diary and confirmed that this strategy was making money. I noticed the more minus the tick became, the more the market would snap back, and the more positive it became, the more the market would sell off. That how I got the idea of keeping a cumulative count on the tick, which evolved into my cumulative tick indicator. I have never had this indicator fail, but you need nerves of stell to trade with it because the market is always in a panic situation - usually because of an external news event - when the readings get extreme.'



In the end you did nt mention what technic he used .
 

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