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'
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'