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with strike prices well above the index’s current level were selling for practically nothing.

      At the same time, Lo and other traders at Canaccord noticed that the charts tracking the Nikkei had seemingly bottomed out. “It was a major low,” she recalls. “All of the cycles were coming together on the daily, weekly, and monthly charts. One of the guys in the office said, “We’ve got to take a punt on this.”

      Soon a small group of traders at Canaccord began buying calls with expiration dates from one to two months out. “We weren’t being very scientific,” Lo recalls. “We’d buy some for a month out and buy some for a couple of months out. We did it very slowly, because no one else was trading Nikkei calls at the time. And there was very little liquidity. We’d buy five each day, and we’d buy all kinds of different strikes so no one would figure out that it was us accumulating.”

      Lo herself eventually amassed roughly 100 Nikkei calls. Some were selling for as little as 5⁄16 or $1. Which means she was paying $100 or less for the entire contract. All in all, she figures she wagered $15,000. That’s a huge bet when you consider that the options she’d purchased were highly illiquid, and that their strike prices were 100 to 200 points above where the Nikkei currently languished. The odds were that Lo’s options would simply expire worthless.

      “Then one day I came into the office and there was a standing ovation,” she remembers. “People said the Nikkei was up 600 points. Some of the calls went from 5⁄16 to $15 or more.” As a result of the sudden and unexpected rise in the Nikkei, traders elsewhere around the globe who had shorted Japanese stocks now needed to cover their positions or face gruesome losses. The panicked short covering, of course, drove up the Nikkei Index further. Lo and her fellow traders held on to their positions as long as they dared before the option’s expiration in order to catch as much of this price rise as possible. Her $15,000 bet had returned roughly $100,000.

      The year of living dangerously

      After her success trading Nikkei Index options, Lo took a break from trading in order to help care for her half-sister in California, who was gravely ill. Every other week she would hop a shuttle south from Vancouver to be with her. This went on for months, until her sister tragically died in December 1995.

      It was then, on the flight home from the funeral, that Lo remembers going over some stock index charts. Again, the indicators all pointed to a major upswing. Only this time, the market was not options on a stock index located an ocean away. It was the rough-and-tumble Canadian gold stocks that traded on the Vancouver Exchange, her own backyard. To her the prices all seemed “washed out,” despite the fact that gold during that period experienced occasional bear market rallies that offered the chance for substantial profits. Once again, in true contrarian fashion, Lo theorized that the near-dormant condition of gold stocks pointed to their imminent rise. Indeed, some stocks had already started creeping up.

      Usually, Vancouver’s penny gold stocks bottom out during November. This is the time when highly speculative mining companies begin soliciting funds for the upcoming season of exploration. It’s not uncommon for shares that had sold for $2 just months before to sink to as little as 20 cents during this period. “They form a dish pattern on the charts while the volume shrinks,” Lo says. “It’s the really quiet bottoms that no one looks at that are the best.”

      This low volume occurs in part because retail traders normally steer clear of the market during the fund-raising period. But for professional traders like Lo, the late fall is seen as a good time to buy. Again these professional traders possess a distinct advantage over outsiders. Vancouver’s trading community is relatively small. And most of its members are tied into the informal buzz being generated about prospecting companies at meeting rooms and bars around the city.

      One of the spots these traders often frequented was a dingy, smoke-filled “peeler bar” or strip club located near Canaccord’s office. No one was especially fond of the entertainment, Lo says. But the place was routinely jammed with traders because it often rained during this time of year, and it was the closest place where Canaccord’s employees could find a drink. While the women danced on stage, the oblivious traders hunkered down and talked about gold.

      What especially piqued their curiosity was the fact that options on the XAU – that is, the gold and silver index that trades on the Philadelphia stock exchange – had bounced handily off their previous lows. Moves of this sort occurred when stocks of the larger companies constituting the index experienced a rise. These stocks were considered bellwethers.

      And the traders in the peeler bar believed this foreshadowed a rally. Lo and her colleagues knew that any rally in the larger mining stocks would be amplified as it spread to the more speculative penny stocks that traded on the Vancouver Exchange.

      But which penny stocks? Here again, Lo was to benefit from the contacts she’d nurtured at Canaccord. One of those was John Kaiser, one of the leading analysts of speculative gold stocks. He is best known in the industry for his newsletter, the Kaiser Bottom Fishing Report (www.canspecresearch.com). In it Kaiser identifies the best bargains among speculative gold stocks. Lo examined Kaiser’s recommendations carefully and ran them by John Muir, another highly regarded gold stock analyst. In cases where both men agreed, Lo bought about $2,000 worth of stock. Also, Lo based her decision on the prospecting venture’s capitalization. Those that had received ample financing through private placements were normally companies that had done well in the past. Their current capitalization helped ensure they could continue to explore without going broke. “If one company hits something, then the rest of the companies will experience a stock run-up, too,” she says. “So you really couldn’t lose if you had a company with money, because that company could send guys out there by chopper to explore a nearby claim in just a couple of days.”

      Before she was through, Lo had invested about $20,000, spread among 10 companies. The winnowing process had taken about two weeks. Now it was time to wait.

      Gold exploration can start as early as January. And this is a period when rumors, tips, and gossip can send the prices of 20-cent shares rocketing skyward. If one company makes a strike, and another company has an exploration license on a piece of real estate nearby, the stock of that second mining company will likely shoot up as well – something Lo calls “closeology.”

      As winter turned to spring, Lo watched her portfolio increase in value as momentum investors jumped in. When a stock looked overblown, she would sell it off in blocks. By late spring her $20,000 stake had mushroomed to $100,000. By this time, Lo was completely out of gold stocks. She decided to bet the entire 100,000 on something entirely different.

      High anxiety and the S&P

      This time the market Lo chose was options on the S&P 100 (OEX), which is the index of the 100 largest corporations that trade on North American exchanges. The options themselves trade on the Chicago Board Options Exchange (CBOE). Lo had definite reasons why she liked the market: This was a time on Wall Street when bigger was definitely better. Both U.S. and foreign investors all wanted a portfolio heavy on blue chips. “I think they were convinced that ‘coke was it,’ that it was going to be all magic.”

      Studying the charts, all the evidence suggested that this was a parabolic bubble in the making. “At the beginning of ’96, during the second week of January, the low was 285 on the OEX,” she says. “And it basically was up every week until February, when the high was 318. Then it chopped and chopped and chopped. And I remember telling everyone, ‘This is one hell of a consolidation.’ But what it looked like to me was a huge consolidation within a range. And it had held at the support levels that we had looked at before. There had been dips in March, which were scary. I think that was the first time the trading community started paying attention to unemployment numbers in a meaningful way. In April there was another dip. And another in May. But this time it made a higher low and it reversed on that day, and so I thought, ‘Well, if that’s the case, then it’s going to go up sharply after consolidating for months.’ I thought, ‘This is it.’” In other words, after it had bounced around aimlessly,

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