While most investors have been watching with gritted teeth as their stocks and bonds skidded to new lows, street-wise speculators are getting rich by using intricate strategies to take advantage of the market's turmoil in recent days.
Market analysts agree that none of the various strategies is appropriate for nervous investors who like to sleep at night. But aggressive traders willing to accept huge risk have been cleaning up by making correct bets on the future prices of stocks, bonds, commodities and currencies.
The most potentially profitable -- and dangerous -- game was the one played with futures contracts on crude oil, where investors were betting that oil prices would soar in the wake of the Iraqi invasion of Kuwait.
Peter C. Beutel, an oil trader at Merrill Lynch Futures in New York, said that a trader who bought crude oil futures contracts on July 31 and sold them a week later could have made $8,000 for every $1,000 invested.
Of course, Beutel is quick to point out that in the commodities trading game, for every winner, there is a loser, because someone is always on the other end of the buying.
"The hearses were double-parked next to the Rolls-Royces," Beutel said.
A simpler money-making technique involved quickly buying and taking profits from rapidly rising stocks, including oil-related shares. Using Texaco, for instance, an investor buying shares on July 30 could have made a 6 percent gain, before commissions, by selling three days later.
Frank D. Bracken, manager of the Fidelity Select Energy Fund, which invests in oil and energy shares, saw his fund soar from $97.5 million on Aug. 1, the day before the invasion, to $138 million yesterday, as investors flocked to put money in the oil industry and as the value of his shares rose.
"Money is just pouring in. It's tough to invest it all, I'll tell you," Bracken said.
Bracken said most investors have been buying the major oil stocks but he believes it will be the smaller oil-related companies that benefit most from the higher prices of oil.
Short-selling, a technique that allows investors to profit if stock prices fall, was highly profitable for the Feshbach Brothers of Palo Alto, Calif. Joseph L. Feshbach reported that his firm, which holds short positions in 200 companies, gained 10 percent, or $70 million, on its $700 million portfolio in the first seven days of August, and a total of 40 percent thus far this year.
"In a weak market we benefit dramatically," Feshbach said.
Short-selling is the flip side of buying a stock and waiting for it to rise. A short seller borrows a stock with a promise to return it at a later date. The trader then sells the stock and hopes it drops in price by the time he buys it back. The difference is his profit.
An investor willing to bet IBM stock would drop could have gone to his broker on Monday, July 30, and borrowed 100 shares of IBM and sold them at $112.12 1/2. A week later, when the stock dropped to $103.87 1/2, the investor could have bought 100 shares to replace the borrowed stock and pocketed the $8.25-a-share difference, before commissions.
Short-selling is extremely risky and investment advisers warn individuals to avoid the practice.
If an investor buys a stock at $10, the investor has a maximum loss of $10. However, if an investor has sold a stock at $10, and it rises instead of falls, the loss can be unlimited.
Other strategies involve investing in options on stocks and stock indexes and in futures on stock indexes. Again, these investments are bets on the directions of individual stocks or the entire market.
One recent winner was a Washington area investor who made more than $18,000 speculating that the market would fall.
The investor put his money into "put" options on the Standard & Poor's 100-stock index, a basket of 100 top stocks, known by its computer symbol as the OEX.
In the world of options trading, a "call" is the right, but not the obligation, to buy 100 shares of stock at a specific price by a specific date.
Similarly, a "put" is the right to sell 100 shares at a specific price and date.
A call is a bet that the stock, or stock index, will rise in price. A put is an opposite bet.
In this case, the investor paid $5,700 for 62 OEX puts on July 19 and 20 and sold them on July 23 at $16,115 as recession worries and a falling market boosted the value of the puts.
The investor was able to do it again by buying 50 OEX puts on July 23 for $6,900 and selling them for $14,700 after the news of the Persian Gulf crisis broke.
Currency fluctuations linked to the turmoil in the Mideast also offered investors profit opportunities, according to J. Adam Hewison of the Rich Financial Group in Shadyside, Md.
For instance, Hewison said, currency investors could have bought Swiss francs for 0.7246 cents each last Thursday and sold them on Monday for 0.7561 cents. That would have returned a quick profit of 0.0315 cents each, or a 4.5 percent gain.
If a few cents doesn't seem impressive, Hewison notes that currency investors often trade in $1 million lots, on which an investor in Swiss francs could have reaped $45,000. Considering that it takes only about $40,000 to finance a $1 million currency buy, Hewison said, the rewards can be high.
But the risks are high, too.
Another profitable investment in recent days has been the relatively new securities called "put warrants" that enable U.S. investors to profit from declines in the Japanese stock market. The warrants rang up quick profits in a few days, although they began to decline yesterday.