Thinking Like a Fruit Vendor
Chip Evans, PH.D.
This article originally appeared in our financial newsletter, www.oexoptions.com, to help stock traders know
when to buy and sell. As business consultants we find the “story” very appropriate to when to buy and sell and
how to learn just what the value of inventory turns means.
Think Like a Fruit Vendor
Chip Evans, Ph.D. www.theevansgroupllc.com
This is an old story from Wall Street.
Stocks or options are just like inventory, and owning them is just like having your own
wholesale distribution company.
Every morning you buy the best fruit that you can.
You try to sell it that day for the top price.
If you hold the fruit overnight, it causes spoilage.
As the fruit ages it loses much of its value.
As a fruit vendor you know:
You want to get the best price for the fruit you bought wholesale.
Some fruit is more in demand, some less.
Goal is to sell all, no matter what, by day end.
Experienced fruit vendors hope to make good money on three of every five
pieces of fruit they own and are selling.
And as the fruit vendor “trades” through the day he realizes:
He might get a few more pennies for the bananas.
He should have bought more oranges.
Kiwis aren’t selling well. Just because one rich lady came by and bought a little
kiwi, he knew it would be a mistake to raise his price, and risk ending the day
with a lot of decaying fruit.
Buying and selling index options (or any commodity item) is just being a fruit vendor.
In most business cases the goal is to turn inventory.