One of the most successful investors of all time isn’t who you think. He didn’t start his career in finance. He didn’t even intend to become a stock market genius.
All Edward Thorp wanted was to be a math professor.
After graduating with his PhD in mathematics from UCLA, Thorp moved to MIT to begin his academic career. From there, he became a professor of mathematics at New Mexico State until finally settling at UC Irvine.
From the outside, Thorp’s everyday life seemed normal. It was anything but.
That’s because Thorp pioneered the modern applications of probability theory. Probability is the foundation for statistics. Thorp’s focus was on using his knowledge to solve real-world problems once deemed impossible.
And in order to prove his theories, Thorpe turned to an unlikely place: the blackjack tables.
Beating the House
After reading a paper about the optimal betting size by Bell Labs researcher J. L. Kelly, Thorp thought he could devise a system to win at blackjack. Since he had the use of the latest technology, he used an IBM 704 computer to test his theory.
At the time, most casinos were using a standard 52 card deck at blackjack tables. They didn’t always reshuffle the deck after every hand.
So Thorp made his own card counting schemes to help improve his odds.
In 1966, he wrote a book about his method. Beat the Dealer: A Winning Strategy for the Game of Twenty-One is still one of the top books for serious blackjack players.
Eventually, he convinced bookie Manny Kimmel to stake him $10,000 to prove his strategy. It was a success. Thorp won $11,000 on his first trip, much more than his annual $6,900 salary teaching math.
But as time went on, casinos caught on. He resorted to disguises just to sit and play.
After too much success and more recognition, it was time to move on.
From Sin City to Wall Street
That was just the beginning of proving his math genius. If his strategies can work at the blackjack table why not in the stock market?
Thorp wanted to use his math background to find weak points in the market. He was looking to profit in places no one else thought of. That’s when he came across his golden goose: stock warrants.
Premium members of Strategic Trader know all about warrants. They’ve profited from a number of warrant trades we’ve recommended over the years.
If you’re not familiar with warrants, don’t worry. Probably 90% or more of investors don’t know either.
Warrants are similar to having an option on a stock. It’s a security issued by a company to an investor. It gives the investor the right to buy stock directly from the company at a specific price – the strike price – for a specific time.
In most cases, that time period is anywhere from three to five years. Sometimes more. That’s a lot of time. It allows investors the chance to potentially buy a company’s stock at a significant discount to its current market price. Or to make a leveraged bet on the stock by buying the warrants instead.
That’s what drew Thorp in. So he wrote another book in 1967, Beat the Market, about what he found. As he wrote with his co-author Sheen T. Kassouf:
For the first time my investments were virtually assured of success. I was no longer at the mercy of strange chart formations that smacked of astrology. And it was no longer necessary for the market to eventually agree with me on the value of a security. As I perfected my operations, investment after investment proved profitable.
Thorp’s fate was set.
The man who beat Vegas now had a way to beat Wall Street. And warrants took center stage.
Small Bets. Big Gains.
Thorp realized that traders often misprice warrants, if they know they exist at all. As he said in his book A Man for All Markets,
A warrant, like a lottery ticket, was always worth something before it expired even if the stock price was very low…The more time left, and the higher the stock price, the more the warrant was likely to be worth.
Warrants have value. It’s just a matter of using a system like we use in Strategic Trader to pick the right ones that we believe have a higher chance of turning into big winners.
That’s what Thorp realized. So in 1969, he started Princeton/Newport Partners. After raising $1.4 million, he was in business.
With his system in place, Thorp showed what was possible with warrants.
For instance, in 1972, warrants of resort and casino developer Mary Carter Paint Company traded for 27 cents. At the time, the stock traded for $8. So Thorp bought 10,800 warrants for $3,200.
At one point, the stock dropped to $1.50. The warrants went with it, heading almost to zero. Thorp never waivered. He let his system play out and bought even more warrants.
Then in 1978, something interesting happened. Mary Carter Paint owned property in Atlantic City, NJ. The company successfully lobbied to bring casinos to the state. And in May of that year, it opened the first casino outside Nevada.
The company reaped windfall profits. The stock and warrants surged. Thorp cashed out, making over $1 million on the trade. He would do this over and over again for decades.
In almost 29 years as a professional investor, Thorp booked 20% average annual gains after fees. More important, he never had a losing year. Warrants helped him get there.
Our Secret for Turning Dimes Into Dollars
As I said earlier, most investors have no idea warrants exist. In fact, even if they do, they don’t know that you can trade them just like any other stock.
That’s by design.
When wealthy and connected investors find ways to turn small sums into huge windfalls, they tend not to share the details with everyone else. That is, unless you’re willing to invest millions with them and pay them 20% of the profits.
That may seem unfair, and it is. I know this from working in the investment banking and venture capital world.
Every deal I worked on in the past had warrants attached. It was a kicker to compensate investors for taking on the risk of investing in a deal.
But what most people don’t know is some of those warrants end up trading on the public markets. And they can be extremely lucrative…if you know where to look.
The biggest advantage they have over your typical stock option is you don’t need a special options account. All you need is your regular brokerage account with a firm like Fidelity, Schwab or Interactive Brokers.
And as I said above, they can give you leverage to the return of the underlying stock.
For example, take one of our current holdings SCHMID Group (SHMD). The company makes high-tech machines used to manufacture computer chips.
When the company went public, it had warrants attached to its financing. Those warrants trade on an exchange.
I recommended those warrants to Premium Members when they traded for 44 cents each. And today, after a little patience much like Ed Thorpe had with Mary Carter Paint, they’re more than 400% higher as I write.
That compares to the return of the stock over the same period of just 56%. Which means the warrants are far outperforming the stock.
Now, I’m not recommending you buy the SCHMID Group warrants. In fact, after such a good run, I alerted Premium Members to take a Free Ride on the position to take their original bet off the table. And we’re holding the rest at virtually no risk betting it could turn into another 10x or more gain in the coming months.
It’s one of the key ways we manage risk here at Strategic Trader.
But that’s just one example of the power of warrants. So far, we’ve had dozens of trades trades with triple digit gains, from mining companies, to AI, to industrial. With more than half-a-dozen that went on to post 10x or more gains
And that’s another great thing about warrants. They’re not limited to any one specific sector of the market. They can come from anywhere.
Turning dimes into dollars isn’t something that happens all the time. It’s hard. And it takes discipline, patience and a solid risk management strategy in place before you even make your first trade.
But if you have those things in place, they can help boost your portfolio’s overall performance. They’re a complement to what you do with your serious money.
Speculators like Ed Thorp saw what warrants could do to help boost his returns. Premium Members are benefitting from the same type of strategy that was – and still is – the speculating playground of wealthy investors.
So in 2026, if you’re looking for a new speculative tool to add to your toolbox, consider joining us as we look for more fantastic wins with warrants.
Regards,
Editor, Strategic Trader