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The Options & Spreads article that follows has been written by an expert who trades successfully for a living. He also offers a course on trading Options & Spreads. For more info on the course click here.

The following article is very educational, informative and well-written.


OPTIONS & SPREADS: Occam's Razor, Tombs & Rattlesnakes

The fellow on the barstool said, "I invented a method to bet the horses that had to succeed, that couldn't possibly fail."

"So what happened?" his buddy asked. "The track opened."

His answer was another way of saying, "Reality intruded." So often the strategy plan of the would-be millionaire looks great on the map table but fails on the financial battlefield. But where else can gains be made except on that field?

Of course, reality can be a nuisance, but it is the mine with the pay dirt and the vault with the hard cash. Let us recall the old comedy routine: The swindler tries to sell somebody an invisible horse but refuses to accept invisible money. The "realm of imagination" he hawks is supposedly great . . . until pay-off time. The con-man dishes out nonsense but demands cash not nonsense as payment. So does everybody else at the pay-off end.

Everybody from the computer wizard calculating the Dow to the busboy poring over the Daily Racing Form has plans and calculations for making a fortune, and one need not be Einstein to tend toward excessive theorizing. It helps if the calculations stick as close to hard reality as the tangible profits being sought. In the early 1300s, English philosopher and Franciscan monk William of Occam opposed the excessive theorizing of the Thomistic scholasticists.

His axiom, "Entities are not to be multiplied beyond necessity," became known as Occam's Razor, a trimming down of what was thought up when the mind creations became more than was necessary to explain reality. For example, if an assassination could have committed by one man, it probably was. If someone formulates a 10-man conspiracy theory, those other nine men are what William of Occam would call "entities multiplied beyond necessity." Occam's Razor would trim off all but the trigger-man unless there was compelling evidence for more.

Many people need a shave with that edge, such as the fellow with pad and pencil seeking numerical patterns at the roulette wheel. "Number 34 has to come up. It's due!" Did you know that the horse with the longest name usually wins the race? Stocks and futures contracts allegedly rise and fall in accordance with sunspots, or patterns in the Old Testament's Book of Numbers, or the lengths of women's skirts, or a number concealed in the Nancy Sluggo comic strip.

Spread strategies with put or call options do not bear the fingerprints of Rube Goldberg. They have no link with magnetic healing or the seven heavens of Islam and the Cabala. When I leave the Metropolitan Opera House after having seen Gounod's Faust, I carry with me not only rapturous melodies but a fascination for the centuries-past alchemy lab recreated on stage. Yet I would not think of using anything from the locked laboratory book in my trading calculations. And do not think that just because the data is on software instead of parchment that it is necessarily more scientific.

Ponder the words "practical, feasible, instrumental and functional." Option spreads apply well to this set of inter-related terms--instrumental when the function is profit. (Another word "pragmatism" is a tangled octopus to be dealt with later.) Woe and slack, both those words and the profits are so easily lost sight of in speculating and investing. You will not see Mr. Necktie consult Simon Magus or a carnival swami, and yet. . .

In his excellent book Winning in the Futures Market, George Angell wrote that from 85 to 90 percent of all futures traders have been known to end up on the minus side over the long haul. Then he added these "despite all the dead bodies" words of encouragement: "These percentages should not sound as discouraging as they seem. Many traders, despite their protestations to the contrary, are not serious about making money in the market. Rather, they enjoy the excitement of buying and selling, watching price ticks in the boardroom, and the risk-taking involved in trading commodities. Some of these traders are inveterate gamblers. . ."

What he describes is pathological, like the horse-player consciously wanting to make money but unconsciously feeding the excitement and suspense that electrify his nervous system, no matter how much he loses. Also, such behavior is unscientific for a very specific reason. In addition to Occam's Razor, another traditional scientific axiom exists that a theory or belief should be dropped if the evidence keeps repeatedly failing to support it. An example of what violates this is astrology. No amount of incorrect predictions will cause avid astrology buffs to drop their belief that theirs is a valid science. They admit to some errors and miscalculations but the system itself is sound!

For centuries, many quack cures thrived and survived from generation to generation no matter how many cemeteries they filled. Similarly, many horse-gamblers, futures traders and option traders have come out on the minus side consistently for years without ever discarding or even questioning their conviction that "This is a money-maker." For dedication and devotion that will not quit, the crap-shoot futures traders and option traders match any old-time bloodletter or leech doctor.

So as an option trader, how do I manage to pull in profits year after year? How do portions of the "licensed crap-shoot" money keep landing in my bank account? During World War One, with its trench warfare and its frontal attacks on machine guns (spaced side by side to enjoy "overlapping fields of fire") the custom was to send out three waves of infantry one after another, let them get devoured, then figure that the fourth wave would reach its objective. The success rate in options, futures and "initial public offering" stocks adds up something like that. So how do I keep placing in the fourth wave, not risk-free but alive and with the loot again and again?

To answer, I would like to quote George Angell again. What he wrote in Winning in the Futures Market about spreads refers mainly to strategies with futures contracts, but applies quite well to futures options and equity or stock options, my own vein of ore.

"Long-side" chances are probably about 50-50 of winning or losing on any single trade. You can, of course, improve the odds in your favor by trading only limited-risk spreads. . ." (page 28)

"Professionals, who make their living from the markets, are enthusiastic spread traders. This should give you an indication of the value of this form of trading." (page 53)

"Spreads can be very profitable on a consistent basis. Just remember that you have a trade-off when you undertake a spread position. You are willing to give up some potential gain in exchange for safety." (pages 63-64)

Angell's above-titled book deserves much recommending, even for traders like myself who handle only equity options and do not touch futures or futures options. Its writings on trend-following and charting fit well into the movements of stocks as well as futures contracts. A spread trader whether in futures or futures options or stock options must also be a trend-follower. Another, must read is George Angell's earlier strong-in-the-basics work Sure Thing Options Trading which several years ago helped get me started in option spreads.

The "trend" aspect deserves special mention. Since last writing for this publication, I have taken two profits with spreads using IBM call options. I chose IBM calls because the stock was trending upward and had a strong, conservative price/earnings ratio of 18. With the first, I bought 10 IBM call options with a strike price of 110 and an expiration date of October, and sold 10 IBM calls with the same strike price but a September expiration. The money I received from the latter paid for more than three quarters of the former and the rest came out of my capital.

Of course, this is the "horizontal" variety of the "time spread" or "calendar spread." I pulled out several weeks later with a profit of 54% annualizing to 378%. Subsequently I bought 10 IBM 110 January (1993-2014) calls and sold 10 November (1997) ones with the same strike price. Note the one-month gap this time between the Novembers and the Januarys. Later I closed out the position with just a 5% profit annualizing to nearly 40%.

I pulled out for a significant reason and despite a significant temptation. At the time I concluded it, the Novembers were worth just over half a point, the Decembers just over two points and the Januarys slightly over three points. Buying back the Novembers and selling the Januarys to close the position brought me some profit. Please note, however, that after buying back the Novembers I could have held on to the Januarys and sold the Decembers.

The Januarys had already been paid for--mostly by the sale of the Novembers when I opened the position and partly by my own capital at that same time -- so I could have held on to 10 Januarys worth a little over $3,000 and sold 10 Decembers worth just over $2,000, minus a bit over $500 to buy back the Novembers. Why, then, did I not simply pick up the phone and plunk $1,500 net cash into my brokerage account?

Because of the trend, friend. By this time, IBM shares had lost upward momentum and kept shilly-shallying in the high 90s and low 100s. As for its options, those 10 January calls were worth $6,375 when I opened the spread position and only $3,125 when I closed it. Fortunately, my sale of the Novembers had paid for nearly two-thirds the cost of the Januarys, shielding me from subsequent loss and allowing me some profit. Yet only a timely exit could prevent further melt-down.

Those Novembers I sold for $4,125 shrunk to $562 as of when I pulled out and at the time of this writing are expiring worthless. Bad stories all around me! My role as spread strategist kept me out of the first three waves of attacking infantry. Had I sold those Decembers, that would have obligated me to hold on to the Januarys for a few more weeks while the Decembers shrank in value, since the long (January) end of a spread covers the short (December) end. What if IBM stock remained lethargic and the related call options kept dwindling? Would a $1,500 gain on short Decembers be such a comfort if much of the $3,125 melted off the long Januarys? I ended the party when the stock trend drowsed. Worth repeating: A spreader must also be a trend-tracker.

When one speaks of "investment psychology," one is merging to somewhat "iffy" sciences. In the 1920s, arch-skeptic H.L. Mencken wrote, "The psychologist today could be like the pathologist but is closer to the osteopath." During the 1920s, osteopathic medicine was part science and part cult, though the former facet was expanding and the latter diminishing. The first school of osteopathy began in 1892, teaching a system of therapeutic bone-manipulation which any farm-hand not a dullard could master in a few weeks.

However, osteopathic medicine proved strongly eclectic, continually borrowing from conventional medicine. As its schools began teaching about endocrinology and enteropathy and ectopic pregnancy, the flunk-out rate increased alarmingly. It was losing its "old friends" or their next-generation counterparts. By the 20s decade it had ceased to be an easy road to a doctor's degree for ushers and bellhops, farm-hands and hospital orderlies.

Today the training for a D.O. (Doctor of Osteopathy), is the same as for an M.D. except that the D.O. also receives instruction in bone-manipulation. Yet how easily mankind steps back in time at the futures exchanges and options exchanges. The tractor driver or the livery driver brings out his checkbook and plays hunches. The grandmother trades after a smattering of relevant reading. The minister prays for bond futures to rise, completely forgetting that the short-seller prays just as devoutly the other way.

This is a return to 1890s osteopathy, or Ragtime Era chiropractic by correspondence, or homeopathic herbal medicine on the frontier. Wisdom is what fits into a saddlebag next to a charm to ward off rattlesnakes. If Arch Crawford tried to revive 1910 astrological medicine he would face arrest for quackery. However, his stars & planets' newsletter aims at your bankroll and not your vital organs so he is safe.

Admittedly, not all "esoterica" is necessarily hogwash. Despite controversies over theory, many people past and present have experienced physical relief via osteopathic manipulations. In trading, W.D. Gann may be compared to the years-ago doctor of osteopathy after he began borrowing extensively from conventional medicine. Gann's non-numerology and non-bibliomancy writings are to a substantial extent a re-write of Charles Dow Theory. Nevertheless the two W.D. Gann books in one The Truth of the Stock Tape & The Wall Street Stock Selector provides powerful trend-oriented ammunition for spread traders in stock options no matter where he obtained his information.

The spiral number-map from the Gann arcanum, the Square of Nine, was said by Halliker to derive from classical Greece's Pythagorean Cube and by R.J. Flower to be based on "the ancient Mesopotamian chart." Skeptics may dismiss it except that it contains a delightful Practicality Clause. What if a stock is falling when Square of Nine doctrine and theory say that it should be rising or vice versa?

Chris Kakasuleff in the first issue of Gann & Elliot Wave (now Trader's World) wrote about "what I call psychological inversions. You will be expecting a low, as predicted on a particular (Square of Nine) angle in the last cycle, but instead on the same angle in this (current) cycle you get a high. What you do here is invert or reverse all the highs and lows from the last cycle. . . . In overcoming this aspect of the Square of Nine in trading it's fairly simple to just watch the trend between the angles. If the market action is the opposite from what it was doing in the prior cycle, the trend may be reversing."

In other words, it is nice that you have your eyes when the map says desert sands and you find yourself facing an expanse of sea. "It's fairly simple to just watch the trend between the angles." Yes, and perhaps more anchored in reality than the quasi-Cabalistic spiral of numbers. How about Occam's Razor between the Nine and the Trend? In a modern observatory, you will not find a perpetual motion machine next to a radio-telescope. In trading, they perennially exist side by side and plenty of people choose the wrong item.

Mentally and psychologically, people are still people, easily bridging the gulf between the computer chips and the root-sorcerer's wigwam. Schools of osteopathy have become far more choosy in accepting applicants but brokerage firms have not. If you show up at the broker's office dressed as Julius Caesar, the folks there might hesitate. Otherwise, no warm body with a checkbook flunks out.

A young man was considering opening a shop. His brother arranged a meeting for him with two partners who owned a three-story property with store-front for rent. He failed to appear. Later he told his brother. "I overslept. But that's okay. I've been thinking that I might buy the building."

"Bill, with your credit history, who's going to give you a mortgage?"

However, another hurdle exists before that one. He will not even get out of bed for a business appointment. Yet he talks about buying buildings! A pathetic gap between aspirations and actions. The daydream climber of the snowy Matterhorn who stays home on cold days. The armchair jungle explorer who fears Dalmatians. Someone once said, "We judge others by what they have achieved. We judge ourselves by what we feel capable of achieving." Of course, we should believe in ourselves, our abilities and futures, but that "feel capable" can be quite a self-deceiver. Every saloon has its "feel capable" Andrew Carnegies hiding from the bill collector.

My parents owned a guest house in pre-casino family-resort Atlantic City. One family who rented mentioned in conversation that they had invited an uncle to join them at the shore, but he refused because he had heard that there were no bars in Atlantic City. Several miles down the New Jersey coast, Ocean City is a "dry" community with no bars or liquor stores. The shot & beer hearsay that had reached that uncle apparently misinformed him as to which shore point practiced Prohibition. He was determined to preserve and protect his barfly life-style but not at all determined to get his facts straight.

About a block from my parents' guest house, a grocery store was owned by a Jewish man who worked it long hours and stocked it so extensively that it was practically a miniature supermarket. Within sight of there, another grocery store was owned by an Italian who stocked it poorly and sometimes opened for business, sometimes did not.

After shopping elsewhere, my sister was passing the latter place when she realized that she had forgotten to buy an item. She went into the store and asked him. The grocer pointed to the brown bag she was carrying and said, "Get it where you got all the other stuff." His lousy business sense and lousier manners are beside the point right now. The key item is the "casual glance" essence of his knowledge. Could you imagine him going to the microfilm department of a library to dig for facts? Or phoning Canada to get information? He would have little knowledge beyond what he could gain from a "casual glance."

The amusing thing is, I can imagine all three of these characters taking up trading. Other potentialities exist. They could gamble at the track or casino. They could borrow from a loan shark who has a human gorilla sidekick. Still, the possibility persists that they could start trading futures or options as "the no-effort path to wealth" or the "don't-strain-your-brain bridge to easy street."

I call this "amusing" because their losses are my gains. When you purchase Chrysler shares, your investment capital forms some linkage with cash of people buying cars. With options and futures contracts, the only profits you can make come from the treasuries of other traders in these wasting-asset securities. Centuries ago there was a belief that crocodiles wept while eating their victims. Hence the expression "crocodile tears." Gee, it breaks my heart to do this but I'm still doing it. I do not cry false tears. Yet every time I take a profit, I wonder which would-be millionaires lost the buffalo I roast or salt away.

In my most recent venture, I watched Dell Computer stock for a time, with its beefy, multi-point options. However, I stayed away as long as it either rose or stayed at the same altitude. With its inflated (over 100) price/earnings ratio, it seemed a prime candidate for a decline, but I held back until it ebbed and ebbed again. Finally it fluctuated within the low to mid 80s, from a week's-earlier high of 103-7/8. The downward trend plus the weak P/E ratio made Dell appear a good prospect for a spread with put options. (Stock symbol DELL; option symbol DLQ)

For put options to be out-of-the-money, of course, the strike price must be lower than the share price. With a spread position, the strike price should be close enough to the share price to make the options plump but far enough that a slight fluctuation of the stock will not place the options in-the-money. 75 seemed about right. During the first week of November, options with November expirations were shriveled but Decembers and Januarys had girth. More exacting than at some times previous, I look for short-end options (Decembers in this case) with 2-½ to 3 points or better and a spread or gap of 1-½points or less.

I entered an order to buy 10 options/sell 10 options with debit spread of I-¼ points, the already existing gap according to the latest quotes. I bought 10 DELL/DLQ puts January 75 for 6-¼ points and sold 10 puts December 75 for 5 points, the difference being 1-¼ points as ordered. Stated it dollars, I bought the Januarys for $6,250, sold the Decembers for $5,000 which paid off most of the Januarys, and paid the $1,250 difference or debit spread plus commissions out of my own capital. Anticipating exiting commissions at pull-out time, the break-even point would be a gap or spread of 1-½ points or $1,500.

As I enter the battle with four parts other people's money and one part my own under my banner, I cannot help but wonder who paid the $5,000 (the December puts) that formed the protective phalanx around my $1,250 or $1,500. Was it the young "businessman" who talks about buying buildings but stays in bed? The barfly seeing the broker's pink slip through Canadian Mist? The gambler who hopes the system that failed with keno will work with options? The ballpark hunch-player or the casual glance shop-keeper? The esotericist who thinks that stock fluctuations are coded in the Bible?

Of course, part or all of the money may have come from intelligent traders more daring than myself. Nevertheless, you cannot help but be a philosopher about human nature when you make a profit off the man who bets the store on his mother-in-law's inmate number. I do not advocate trading for revenge purposes but the market's despotic indifference must be faced. The spread strategist makes money from financial hangings and burials.

A week after I opened the spread position, Dell stock plunged and placed in-the-money the December 75 Puts which comprised the short end. Toward the close of the November 12 trading day, the December 75s were 2-¾ points into the money and trading for 5-¾ points. This meant the option's price consisted of 2-¾ points "intrinsic value" and 3 points "time value." When shorted options are in-the-money the trader must consider pulling out to avoid an exercise. However, the option-holder or long-player is discouraged from exercising by the fact that he would take intrinsic value but lose time value, substantial in this case.

In-the-money options, when exercised, are assigned overnight, so the figures in the final hour or half-hour of the trading day are the key ones. The day closed with my short Decembers in-the money but the "time value" appeared sufficient protection against an exercise. However, my standing rule is, "One night okay but not two." I prepared to pull out if the puts remained in-the-money at the close of the next trading day.

For much of the next day, they were in-the-money. How would I pull out, if necessary? At one point, the Decembers were bid 7-1/8, ask 7-5/8, last traded 7-¼. The Januarys were bid 8-5/8, ask 9-1/8, last traded 8-¾. If I told the broker, "Buy back the Decembers at the market. Sell the Januarys at the market. Both to close the position," what is the worst that could happen? A buy-back at the ask of 7-5/8 and a sale at the bid of 8-5/8, for a spread of just a single point and less than that after commissions. I needed 1-½ points to break even.

I would have entered the transactions separately, one right after the other, instead of together. Also, I would have targeted the "last traded" figures to get away from the "worst" figures. When a spread is dismantled in two stages, the short end customarily goes first. I would have entered a bid to buy back the Decembers at 7-¼ and then offered the Januarys for sale at 8-¾. If nothing happened, i.e., no transactions soon, I would have compromised 1/8 point on either end for a slight loss for the sake of expediting.

So what happened? Early in the trading day's last hour, Dell rose to 75-¾, nearly a point out-of-the-money. Then the shares climbed further to close at 77-1/16. Back in business. In the nine trading days since then, time-decay has eaten at both the December and January options but more rapidly at the former, the standard process which gradually unearths the gold nuggets by widening the gap or spread.

George Angell wrote in his Winning in the Futures Market book "Although spread trading has been likened to 'watching the paint dry' -- boring, yet predictable -- there are risks involved. For this reason, you'll want to monitor at least the closing prices daily." Of course, I agree that risks are involved and that the prices should be monitored daily, especially the closing ones. However, I find nothing particularly boring about either risk shields or one profit following another. Speculating in options, futures or high-flyer stocks can be as exciting as a crap game but also as wallet-emptying. Spreads are like the jewelry store, experiencing slow periods but usually producing steady gains.

It is one day short of three weeks since I began the Dell spread. Today's closing prices: The Decembers last traded at 1-3/16, the Januarys last at 3-1/8. A spread of 1-15/16 for an after-commissions paper profit of $437.50, a 29% gain annualizing to 493%. Granted, these are graveyard profits. As you can see, the Decembers that people paid $5,000 for are now worth not quite a quarter of that. Also, folks who bought Januarys at the same price I did but without spreading are minus precisely half, from $6,250 to $3,125. Smith's "Am I Blue?" is Jones' "Many-Splendored Thing."

One must be practical. When I looked up the term "pragmatic," it turned out to be a word that took funny bounces. Merriam-Webster linked it to "practical" and the verb "to do," but in formulating opposites . . . well, judge for yourself from these definitions: "relating to matters of fact or practical affairs often to the exclusion of intellectual or artistic matters; practical as opposed to idealistic." Example cited: "Pragmatic men of power have had no time or inclination to deal with . . . social morality." K. B. Clark.

Must this be? Must practical men and women of finance be obtuse regarding fine arts and the good of society. Please, dear trader, let yourself be irrefutable proof to the contrary. Nearly everyone has heard about the cyclone-force controversy that surrounded Clark Gable saying the word "damn" in the 1939 film classic Gone With The Wind. Yet few people have heard of another controversy surrounding that same motion picture, a censorial dispute probably far more significant.

One-time Catholic publisher, Joseph L. Breen became the right hand of arch film-censor Will Hays. During the production of Gone With The Wind, Joe Breen had a dispute with producer David 0. Selznick. Frank Walsh wrote in his book Sin and Censorship, "Always fearful that any hint of discomfort connected to the birth process might dissuade some women from embracing motherhood, Breen insisted that shot of Melanie Wilkes gripping a towel, wincing in pain, and perspiring had to be eliminated. He finally grudgingly allowed Selznick to show a few beads of perspiration on her face and shoot the scene in silhouette."

Was that Joe's real reason? Another film, RKO's Little Men, showed actress Kay Francis milking a cow. A Breen subordinate speaking for him told the studio, "At no time should there be any shots of actual milking, and there cannot be any showing of the udders of the cow." Did he fear that seeing that would discourage people from drinking homogenized grade A? Or were wombs and mummeries difficult for Joe Breen to deal with once he became attached to what might be called the "bathrooms without toilets" notion of screen decency?

Breen was no lone saint. Several years later, David 0. Selznick produced Duel in the Sun, a bloated western which brought cries of "Filth": from many and "Tedious": from many more. The director of chaplains' services in Boston, Father John Sheehy wrote a piece published in Variety in which he said he anticipated "thousands of priests detained years longer in the confessionals seeking to dispel the evil images born of witnessing this alleged entertainment."

Anyone who rents the video to see what the fuss was about will end up scratching his head if not falling asleep. Everything being relative, though, Duel in the Sun was stronger than those singing cowboy movies in which the female lead appears briefly at the start to say good-bye and briefly at the end to say hello. Also stronger than those World War Two movies in which the soldier never smells perfume except on a letter from the hometown sweetheart. Pro-censorship "traditionalists" are never at a loss when you ask, "As compared to what?" They simply show the western guitar and the soldier in chapel "like in the good old days.

What if Mr. Joe Breen and Father John Sheehy beheld some classical art? In other words, what if they were more deserving of the word "traditionalist" which they freely applied to themselves? Bernard Berenson wrote in The Italian Painters of the Renaissance.

"In the figure, also, Correggio's command of light and shade, the exquisite coolness yet sunny transparency of his shadows, discovered new sources of beauty. . . . he remains among the very best who have attempted to paint the surface of the human skin. . . . the skin too has its importance; and its pearliness, its sunny iridescences, as in the 'Antiope, ' are a source of vivid yet refined pleasure. Without attention to all its aspects, no one could have attained to such a supreme achievement as the 'Danae, ' where we watch a shiver of sensation passing over the nude like a breeze over still waters. Correggio's mastery of light explains his colour."

Reactions? Father Sheehy probably would have noticed that viewing this frescoer sensuality did not cause people to collapse into quivering blobs of desire and then crowd the confessionals "to dispel the evil images born of witnessing." As for Breen, it is a Seabiscuit bet that he would have continued censoring milk pail scenes.

One can speculate on how they would have reacted to Piero di Cosimo's Magdalene which Richard Muther described in The History of Painting as "the portrait of a richly dressed young lady. But this lady stands at the window, through which the sunlight floods the room, enveloping the figure in bright light; gleaming upon her cheeks, skipping over her hair, glimmering upon pearls and rubies, and refracting in a thousand colours upon her dark green dress. Other Flemish traits are the use of the three-quarter instead of the Italian profile view, and the still-life, consisting of salve-box, paper and book, which he has grouped upon the window sill."

Probably still too luscious and luxuriant for a fellow who only grudgingly tolerated a childbirth-in-silhouette film scene. This "more than the guy can stand" theme struck near my roots a few years ago when my old neighborhood, the Italian community of South Philadelphia, sponsored an Italy Renaissance Festival. The official emblem of the festival -- imprinted on posters, newspaper ads, shopping bags -- was the top half of the Michelangelo David.

This symbolized more than the festival's organizers intended: A sticky mis-blending of more than one tradition: 50% Michelangelo and 50% Will Hays; Italian culture out in half by Disney TV tradition; Old World cuisine on the lasagna tray and "Those were the days!" Archie Bunker-ism in the armchair. So some of my paisans have fumbled. I ask you, dear trader, to do better at carrying the ball. Apply the word "tradition" to yourself and let it be worthy of the name. Guard society against its "guardians."

Also, the trader without more than one area of interest carries an extra hazard. Speculating can be fine as business but is lethal as "entertainment." Oscar Wilde wrote, "This suspense is terrible. I hope it will last." Use trading for thrills and suspense and, like the horse-player, you will gain excitement while emptying your bank account. It is less expensive to be fascinated by the wry wit and moral laxity of British Restoration drama, the atmospheric intricacies of Alhambra architecture, or the clouded-in-centuries mystery of Etruscan tombs.

Be the practical trader, of course, but do not be "pragmatic" in the dictionary sense. Fine arts and the good of society are also your domains. Nevertheless, success in trading means lawfully picking the pockets of other traders. Josh Billings wrote, "A wise man profits by his own experience, but a good deal wiser one lets the rattlesnake bite the other fellow."

RECOMMENDATIONS: W.D. Gann's two books in one bound volume The Truth of the Stock Tape & The Wall Street Stock Selector are available from L & S TradingPhone 970-586-6262. George Angell's Winning in the Futures Market is available at major bookstore chains.


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