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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: Anti-Martingale Strategy
--- How NOT to Roll Dice on Concrete

During World War One, British recruiting posters said, "Enlist with a Pal!" The arrangement was that men who volunteered together would be allowed to serve together. The pitch worked well in terms of the numbers it brought in. Whole streets signed up, as did entire factory crews and upper-school classes.

Alehouse cliques and beanery cliques disappeared. "Not a soul down on the corner. That's a pretty certain sign. Those wedding bells are breaking up that old gang of mine." Now, however, the sound vacating the street corners was not a bell but a bugle.

The downside of this proved horrendous. Battlefield carnage mounted, wiping out entire streets and factories. Eton College's rollbook of alumni killed in action grew many pages. The sad and sentimental empty stool at the pub multiplied vastly.

Financially, trading futures and options resembles July 1, 1916, day one in the Battle of the Somme. It began with huge multitudes of would-be heroes and medallists. It ended with over 60,000 Britons dead or wounded. On the eve of trading as on the eve of battle, immensities of optimism grow with few roots in reality. Always, always, more optimism will grow no matter how badly the last batch fared.

Over 90 percent. That is the estimate generally given of how many futures traders end up as financial "ashes to ashes," also how many out-of-the-money futures options and stock options do a "dust to dust" by expiring worthless. Few see that carnage. Countless thousands of white crosses cover the grass at Flanders Fields. For traders, however, only a small-print phrase marks all the deep sixes: "a high turnover rate."

The names on the "active list" of the futures and options brokers are not the same ones that graced it a few months ago. Different voices when the phone rings. Steinberg has replaced Silverman. Costa has replaced Corelli. Princess Waterleaf has replaced Chief Whitehawk. Optimists crowd around the brokerage desk as around the recruiting desk, despite all knowledge of past battles and thinned ranks and why they need new blood.

Optimism. It brought Andrew Carnegie to the shores of America with just 50 cents in his pocket and it brings the sucker to the back alley crap-shoot. Many a speculator starts out to be the Carnegie of futures contracts or the J.P. Morgan of puts & calls, but does little more strategy-wise than throw dice on concrete. Optimism caused investors to buy Resorts International's rich stock and Charles Ponzi's fake promissory notes. After Ponzi's arrest, government expediters seized his holdings and were able to return to note-holders 28-cents of each dollar invested. That seems like a fortune compared to what many traders are left with--with no laws broken.

An abundance of high hopes the day before the battle. Boxcars of caskets the day after. Yet high hopes keep growing in all types of soil. No amounts of losses at the horse parlor in the past prevent the placing of more bets tomorrow. I am involved with spread strategies on stock options because they involve profits from both the recruiting desk enthusiasts and the coffin train, with the latter not dampening the former; from both the excited placing of bets and sad losses, with the latter not dampening the former.

There is an old saying, "More than one pessimist got that way by financing an optimist." Yet it is possible to profit from optimism that loses money. Bookmakers do it every day. Brokers collect a commission whether a trade or investment wins or loses. Most importantly, they make money regularly and over the long term. Not so with people whose high hopes get ahead of their good sense. Any brain-dead gambler or trader can tell you about his big win back in 1995 and can you lend me two dollars? Option spreads include that ongoing, long-term plus-factor -- not just profits but profits with businesslike regularity.

Remember Damon Runyon's two fictional bookmakers? Sorrowful Jones and his partner Regretful. Those names fit when their clients lost but what about at the excitement stage earlier on? The thrill of a bet and the hope of a win? Sunshine Jones and his partner Brighter Day would have been appropriate. The glad, hopeful bet and the sad loss are the two profit bookends, all the more since the Sorrowful does not dim the Sunshine of the next bet.

High hopes, sunshine and a vein of gold. The horseplayer believes in these no matter how many torn tickets and hurt faces he sees at the track, no matter how many times he has emptied his own passbook. The bookmaker's optimism, though tinged with cynicism, is more grounded in reality. The rainbow-chaser's visions may be fantasy but he spends real money in his quest for them. There's gold in them thar--in them thar other people's wallets and checkbooks. The option spreader sells puts or calls which, when they expire worthless, hold far less value than the spurious Ponzi notes. What the spreader buys, the other bookend, gets most of its gains from other people's money. Prison food for Ponzi, broiled lobster for the spread strategist.

Over 90 percent. By that much the sad stories told over pork & beans out number the treasure tales related during lobster thermidoro. Yet trading success exists and is not the exclusive domain of any one cuisine, character type or geographic location, no more than in the past. Dated 1870, James K. Medbery's book Men and Mysteries of Wall Street told of the buy & sell orders that flowed through the cables of Western Union and the Bankers and Brokers' Telegraph Company in and between major cities. Medbery added:

"But the most significant illustration of the deep-seated and widely ramified tendency toward speculation is found in the occasional commissions which trickle in from strange and wayside places. Villages whose names are scarcely known beyond the boundary of their counties have their rustic Fisks and Vanderbilts. Sparks of electricity fly up from the marshes of the Mississippi Valley, from the golden desolation of Nevada, from factory hamlets in Connecticut, from the pastoral seclusions of Vermont; bearing emergent orders to sell Hudson short, to buy 500 Fort Wayne, to take a put on Rock Island, or a call on Tennessee 6s."

"In the flush days, between 1863 and '67, the sum total of these outside speculators reached enormous figures. Now York City, and the population included in a radius of a hundred miles of that center, furnished its thousands. Women pawned their jewels for margins. Clergymen staked their salaries. One man sent his horse to his broker, and realized in the end $300,000 from this small beginning. Brokers cleared from three hundred to three thousand dollars a week in commissions alone."

"The unlucky never tell of their misfortunes. An author in two months lost the profits of three books. A bank clerk, in one of the chain of towns between Albany and the city, on the Hudson railway, made $30,000, in successive strokes. Then he offered himself to a fair young girl, and put the whole of his gains into (Wall) street, promising his affianced the rarest of bridal gifts. Three days after he received a despatch with the warning word, "10% more margin." His resources were exhausted."

The bank clerk hurried to New York City and, with much pleading and imploring, persuaded his brokers to carry him for just one more day. It only prolonged the agony and slightly postponed the wipe-out. The printed account does not say whether the fellow ended up as a groom in a low-budget wedding chapel or a bachelor in a sanitarium. Did it not occur to him to limit his risk? Could he not have ventured part of his $30,000 and banked the rest at Chase Manhattan? Also, shares in Bank of Boston, Bank of New York and Chase Manhattan have paid cash dividends every year since 1784, 1785 and 1848 respectively. He did not have to hazard everything in one speculative cargo hold.

Do not pay too much attention to the Horace Greeley for President posters that young man strolled past afterward. It could have been a William Jennings Bryan poster or Al Smith or Wendell Willkie or Dan Quayle. Floating too large a portion of trading capital on a substantially risky venture happens in every era. So does disregarding the fact that margin magnifies potential loss as well as potential profit. Optimism survives despite past shipwrecks but, alas, hazardous sailing survives also.

Stinginess is a virtue for traders, when they are trading. If you possess a generous streak, please mail a donation to St. Jude Children's Research Hospital (PO Box 50, Memphis, TN 38101) but when you trade guard each dollar of capital with a sword. Too many people concentrate on the big amount at the conclusion of a venture while not concentrating on the small amount at the start that this requires. In fact, they pay extra at the entrance gate because they are so anxious to "get in." An age-old bungle, paying too much at square one -- anting up too many dollars for "a piece of the action" -- sabotages many trades because that square one figure is the basis for comparison when you ask, "Any profits?" This may seem obvious when viewed objectively but anxious, cash-in-themitt souls at the entrance gate get low marks for objectivity.

For me, stinginess provided an invaluable shield. Recently, I pondered a stock option game plan involving a horizontal calendar spread and considered moving it from blackboard practice to the playing field. In such a plan, I buy options that have a far-in-time expiration month and sell options with a near-in-time expiration month (hence the "calendar" of the horizontal calendar spread). While expiration dates differ, the underlying stock is the same, as is the strike price of the different options (hence the "horizontal" regarding the strike prices as opposed to a higher and a lower on the chart).

In my standard strategy, the batch I sell must be worth more than half of the batch I buy and preferably around two-thirds. With options, one point equals $100 but since I routinely buy 10 option contracts and sell 10, one point means $1,000 in my reckoning. The 10 far-month contracts that I buy having more time-value than the 10 near-month ones that I sell, the fars will be more expensive than the nears thus creating a "gap" or "spread" in the respective dollar amounts. For example, if I buy 10 Decembers at 3-5/8 points sell 10 Novembers at 2½ points, the "spread" is 1-1/8 points which equals a cost to me of $1,125 plus commissions.

Note that the sold Novembers are worth more than half, in fact, slightly more than two-thirds of the bought Decembers. Other people's money enters the game plan in that what I sold pays for better than two-thirds of what I bought with my capital paying just the remainder. The precise amount of that gap or remainder figures crucially and this is where stinginess pays. Please excuse me for restating what I have written before but the jeweler's scale & chart deserve repeated attention. A one-point spread is rare gold, 1-1/8 point is gold easier to find, 1¼ and 1-3/8 points are good-grade ore. Half avoid 1½ and wholly avoid 1-5/8 or higher.

It was while visualizing the above mental gem-chart that I scrutinized some IBM call options. IBM shares showed months of lethargy in terms of upward movement but enjoyed a conservative price/earnings ratio and a solid floor, i.e., a sudden plunge that would bleed the call option white seemed unlikely. During the first week of June 1993-2013, IBM's stock price moved in the middle teens between 110 and 120. On June 8th, IBM's June 120 calls sold for 2¼ and the July 120s for 4½. Later that trading day, they inched down to 2 and 4¼ respectively.

This raised my eyebrows because the June expiration date was less then two weeks away. Picking up the phone the next day and buying 10 Julys would give me the right to sell 10 Junes as part of a horizontal spread for a whopping $2,000, with the obligation attached to the latter disintegrating at expiration in only nine trading days. So what made me hesitate? For one thing, the June call options wore worth less than half the Julys, not the more than half which I call my vicinity or the two-thirds where the sun shines brighter still.

Worse than that, this would mean an opening spread of 2¼ points after I have trained my eyes to view I½ as half a warning flag. What would I actually own on the long end or "buy" end of the spread? 10 July calls worth $4,250 for which I paid $2,250 plus commissions, the other $2,000 coming from other people's money. Late the following week, with dwindling, vanishing time-value devouring the burden of short-end Junes, I would realize a profit if the 10 Julys continued to be worth any amount more than $2,250. The brevity of nine trading days or less added more fruits of temptation.

When Sherlock Holmes had to ponder the details of a deep and complex case, he would reach for the slipper of tobacco on his mantelpiece and say to Dr. Watson, "This is a two or three pipe mystery." Being a nonsmoker, I meditated over a couple of bottles of Stewart's original cold-brewed Root Beer. Who appeared in the bubbles but Nicholas Darvas, the professional dancer turned speculator who wrote the books How I Made $2,000,000 in the Stock Market and Wall Street: The Other Las Vegas.

Nick Darvas developed a pragmatic system called the "pyramid of boxes" which involved trend-following and the heavy use of stop losses. After enjoying much success, he scrapped this methodology for a time and invested on hunches and impulses. By now he thought he had a knack which needed no safeguards but, according to his own written account, he came within an inch of total ruin. Fortunately, the return to his box theory and his stop-loss trigger brought a return to wealth and more of it.

Many other cases I had read about ended tragically. Great names of Wall Street and the Chicago trading pits and the Bourses died paupers. Usually, past success made them think they could not fail. Whatever they did right yesterday they thought was unnecessary today. They risked too much on flimsy ventures, figuring that with their great flying ability they needed less plane engine caution.

Well, my engine manual said to let other optioneers pay for most of it, not just part, and to limit the spread to not much above a point. So no deal at 2¼. Thursday of the following week, the day before June expiration, the July 120s shriveled to ¾ of a point from the previous day's 1-1/8. $2,250? 10 calls would have been worth $750! This resulted from IBM shares dropping to 107. Ah, the blessings of not eagerly paying any price at the entrance gate. Best root beer I ever drank.

"Handle speculation like a business, not like a gamble." Practically no one disagrees with W.D. Gann's golden axiom. But practice it? It is the pheasant and filet maxim to which vast numbers of traders nod in agreement before they eat at the greasy spoon. To varying degrees, certain occupations create a climate conducive to gambling. In the movie The Five Pennies, the young wife of band leader Red Nichols enters a delicatessen and says hello to several musicians during one of the rare instances when they are seated around a table, without playing poker. Then she acts woozy and heads for the ladies' room. Instantly they start betting each other on "what month she is in."

During idle periods, soldiers bet pocket money or a pie ration on everything from the weather to your health. In financial spheres, the virulence spreads in the form of the bookmaking bartender near the Exchange and the office bets on what color shoes the secretary will wear or which statue the pigeon will land on. With musicians and soldiers the wagering will probably not taint their work but with people of finance a spillover occurs in the wrong direction. The crap game does not become more businesslike but the business of trading becomes more of a crap-shoot.

How does one distinguish a businessperson from a gambler even when they may look the same while speculating in stocks, futures or options? For one thing, the businessperson insists on the "right opportunity" while a gambler's eagerness frequently plunges him into the wrong ones. That old, much-told story contains plenty of truth. As Sam plays poker, his friend sidles over and whispers to him that the game is crooked. "I know it is," Sam whispers back, "but it's the only game in town."

A gamester anxious and itching to play is not stopped by hell or high water, bottom-deals or marked cards. Notice that the bookmaker and the card sharp put good sense ahead of eagerness. They planned and organized and stepped into the right opportunity, not only winning but winning consistently. Not so with Mr. Sam I-Just-Gotta-Get-A-Bet-Down. Similarly a businesslike, scientific-minded trader realizes not all "opportunities" are good ones and all but a few deserve to be rejected.

Regarding the time element, the gambler sings the "I'm In a Hurry!" song. The businessperson does not wait eternally but does accept the time factors inherent in one or another business methodology. The curing and smoking of meats, the refining of oil, the breeding of thoroughbreds, the advertising and publicizing of shows or the building of homes and bungalows. Short-cuts mean trouble. For the hurry-up wagerer, the questionable adage, "Better a fast nickel than a slow dollar" translates into the even worse, "Better a crooked poker game today than a fair-chance one tomorrow." The businessperson occasionally waits for the right opportunity or the right situation while Roulette Randy says, "Right now, right away!"

Recently I waited nearly a couple of weeks for The Opportunity or The Situation. I scanned the daily option page regularly but was not comfortable with what I saw. Then the stocks of certain major banks began to attract my interest: Citicorp, Chase Manhattan, Mellon. All had conservative price/earnings ratios and all showed varying but ongoing amounts of upward motion.

Good candidates for a horizontal calendar spread with call options. Citicorp seemed too volatile, however. With Chase Manhattan, the call options with strike prices a fairly comfortable 4 & a fraction or more above the share price were too skinny value-wise. I needed 2 & a fraction or 3 & a fraction or 4 & a fraction of market value.

Mellon appeared to be it. Since this was late June, the worth of the July options had already shrunk with the dwindling of time. Augusts and Septembers remained sirloin-thick. With Mellon's share price in the low 70's, I focused on August and September calls with strike prices of 75 and 80. According to my measuring stick, there was plenty to attract attention. The spread between Augusts and Septembers stood at less than, a full point! It touched only 5/8 of a point at some moments in the fluctuations, usually just slightly higher.

The possibility of a quick stock rise prompted me to wait it out for a couple of days. The crossing of a spread's strike price by the share price would require a pulling up of stakes with the loss of commission costs. The shares rose to 74 & a fraction, causing me to disregard call options with a strike price of 75 as "too close" at the moment and to focus on the 80s. August 80s traded at 3-3/8, Septembers at 4-1/8.

The stock ebbed, to around 69-70. There appeared to be a 69-70 "floor" and a 74 & a fraction "ceiling." A horizontal calendar spread with calls at the 75 strike price level now seemed a worthwhile idea. I decided that tomorrow I would phone the broker with an order at a ¾ of a point spread or debit, which looked to be a realistic, likely-to-get-executed figure. Today, though, I would indulge in a psychological gimmick. I phoned the order to the broker but with a 5/8 point debit, knowing there was little chance of execution at such a great figure.

That was my trial run, my rehearsal. I have found that "crossing the crucial threshold" goes easier on the nerves if you cross it for practice beforehand. Thus I went through all the motions beforehand for the sake of warming up and the slight possibility of it connecting. The order came back "nothing done" but mentally I was past the opening night jitters and already on stage.

The next day, Mellon Bank's August 75 calls traded at 3 and the September 75s at 3¾. I phoned the broker: "Buy 10 Mellon call options September 75 to open a position. Sell 10 Mellon call options August 75 to open a position. The two orders going in together, each dependent on the other. The sell side covered by the buy side. This is at a debit of ¾ of a point." The statement, "The sell side covered by the buy side" meant that the transaction involved no "naked" options, only "covered" ones. "The two orders going in together, etc." is a boilerplate statement within the yards of spread activity.

The word came back "nothing done." The next day, I entered the same order but with a 7/8 point debit. Again no execution. That these were low-volume options could have caused the hindrance. According to my measuring stick, a single point debit was rare gold and less than that practically El Dorado. I had to act fast before the spread widened, and with something more aggressive than the two-seater bicycle. I would handle the two transactions separately, like a non-spreading optioneer doing a buy or a sell.

July First. Mellon's September 75 calls were bid 3-3/8, ask 3-5/8, last traded at 3½. For a buyer, the low or bid figure would be wonderful but is almost impossible in actual practice. The high or ask figure? Too expensive! The in-between one seemed practical, more so since options had just traded at that price. I told the broker to buy me 10 at 3½ and within minutes I was proud owner. With opening a spread and handling the two transactions separately, the buy must occur before the sell to avoid the hazard of "naked" option selling. Selling naked options means that a strong, sudden move in the underlying turns a $2,000 gain into a $3,000 or $4,000 or worse debt. On spreads, your long end grows too.

Now that I owned Septembers, I could sell Augusts, the key figures of which I had already been watching. Bid 2-9/16, ask 2¾, last traded at 2-3/4. When you sell, the bid number is too low and the ask nice but unrealistic. 2-5/8 was in between and realistic enough to have just happened. The amount worked out right spread-wise. I told the broker to sell 10 August 75s at 2-5/8 and prompt execution followed. Debit: 7/8 of a point.

The 10 Septembers cost $3,500, paid for with $2,625 from the sale of the Augusts and $875 plus commissions from my own capital. In my stinginess, I paid much less than whoever bought the Augusts and whoever bought comparable Septembers but without spreading. Many spread traders routinely handle the buy and the sell separately and shun the "Two orders going in together, each dependent on the other."

The hazard lies in the possible lack of buyers/sellers at the desired price. For example, if my offer to sell the Augusts for 2-5/8 ($2,625) had gone unexecuted, I might have had to lower my price and thus enlarge the debit or opening spread. However, handling the two transactions separately does make for fast, cut through-it action, as opposed to my three days of "nothing dones." I might take up this matter in future writings.

July Tenth: Mellon shares climbed to 74 & a fraction then closed at 74, a single point below strike price. The spread between the August and September options fluctuated around 1 and 1-1/8.

July Thirteenth (after the weekend): Having "tested its ceiling" on Friday, the stock spent most of today at 73 and various fractions before closing at 72-7/8. The spread wiggled between 1-1/8 and 1¼, swaying in the right direction.

July Fourteenth: Shares fluctuated between 72-7/8 and 73¾, closing at 73-3/16. The August calls last traded at 3-3/8, Septembers last at 4¾, fattening the gap to 1-3/8.

What is another difference between a businesslike, scientific-minded trader (I humbly hope I qualify) and a casino sucker transplanted to an Exchange? Realistic profit goals. A haberdasher price-tags a suit at double the wholesale cost and, after factoring in overhead, may figure that a third of the garment's retail price will be profit. The professional handicapper at the race track anticipates a 20% or slightly better profit after several bets. The horse junkie expects to turn $100 into $1,000 or $1,000 into many grand, without ever telling us why everybody does not ride limousines if the bank breaks that easily.

In spread trading, a 25% profit in four weeks annualizes to 325%, and bigger gains in less time are not unusual. Clearly this is not dividends or 30-year bond coupons. Yet the spread strategist does not expect his capital to multiply rampantly -- each dollar birthing a dozen -- within a beer-fermentation time period. That is the realm of the "wealthy in a week or two" traders who will have been better off brewing beer. Too many brokers "no longer active" client files are mass financial graves for such "multipliers."

Still another item of contrast between the businessperson trader and the crap-shooting trader resounds: The former looks farther ahead in time and, in tandem with that, is more aware of what can go wrong. The gambler tends to focus on the next thrilling win while the businessperson intends to be around for the long campaign, and thinks and plans accordingly. To illustrate, "doubling up" is a standard gimmick of casino wagerers. You bet $5, then if you lose you bet $10, and keep doubling until you win.

You will win perhaps a half-dozen such run-ups for a total gain of $30. Then around the seventh run-up, you will lose $40 on the fourth bet, $80 on the fifth, $160 on the sixth. The gambler delights in the immediate win while the businessperson stands alert to the mathematical land mine a few steps into the procedure. At the Exchange or the broker's office, this awareness prompts the scientific speculator to pass up nine potential trades and to risk only a conservative amount of capital on the tenth. The gambler "keeps reloading" by repeatedly adding money to his trading account. The businessperson makes his original capital last a long time. He sees the distance and goes the distance.

A particularly crucial distinction between the Exchange businessperson and the Exchange crap-shooter lies in the latter "make it interesting" syndrome and, accompanying that, the need to be "interested" all the time. Many people find a sporting event watchable for its own sake. Some find that betting a few dollars "makes it interesting" and a larger amount more so. This often snags the speculator in options or futures or stocks who is structured inside like a gambler instead of a businessperson. Venturing a conservative amount wisely limits the risk but a larger stake makes it more "interesting."

A closely-related germ is the "all the time including periods in between" disease. Years ago on his TV situation comedy, comedian Danny Thomas remarked, "That kid of mine eats so much. I've heard of eating between meals, but he's the only kid I know who eats between bites." Something similar can really happen. A problem drinker craves something stronger than the half-finished glass of beer in front of him. He goes to the whiskey bottle, downs a shot, then returns to his glass of beer. He is "drinking between gulps!" Symptoms of addiction include wanting to "high all the time" which means "filling those interludes."

Trouble aplenty oozes between the slats in financial speculation. Mention was made in the previous issue of CTCN of "dead pools" -- betting on which celebrities will die in the coming year or month, an activity indulged in by office workers, Internet surfers, and most frequently Wall Streeters during boring, inactive periods on the trading floors. In other words, wagering between bets. Using corpses as dice before or after using options and other securities as dice. Gotta fill in those dull stretches.

Since the last issue, players in stocks or futures or options have collected on their side bets on Maureen O'Sullivan and Roy Rogers. Less macabre deals include the bookmaking barber and the poker deck in the desk drawer. A piece of the action here and a piece there "make it interesting." Handle speculation like a business? Yeh, bet on which sugar cube a fly will land, then use option contracts as de facto flies and sugar cubes. Remember that plenty of businesses have been dragged down to the saloon bet level but that saloon bets have never been pulled the other way. Stay off the one-way escalator down.

Five minutes before the close of trading a couple of days ago, I obtained a welcomed quote on Mellon Bank shares. Where was I at the time? Playing video poker? Betting on Milton Berle to tell his last Pearly Gates joke? I was on the basement phone of the New York University library. Although many people are more scholarly than I, I find that being a scholar of sorts makes the days "interesting" without recourse to crap games between crap games. While there I Xeroxed a piece by English author Ford Madox Ford on British-born poetess Christina Rossetti (1839-1894):

"I do not know that in her drawing-room in the gloomy London square Christina Rossetti found life in any way ennobling or inspiring. . . Her poetry is very full of a desire, of a passionate yearning for the country, yet there in box-like rooms she lived, her windows brushed by the leaves, her rooms rendered dark by the shade of those black-trunked London trees that are like a grim mockery of their green-boled sisters of the open country . . .

"She put love from her with both hands and yearned for it unceasingly; she let life pass by and wrote of glowing tapestries, of wine and pomegranates; she was thinking always of heaths, the wide sands of the seashore, of south walls on which the apricots glow, and she lived always of her own free will in the gloom of a London square."

Yet the bright side shines exceptionally: When her fancy roamed it roamed with gusto, finding the violets and the sea-foam and the picturesque ruins of abbeys, not Brighton coast roulette or bets between street vendors. Would that many traders follow her example, sending forth their spirits from trading pit or office cubicle or laptop to something better than a barroom bet or a sports wager? Scientific investing can turn into a back alley crap-shoot but a back alley crap-shoot cannot become scientific. Martingale strategy (doubling up) goes deeper and deeper below the hash house.

In the previous issue of CTCN I made a request which I do hereby repeat to financial readers: Please cast yourself in the role of the carriage-trade tycoon. Even if you do not drink, send your inner self strolling through the Rothschild's wine cellar rather than the Diet Pepsi plant. Whether you are the scientific trader or the poker deck patsy of the Exchange depends on precisely how you "fill the interludes" and "make things interesting." Let your spirit roam among the ghosts and archaeological artifacts of the ancient Greek temples at Agrigento, island of Sicily. The spiced winds from there will not taint your investing. The dead air around the slot machines might.

Among other items I researched at the NYU library were details regarding the opera Turandot by Giacomo Puccini, which I had seen several years earlier at the Academy of Music in Philadelphia. Puccini had died while writing it in 1924 with the third and final act not quite complete. Composer Franco Alfano finished it based on the late creator's notes. This brought about the famous "unfinished premiere." At the premiere performance of Turandot in 1926, maestro Arturo Toscanini conducted up to the last notes written by Puccini. Then he told the audience, "It was here that the composer put down his pen." He laid down his conductor's baton and walked off.

Toscanini served as maestro for several performances of the opera in its entirety during the remainder of that season. The title character is a beautiful but cold princess in old China. Her ancestress was kidnapped, raped and died while a captive of a foreign mogul. Turandot extracts revenge by letting foreign princes come to her court and propose marriage, then having them beheaded. During Act One, the Prince of Persia's severed head is brought onstage. An interrogation by torture and a suicide follow until an unknown prince thaws her out romantically for a happy ending. Among the portions of Act Three which Puccini did complete was the standout tenor aria "Nessun Dorma" ("None Shall Sleep") which has in recent times become the signature piece of the great Luciano Pavarottio.

Like swallows to Capistrano or a mysterious melody, they keep coming back. I refer to the lovers of "golden yesteryear" to whom "traditions" is anything remembered by people with lousy memories and little or no culture. Richard Nixon's vice president Spiro Agnew expressed pride in his Greek heritage. Yet he was the champion on a pedestal to millions and millions of right-wing reactionaries -- Americans who thought Pericles and Euripides owned pushcarts. Today they keep coming back even in the pages of the Wall Street Journal.

After the teen-age school shootings in Springfield, Oregon, conservative publications such as the National Review and the Weekly Standard routinely blamed "the culture" -- movies, magazines, rock and rap lyrics. In the Wall Street Journal (June 11, 1993-2013) Albert R. Hunt wrote of anti-censorship people: "Defenders of this rot insist there is no reliable data that links violence to cultures. That flies in the face of common sense. If Frank Sinatra songs make people feel romantic and John Phillips (sic) Sousa makes people feel patriotic, then the obscene violence of shook rocker Marilyn Manson or gangsta-rapper Snoop Doggy Dog might encourage impressionable teenagers to feel perverted or violent."

Sousa's middle name was Philip -- one "1" and no "s" at the end. The reactionaries finally come up with a "good old days" advocate whose knowledge of music history goes farther back in time than the 1930s and "Looky, Looky, Looky, Here Comes Cookie," and he messes up the spelling. Similarly, Judge Robert Bork cheered in retrospect Will Hays and his 1930s movie censorship but misspelled the name Hayes." Their look-back-in-time telescopes appear to be of Woolworth grade with faulty focus beyond the Ozzie & Harriet period. No wonder they did not try to teach Spiro Agnew about the plays of Aristophanes or the sculpturing by Praxiteles. Nor do they reveal to us how many real-life poisonings and adulteries have been traced to grand opera by Giuseppe Verdi.

Hunt and Bork and others of their stripe would have liked the recent (July 7, 1993-2013) New York Times retrospective on the late Roy Rogers and his wife Dale Evans, who acted together in many movies and TV episodes from 1944 to 1957: "Devoted as they were, they never kissed on screen. Mr. Rogers frowned on such public displays and was ever mindful that he was a potent role model for millions of children." The article was remiss in failing to mention the miracle of the housebroken horses. The film crew strained to prevent the cameras from catching a glimpse of horse manure, on which the censors frowned. Studio hands with shovels helped and were the unsung heroes of screen decency.

Only one thing bothers me more than seeing traders and tycoons accept this lacy blushes-in-the -candle-shop notion of culture, and that is seeing members of a certain ethnic group accept it. In his already-mentioned Wall Street Journal article, Albert R. Hunt quotes as an authority criminologist John DiIulio: "The music pounds and pounds with messages of violence and degradation of women; if you talk to people on the streets, they will tell you this is public enemy number one," says Mr. Dilulio of Princeton University.

An intriguing statement coming from an Italian-American. Does he use, if not singing cowboy movies, accordion music and Spike Jones as measuring sticks? Was the shooting of a pregnant women in Roberto Rossellini's landmark film Rome: Open City too much for him? I am sure that Professor DiIulio shares my fondness for kitchens aromatic with garlic and tomatoes and sweet basil. Beyond that, I just hope he knows Italian heritage better than Spiro T. Agnew knew Greek heritage.

One does not easily cringe at rook and rap music that "pounds and pounds" when one has thrilled to the sight and sound of a baritone stabbing a tenor and seducing a soprano. Heavy, yes, if you are used to Glenn Miller and roses that sigh in the June night. As for speculators and investors, no cowards in my regiment! Also no "traditionalists" who think that Botticelli sold protection on the east side. I insist. In 1859, the premiere of Verdi's opera Un Ballo in Maschera (A Masked Ball) was plagued with cancellations and postponements because it dramatized the assassination of a king. Many people feared that performances would encourage real regicides. If you talk to people on the streets, they will tell you. Higher-ups in royalty and government too.

Back then, they lacked the blessed influence of Roy not kissing Dale. It may be that I do Professor Dilulio an injustice. Perhaps his criminology files at Princeton University teem with cases of real-life rapes, beheadings, suicides and interrogations by torture caused by the Puccini tale of the ice princess. You get away from boy & his dog fiction and all sorts of trouble break loose. Where are songs like "In the Shade of the Old Apple Tree" and "My Sweetheart Went Down with the Maine" now that we need them? However, if you are a trader who must "fill the interludes," explore the pyramids and catacombs for something stronger, if only from your desk or armchair.

The Roman and Florentine labyrinths still come alive in the autobiography of Benvenuto Cellini as much as when he wrote it in the 1500's, as do his bronze Perseus holding the Gorgon's viper-hair head and his gold medallion Leda and the Swan. Did sapphires, rubies and emeralds turn into liquids on the palettes of artists of the Neapolitan school? Have a look and decide for yourself. A soprano aria shimmers like polished silver as much today as when the ink on the score sheets barely dried.

If another trader tries to lure you into a stairwell dice game or a bet on Kirk Douglas' life expectancy, or another right-wing reactionary shows up in the Wall Street Journal and tries to "save" you with saddle songs and heroes who do not kiss anybody, show your intaglio of Old World influence. Either enjoy a plate of manicotti with marinara sauce or slay with the sword of Ulysses. But guard the fine-tune of your trading knack.

July Twentieth (exactly 13-trading days or 2½ weeks after starting the Mellon position): The August options clocked in at 1¼, the Septembers at 2-7/8. Those who bought the Augusts on July First are down more than half; those who bought Septembers but without spreading are off a fifth. This 1-5/8 spread nearly doubled my 7/8 point stake. Dry hole for others; the spreader's gusher.


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