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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: Cooked Pheasant on Park Avenue
or Pork & Beans in Jersey City

A young man, a music student, went to Wolfgang Amadeus Mozart and said, "I would like to write a concerto. Can you tell me how?" "You are too young," Mozart replied. "Wait a couple of years."

"But you were composing music when you were seven or eight."

"I didn't have to ask anybody how."

To that anecdote must be added the qualifier that learning and developing are perpetual processes. Mozart continued to grow and deepen to the end. A pilot gets to "fly solo" at a certain stage of his training but continues learning about aviation and honing the knack for years.

Late in life, magician/author Burling Hull wrote in a how-to article on conjuring, "Please understand that when I say "teach" and "learn" I say them with no superior attitudes. I am learning about magic every day." Another spin on the subjects of development and doing something well can be found in a statement by artist Edgar Degas: "Painting is not very difficult when you don't know how. But when you know how, ah! then it's a different matter." Of course, the amateur who does slap-dash work and thinks him-self brilliant has an easy time of it while ruining numerous canvases. The master who handles 50 or 100 details well faces a more demanding task. Yet for the adept there is an inner smoothness and a lessening of tension --fringe benefits-of expertise. The polished orator is not immune to stage flight but has less of it than the incompetent or the mediocrity.

In financial risk, plenty of amateurs mess up their trades like an "I'm the new Degas" slops up his palette. One could blame the neophyte, the armchair warrior who puts down his storybook, approaches real battle, and expects a quick medallion from the queen. But woe and alas, too many traders have been at it for years with little or no money to show for it. Plenty of combat in the field followed by hard-luck stories and no medals.

Philologically, the word "expert" has its root in the word "experience." However, speculation provides a poor example. Too many "experienced" people have track records which resoundingly prevent their being called "experts." The driver with the string of traffic accidents and the horse-player who has been losing for years can both boast of "experience" but would you call them "experts" in their respective activities? But a child prodigy in music, Mozart was an expert without much experience.

Certainly time and experience count for something, but plenty of traders with plenty of both miss the target as frequently now as they did during the Ford and Carter presidencies, and the blunders of the Hoover Bear Market have far from disappeared. In my past articles on option spread strategy, I have repeated W. D. Gann's Maxim: "Handle speculation like a business, not like a gamble." That these words are read there exists no doubt because I have received nice letters from newsletter subscribers in the U.S., Canada, Great Britain, Switzerland and Hong Kong.

Yet every time l pick up a financial newspaper, the Gann Maxim appears to be the most ignored statement ever written. Everything hints of the slot machine with bells ringing and lights flashing. "Be A Day-Trader!" ads come in a fusillade. "Enter the Exciting World of Day-Trading!" The word "Exciting" appears frequently in these ads. Legally they cannot guarantee a profit but they can guarantee that it will do a job on your nervous system. On the 20/20 TV program they interviewed several of day-trading's financial stretcher-cases. Is a shot-up bank account your idea of "excitement?"

Another item flashing ceaselessly in the financial news: The National Association of Securities Dealers has before it a plan to extend its hours, so that participants may trade in the late evening. What does this resemble? Not business. The next time you visit a casino, look around for a clock. You will not see any. Interior casino designs deliberately omit clocks. If a customer sees that it is getting late, he may stop wagering and leave. More hours, more money for the house. Likewise, the NASD wants to eliminate or defer the "Stop -- It's Getting Late!" signal.

Some will call this "business" -- like a late-hours convenience store. Actually, it is craps and blackjack extending into the graveyard shift. It means a longer flow of commission money and IPO money. Additional good news for commission-collectors springs from those TV commercials for futures and options: "It's Now Possible to Trade the Dow!" or "Big Money Possible Trading the S&P." Futures and options on wheat or pork bellies or copper facilitated liquidity in business transactions involving these essentials. But the Dow and the S&P? This amounts to roulette -- with the brokerage commission being the house's cut of the pot.

No, it is not my intention to portray brokers as villains. Not usually, at least. Once I had an account with Merrill Lynch's Philadelphia office. While visiting New York, I phoned Manhattan's ML branch and explained to the broker that I was a Merrill Philly customer. Could he give me some stock quotes? Sure, I told him the stock symbol and he told me the current price. I took a breath to ask the price of a second stock and -- heard only a dial tone. He had hung up, stingy with his seconds on a no-commission phone call.

Then again. When I lived in southern New Jersey, local three-branch savings & loan went public. I thought it would be nice to own shares in a company that was both a money-business and local. I phoned a Jersey brokerage firm that handled part of the stock offering. "It's lousy," the broker said. "Those shares are ridiculously over-priced. Ridiculously inflated. It's a bad investment you should stay away from. I mean it."

I had no account with that office and the broker had never even heard of me until we spoke on the phone. Yet he preached hell-and damnation to save financial souls. Months later the savings & loan collapsed. Federal insurance protected depositors but not shareholders. Regretfully, I do not remember that broker's name or his firm. Yet he helped me not to lose a pound of paydirt. As though he were the Lone Ranger, I do not know who he was but I wanted to thank him.

I began to use discount brokers years ago because their commissions on stocks were lower. When I began specializing in option spreads, with two commissions (a buy and a sell) going in and two going out, discount houses became a monetary life's blood necessity. The guys and gals known as discount brokers have been found by me to embody the Scout Law: Trustworthy, Loyal, Helpful, Friendly, Courteous, Kind, Obedient, Cheerful, Thrift, Brave, Clean and Reverent. If cynics think this an exaggeration, remember that I am a cynic too and do not bestow praise loosely.

With many millions of dollars in expenses, plus the simple ordinary desire for the loot, the brokerage industry must inevitably be a commission-hungry industry. Consequently, the independent trader must continually take care that the bulk of his capital does get devoured by this factor alone. The industry's pretenses that it is a business as opposed to a gamble becomes ridiculous in view of such instruments as "hi-tech index options" and "pharmaceutical index options." What are these except more chances to bet? What are more commissions except more chances for the house to take a cut of the pot?

In addition to the fast-in-&-out day-traders at office screens are the at-home traders using the Internet who may carry a position longer. Yet here too the situation or milieu favors-quickness, an inescapable antsiness over the lively computer buttons. Casino regulators have railed against cocktail waitresses serving drinks to customers at the gaming tables. It sabotages judgment and caution and restraint. Yet no one shields the at-home Internet trader from the beer in the refrigerator or the scotch in the liquor cabinet. How many "businesses" are operated this way?

A certain repulsive asininity has happened in many a city and town. Word gets around that prostitutes are working such-and-such a street. Men go to that street looking for sex. Then it happens: Housewives on the way to the store get propositioned. You may call this "stupidity" or "the idiot factor" but remember that something similar thrives in the realm of speculation. The broker collects as big a commission out of a stupid dollar as a wise dollar, as much out of a whiskey-soaked judgment as a cold sober one.

Worse than that, if the dunce who propositions the police chief's wife makes many nervous, impulsive trades, he and not the pick-'em-carefully thinker may become the broker's favorite, the one sought out and encouraged. Those "Make 300 Percent" TV commercials for futures & options do not exactly seek out Mr. Sophisticate. If "the idiot factor" generates commissions, who will say no? Especially if Trigger-Happy Gus makes more trades than Charlie Careful Shot. Where does a broker turn down an astrological stock-picker? In a fiction story.

To speak of "trading addiction" may sound fanciful or even humorous, like mentioning "golf addiction." Yet by no means is it an exaggeration. Rebecca Buckman wrote the article "These Days, Online Trading Can Become an Addiction" in the Wall Street Journal, February 1, 1999:

"It has become accepted wisdom that using the Web to rapidly buy and sell stocks, particularly volatile Internet issues themselves, is highly speculative. But now, addictions specialists report, cases of glassy-eyed investors literally hooked on cheap, easy Web trading are beginning to trickle into treatment centers and call gambling hotlines."

"The Sierra Tucson center, a 63-bed behavioral health-care facility in Arizona, has seen a few online-trading addicts." Chris Anderson, head of the Illinois Council on Problem and Compulsive Gambling, said that the Internet as a financial tool is so easily accessible and always available that it "makes people much more susceptible to getting out of control. It's like for the addict, the pusher is right in your living room."

Regarding the "Be a Day-Trader!" huckstering, a New York Times "Market Watch" article (March 21, 1999) stated, "Regulators, rightly worried that many daytraders don't understand the risks of the practice, are starting to rein in the day-trading firms." The piece by Gretchen Morgenson defined these firms as places where "any investor with money and moxie can sit down in an office and lose both."

Quoted was Meyer S. Frucher, chairman and chief executives of the Philadelphia Stock Exchange: "We felt that people who did not have sufficient background as traders were being enticed to come in and risk large sums of money without education."

Gretchen said, "starting to rein in." How long the process or how thorough none can say. The fact that the huckster and the dupe are both as old as mankind gives scant reason for optimism. Happily, one can succeed as an independent trader; not be "glassy-eyed" and not have a pusher "right in your living room"; no "being enticed" or "without education."

Years ago, I was attracted to option spreads because (a) they enjoyed reduced risk and (b) they used substantial quantities of other people's money. These two facts have a cause-&-effect linkage. Risk is reduced because other people's money catches most of the gunfire. Often, other people's teardrops have been my gold spillover. At the close of 1997, an announcer on the financial cable channel remarked that it was a lousy year to be in the market. I overheard it from the next room and chuckled.

Oh the phone, a lady discount broker had just congratulated me for pulling out of an option-spread position at a profit. "You will buy me an orchid corsage, won't you?" She was joking but I sent her a no-foolin' bottle of Chardonnay. What is a typical profitable transaction? At that time, I would have bought 10 options at perhaps 4-1/4 or $4,250 for the 10, and sold 10 other options with a nearer expiration date for maybe 2-3/4 or $2,750. The money from the sale of the latter would go to pay for most of the former that I had bought. Out of my investment capital, I would pay the $1,500 difference or "spread" plus brokerage commissions.

In two or three weeks, the sold options would typically shrink in value to something like 1-1/2 or $1,500 for 10. The bought options, being farther off in time expiration-date-wise, would also shrink in value over the weeks but less -- a crucial point. They would trade for something like 3-1/2 or $3,500 for 10. Why would this be good news for me? The difference or "spread" between the two batches of options was $1,500 when I entered but widened to $2,000 by the time I exited. In short, a $500 profit (not counting commissions) on a $1,500 investment in two or three weeks.

Why would this be bad news for other people? Notice that the sold options had lost a third of their value (2-3/4 points to 1-1/2) so whoever bought the 10 I sold was down $1,250. As for the boughts, anyone who bought 10 at the same price I did but without spreading lost $750 (4-1/4 points to 3-1/2). Yes, Lady Elaine. Lancelot's and Galahad's sufferings in battle enriched me.

Three paragraphs back, I said, "At the time, I would have . . . " because nowadays my procedure is different on at least two key points. An opening spread of as much as 1-1/2 points? No, now it would have to be smaller. Selling options for as little as 2&a fraction? No, now they would have to be bigger. Every trader goes through one or another kind of evolution. Although not all changes people make are for the best, these added precious carats to the gold.

Adescription of my more recent maneuvers will serve to illustrate. Now even more than then, option spreading reduces the risk enough and produces a profit regularly enough that I can call it a business and not a gamble. Without being bled daily for commissions or anywhere near that often. Without a bed in an Arizona clinic. Without telling a hard-luck story to sad speculators three deep at the bar. In early March, I took profit on the Cisco spread with put options described in the previous issue of CTCN.

What to do next? Since it was March, the options with expiration dates in April had already started to shrink or deteriorate markedly value-wise from being near in time. Of course, the March ones were near-skeletons. So I anticipated being active in the May/June region, i.e. buying 10 Junes and selling 10 Mays with the same underlying stock and the same strike-price as the Junes. This I long ago christened my ship of the line --- the horizontal calendar spread; horizontal because of the same strike-price and calendar because of the different months.

A problem emerged at that particular time. On the Wall Street Journal's options page, only a paltry number of stocks had May puts & calls. Most jumped either from April to July or from April to June. The amount of the difference or "spread" between April and June or April and July was prohibitive: 2 & a fraction, 3 & a fraction or worse. I knew what I wanted: A spread of less than 1-1/2 points and the less the better. Also just fine by my reckoning were May options selling for 3 or 3 & a fraction or better and Junes in the 4 & a fraction area. The shortage of Mays hindered.

Of course, that spreads produce profits faster than numerous other forms of investing counts as a big plus. Yet one must not fall into the trap of the Internet stocks crapshooter, expecting astronomical gains lightning fast, then seeing no Klondike except in the gold tooth of the pawnbroker. If necessary, it is better to wait for a good position than to get into a bad or mediocre one quickly. Better a delayed profit than a rapid loss.

I waited, knowing that March options would expire the third week-end of that month and May ones would be born in quantity early the following week. The week following March 22, the option page gave me an ample slate of Mays and Junes from which to select a potential spread. Pfizer, General Electric, MCI World Com and Wal-Mart among others had May puts & calls trading at 3 or better and Junes 4 or better. All were rising in the "Dow 10,000" market but moved slowly.

Since spectacular rises seemed unlikely -- Dow 10,000 constituted a sell signal to many investors -- either a put spread or a call spread appeared tenable. Quite often with the same stock, the gap between calls of different months is wider than between puts of different months, the bias of optimism. On March 23, for example, Pfizer call options with an expiration date of May and a strike-price of 150 were bid 3-3/8; ask 3-3/4. The June 150s were bid 5-3/8; ask 5-5/8. The spread or gap: Approximately 2.

The shares closed that day at 140. With the nearest out-of-the-money put options, the May 135s were bid 4-3/8; ask 4-3/4. The June 135s --bid 5-3/4; ask 6-1/8. Nice. The Mays higher than 3, the Junes higher than 4. A spread of 1-3/8 points, just about below 1-1/2. A spectacular rise in a stock could hurt a put spread but Pfizer was a gradual riser with an inflated Price/ Earnings ratio of 55. The prior 52-week share price high: 144 & a fraction. With the Dow 10,000 shilly-shally, that pharmaceutical stock appeared likely to hover around 140 or not much higher.

I phoned an order to the broker. "Buy 10 PFE puts June 135 to open a position. Sell 10 PFE puts May 135 to open a position. This is a spread. These two orders go in together, each dependent on the other. This is a "covered" transaction, with the bought Junes covering the sold Mays. I want it at a debit of 1-3/8 points."

This would have been a "covered" transaction -- in this case, with one batch of options acting as security for another -- as opposed to a "naked" sale, in which the option-seller has nothing to back it but his word and his cash. The 1-3/8 point "debit" means that the buy price of the Junes and the sell price of the Mays are open but the difference between them is "fixed" at 1-3/8 points. In dollars, with 10 options bought and 10 sold, it means the trader must pay $1,375 plus commissions.

The report back from the broker: Nothing done. I phoned in a repeat the next day. Again, nothing done. The problems included low volume. On March 24, for example, only 16 of Pfizer's (PFE's) June 135 Puts transacted. Anyway, soon the spread widened to 1-1/2. It had moved out of bounds and I ceased trying to open a position in it. My attention turned to Wal-Mart (WMT) which had been rising but had lost steam and carried a non-conservative Price/Earnings ratio of 45.

Wal-Mart shares were a little off their 52-week high of 98 & a fraction and had a low an immediately previous week of 88 & a fraction. Its up-&-down price motion appeared to form a "box" in the middle 90s. Either a call spread at 100 or a put spread at 90 seemed all right. On March 29, Wal-Mart's May 100 calls were bid 3-1/8; ask 3-1/4. June l00s -- bid 4-1/4; ask 4-1/2. A spread of between 1-1/8 and 1-1/4. The May 90 puts-bid 3-3/8; ask 3-5/8. The June 90 puts -bid 4-3/8; ask 4-3/4. A spread of between 1 and 1-1/8.

I phoned in an order to buy 10 June 100 calls and sell 10 May 100s at a debit of 1-1/4. Nothing done. These too were low-volume options with just a few dozen contracts trading each day. I thought I could get in on the early action by phoning it my order early the next day about 15-minutes before the start of trading. Debit 1-3/8. Noon I called in for results. Nothing done as yet. I told the broker, "Cancel that order. I have a back-up plan. Puts instead of calls."

This was on March 30. Not only had the call-spread order not been executed. The May and June 100s kept showing differences of 1-1/4 on the bid side but 1-1/2 on the ask side. The latter was my good-bye signal. The May and June puts with strike-prices of 90 showed differences or gaps of between 1 and 1-1/8, fluctuating more at the latter. I considered a "buy 10, sell 10" order at a debit of 1-1/8 but after days of "nothing dones" it seemed it would happen again if I did not offer a number just a little better than the quoted figure. I said, "At a debit of 1-1/4."

I am placing sledgehammer emphasis on this opening stage of a spread and the amount of the debit at this opening because this is Silas Marner Time, the stage where it pays to be a miser. Invest Small, As Small As the Powers That Be Will Stand Still For. It had taken me some days to open a position because I insisted on being Stingy Sam instead of Lord Bountiful. No regrets have I on that item. Also at this time, May puts traded at 3 & a fraction, the Junes at 4 & a fraction -- in the right territory.

Yes, I was nervous. It started to seem like "nothing dones" would come in perpetuity. At 3:00 PM on March 30, I phoned the broker and jotted down his words with a glad hand on my lucky ballpoint. "You bought 10 puts WTM June 90 at 4-1/4. You sold 10 puts WTM May 90 at 3." In dollars, I bought $4,250 worth and sold $3,000 worth, paying the difference of $1,250 plus brokerage commissions. Inordinate numbers of "nothing dones" preceding this transaction made it more memorable.

Yet the greatest thing about owning the 10 Junes was and is that other people's money paid for more than two-thirds of them. The difference between my $1,250 and the $4,250 sprang from the cash in other people's pockets. They also face far more exposure to risk than I. At the time of this writing (April 6) one week has passed since I "opened the position." Today the May 90s traded at 2-3/8 and the June 90s at 3-5/8. At this gap of 1-1/4, the 1/8 point difference off of what I paid has happily disappeared. Also today the fluctuation occasionally inched above 1-1/4.

Standing pat and waiting. Any bad news for other people? Usually there is. As you can see, whoever paid $3,000 for the Mays I sold is minus siding more than $600, precisely the same sorry sum as whoever bought Junes at the price I did but without spreading. In trading, Smith's good news doubles as Jones' sad story. If a bunch of grandmothers in Illinois similar to the Beardstown Ladies bought any of these options, then their teardrops are my sunshine.

Among various types of businesses, funeral parlors have a low bankruptcy rate and new restaurants a high one. As for speculative trading, it is difficult to find an enterprise where so many would-be millionaires go in and so many whipped dogs and shorn lambs come out. More ironically, those "Exciting World of Day-Trading" ads and "Futures & Options Gold Mine" ads are not paralleled by come-ons saying "Be A Plumbing Supplies Wholesaler" or "Open Your Own Publishing House." People who would question their own qualifications and mind-sets before opening a shop instead get a "Better Hurry!" message from an industry craving new capital via commissions.

So examine your own qualifications and mind-set and personality and, well, the et ceteras could run lengthily. Successful traders come in all varieties and life-styles. Some enjoy cooked pheasant on Park Avenue and some pork & beans in Jersey City. They include doctors and Christian Scientists, vegetarians and butchers, physicists and diamond-cutters and "You want fries with that?"

Yet cultural factors and life-style factors do matter. A repeat-profits speculator can be either a neo-prohibitionist or a brandy and wine connoisseur but can he be a problem drinker? Problem drinking impairs judgment and timing, both of which stand as crucial to successful trading. An avid reader of cookie-cutter formula fiction who does not realize that he is reading the same story over and over will probably overlook the telling details and signals of the market. A leader of True Confessions who does not know it is fiction lacks solid wire-circuitry to reality and should stick to passbooks.

Regarding cultures and life-styles, numerous signals and under-tones can be read differently, adding to the complexity and the hazard. The July 6, 1993-2014 issue of William F. Buckley's conservative magazine The National Revue carried an editorial "Back to Brazil" which jeered at the sport of soccer as something of an undesirable alien in the U.S. It stated: "Sports are like slang, spices and manners -- every nation has its own, and their nuances can't easily be learned by outsiders."

It also said, "National games do not merely keep foreigners at bay; they bind a nation together. What, besides football, links small towns in Texas and in Pennsylvania? What, besides basketball, causes frenzies in rural Indiana and in Brooklyn? The country that plays together stays together."

No bigotry or xenophobia intended here, you understand. Just keeping foreigners at bay and befuddling outsiders with "nuances" they can't easily learn. After the recent death of baseball legend Joe DiMaggio, the New York Times and the Wall Street Journal both reprinted an excerpt from a 1930s article. A May 1939 issue of Life Magazine meant to compliment DiMaggio but bristled with demeaning ethnic stereotypes. It said that American-born Joe "speaks English without an accent, and is otherwise well adapted to most U.S. mores. Instead of olive oil or smelly bear grease he keeps his hair slick with water. He never reeks of garlic . . . "

No organ grinder he. How could they fail to mention that Jolt-in' Joe did not save his money in a sock or work for Lucky Luciano? A recent issue of The National Review (April 5, 1999) carries an obituary: "From our distance today, DiMaggio's time seems a simpler, clearer one. What was right and wrong was not subject to as much discussion. The public recognized stinkers and scoundrels when they saw them."

It was also the era when radio censors made cuts in the Maschwitz-Strachey-Link popular song "These Foolish Things," omitting the "silk stockings thrown aside" and the "gardenia perfume lingering on a pillow." It was also the era when Life Magazine felt it necessary to "prove" that Joe was no "greaseball." But then, if the athletic field is to be used to "keep foreigners at bay," then one must be sure that, say, a Polish-American home run hitter does not wear a bowling shirt under his pinstripes.

The 1930s were not the era of Italian opera or Dutch & Flemish paintings, but the Right Wing's "golden yesteryear" apples never do fall far from the present-day tree. It was the era when film censorship bigwig Joe Breen blamed so-called indecent movies on "lousy Jews . . . 95 percent of whom are Eastern Jew" the scum of the earth . . . whose only standard is the box office." The publication The Brooklyn Tablet had earlier stereotyped Jewish heads of studios as garment industry dollar-grabbers or nothing "more or less than alien ex-buttonhole makers and pressers" who ran Hollywood like "the cloak and suit trade" they had left on the east coast.

For financial traders, bigotry and similar types of thinking can be even more hazardous when not so raw or unvarnished. Who can forget Archie Bunker's famous question to Sammy Davis, Jr.? "That's one thing I could never understand. You couldn't help bein' born colored, but what made you decide to turn Jew?" Just as the question "Do you still beat your wife?" contains the assumption that you used to, so Archie's question contained the assumption that be-longing to a minority is a disease. It was as though Sammy already had cancer and then deliberately contracted leprosy.

Notice that neither Archie Bunker nor the Life Magazine writer were sheet-wearers screaming "Wop!" or "Kike!" or "Nigger!" They just had these "Do you still beat your wife?" type layers and layers of mental premises and assumptions. "Everybody knows" this or that. It is "common knowledge" that blacks dance well because they have natural rhythm and whiskey cures a cold and women have no sexual desire and hair on a man's chest means virility and foreigners must be kept at bay and you can't lose with blue chips and everybody but you is making vast fortunes with futures & options. How easily the mental rubbish from the bleechers spills into one's cashbox.

Ellen Goodman wrote, "Traditions are the guideposts driven deep in our subconscious minds. The most powerful ones are those we can't even describe, aren't even aware of." This is a reverential statement, which ignores its own downside. Many a neophyte speculator enters the battle zone with a subconscious approach something like Proposition One: I'm a nice guy. Proposition Two: Nice guys always win. It says so in all the John Wayne movies and singing cowboy movies. Conclusion: I shall make a fortune.

Bigotry and xenophobia are sub-divisions within the category of people believing what they want to believe. The speculative markets make chopped liver out of people who believe what they want to believe. As mentioned, it has less to do with flaming crosses than "nuances" and "aren't even aware of" type mind-sets. Many folks fond of roast beef medium and Tin Pan Alley may be "disturbed by the nuances of" meat lasagna and Neapolitan festival songs, kielbasa on bread and polka bands, chili peppers and flamenco, soul food and Dixieland, Peking duck and Mandarin melody. A trader with an inner streak of Marco Polo has better guideposts, and not just with the menu.

Trader's Diary for April 8: Contrary to expectation, Wal-Mart common shares broke out of their mid-90s box and rose to the low 100s. A stock's climb means bad news to put option buyers but not always for put spreaders. Today the May 90 puts were bid 1, ask 1-1/4, traded 1-1/4. The June 90s were bid 2-1/4, ask 2-1/2 traded 2-1/2. Notice that whoever paid 3 points for the Mays is down nearly two-thirds and whoever bought the Junes at 4-1/4 without spreading has shrunk almost half.

However, the "gap" or "difference" or "spread" remains at 1-1/4. Seven trading days after opening the position is usually (not always) too soon to expect a profit. Yet this serves to test the crucial "armoring" or protective quality of spreading, and test it under combat conditions. The newsletter publisher's deadline for this article approaches, so the results of my Wal-Mart venture may come too late to be reported in this piece. Spreads do not guarantee gain or guarantee against loss. Yet their ability to protect my moneybelt while other bankrolls get shot up now shows durability.

A topic the following day: Every Friday, the Wall Street Journal closes with a page entitled "Taste." Frequently the page gives much space to reactionaries who throw around the word "culture" a lot but whose reckonings of time and civilization seem to have begun with Shirley Temple's liberation from diapers. In that section of the latest Friday Journal (April 91 1999), Weekly Standard Magazine executive editor Fred Barnes extols the triumphs of the conservative Christians in an article that uses the word "culture" four times.

I like to fly a cultural flag on the ship's aft of my articles for several reasons. One, the fine arts proclivities of old-order-moguls J. Pierpont Morgan and Henry Clay Frick make fine heraldry for traders and investors to take inspiration. For another, traders need other areas of fascination so as not to use speculation as an expensive parlor game or a "make it interesting" cocktail shaker wager. (A business, not keno, not baccarat or wist.)

Also, both Wall Street and Main Street always seem to need more counter-voices against those whose notions of "time and civilization" appear a big blank preceding "The Charleston" and the circus tent. If the Bill Buckley conservatives try to get your signature on a petition declaring the sport of soccer "un-American," be sure that your "sense of nuance" is richer than theirs. It helps if you appreciate the atmosphere of Chopin's pianissimo in the candle-lit salon of a Paris duchess. Appreciate even across a distance.

Philadelphia "golden oldies" radio disc jockey Ed Hurst said on the air that whenever he hears Robert Merrill, he thinks of opening day at the ballpark. To Ed, an opera star is somebody who sings "Oh, say can you see" at the sports stadium. It would be nice also to think of him as someone who performs Verdi's IL Trovatore at the Academy of Music or on TV. But then, those titles are difficult to pronounce and one must "keep foreigners at bay."

Not everything from olden days is golden and, investment-wise, plenty of bad from the past haunts us still. A recent newspiece in the New York Time (April 6, 1999): "Ex-Financier Pleads Guilty in $20 Million Ponzi Scheme." A name from the 1920s and it ain't Eddie Cantor. Two days ago in the Wall Street Journal (April 8, 1999): "Extra! Extra! Internet Hoax." It involves the old Curb Era scam -- spreading false rumors and fake news reports to fraudulently boost the price of a stock -- but engineered to the World Wide Web. Finally a Meet Mr. Luckey newspaper proverb: "Footprints in the sands of time have taught many -- Little."

Trader's Diary for April 16: The Wal-Mart spread is repeatedly touching 1-1/2 points, a 20% improvement in 13 trading days. The first spoonful of gravity.


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