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: The Blue Max And The Silver Cup

During the First World War a German fighter pilot wrote, "Hanging from the ceiling in my dugout is a lamp I had made, as a conversation piece, from the engine of an airplane I shot down. I mounted small lamps in the cylinders, and when I lie awake nights and let the light burn, Lord knows this chandelier looks fantastic and weird. When I lie that way, I have much to think about. The battle now taking place on all Fronts has become awfully serious; there is nothing left of the "lively, merry war, as our deeds were called in the beginning."

The writer was Manfred von Richthofen, the Red Baron credited with shooting down 80 Allied planes. He experienced depression at the time of writing because of a head wound and the fact that the war was going against his country. He knew the war's frivolity and its seriousness, the glory and the dark night of the souls, the blood-sacrifices and the medals.

Von Richthofen's awards included the Ehrenbecher (Victory Cup) presented to airmen after their first kill. Regarding another prize, Frederick the Great, King of Prussia during the 1700s, favored the French language and considered German fit only for stable boys. He instituted the award entitled the Pour le Merite which 150-years later the Red Baron received after his 16th aerial victory. English flyers nicknamed it the Blue Max because of its color.

The list of parallels between air combat and financial trading gets rather lengthy. Both are adversarial. Everybody wants to win but far from everybody will. Both involve risk in no small quantities. A smart airman and a smart trader both look for ways to reduce the risk. Newspapers during World War One quickly turned flyers into front-page heroes. (Designating a pilot an "ace" after five kills was an invention of the French news.) Today's news media respects traders and investors as "tycoons" while treating horseplayers as saps, despite the existence of a few smart horse-players and plenty of stupid traders. Taking a profit is a kind of medal and trophy experience, in terms of the feeling you get when you take one.

In their seamy depths, neither air war nor finance was ever a conflict between equals. Both milieus abounded with the able knight versus the dodderer who could not function in a suit of armor, a smoke-screen on half the playing field, Grandma Moses versus the Heavyweight Champ, a foot-racing track with trenches cut through several of the lanes, one dueling pistol of normal weight and the other too heavy to lift. Such are the disparities in the real world including the profit world. Pay dirt in the non-level playing field.

What is the difference between gambling and speculating? One of the best explanations I ever encountered appeared in an old tan book in Philadelphia's Mercantile Library: A speculator utilizes the risks already inherent in a situation. A gambler participates in artificial risks; actually, he creates risks for the sake of the gamble.

Alas, a things-must-be-equal clause tends to attach itself to that artificiality. The two football teams must have an equal number of players, and one team cannot be forced to wear blindfolds. What good does this "fair play" or "equality" do you when you place a bet? If you want to sink money into something lopsided in your favor, look to either combat or the business world.

During a World War I air battle, nine British planes advanced on five better-built and better-armed German planes. Aviation historian Richard Townshend Bickers called this "nine sheep attacking five wolves." Such is the kind of situation that should attract your attention if you want to venture your capital smartly. The focus of this piece--spread strategy with equity options-will show itself to be one fine way of placing your money on the wolves with the likelihood of your gaining quantities of mutton and wool.

Most gambling is relatively "fair," which is exactly what's wrong with it. You cannot bet on a pit-bull fighting a peacock. Yet sometimes you can in business as in aviation. Baron von Richthofen shot down his first 15 planes all in the latter third of 1916 and all were British craft inferior to his Albatross DII in speed, maneuverability and fire-power. Not one athletic official stepped forth and said, "No fair. Most of your soccer opponents are in wheelchairs." This was no "artificial risk" and could not be so easily architectured or game-planned to "keep the sides even." When that sort of situation occurs on the ground, the ace financial trader spots it in his gunsights. The ribbon-winning ways of options will be explored shortly.

The Germans could not expect their blue-sky picnic to last indefinitely. In 1917, the Allies flew forth in far better Sopwiths, Spads and Nieuports armed with more powerful Vickers and Lewis machine guns. Teutonic losses climbed but Baron von Richthofen still had ways of playing aerial checkers with more pieces than the foe and on a non-level board. The observation planes contributed immensely to preventing an even-money game.

With their limited bombing and strafing power, First World War planes were a minor military factor at best. One exception: Observation planes were extremely important militarily. Spotting enemy artillery placements, troop movements and positions, observations aircraft served as the "eyes" of the ground forces. The typical such craft had two cockpits, the pilot in front with two machine guns mounted atop his engine and the observer in back doubling as rear gunner with a ring-mounted rotating machine gun.

Most pilots either flew reconnaissance planes, flew fighters that guarded reconnaissance planes, or flew fighters that attacked recon craft and their escorts. Most two-seaters tended to be slow and lumbering. An occasional type of plane in this category was also designated a fighter but most were not fast and agile enough to qualify. Improvements in their development lagged compared to those of the single-seat fighters. This made them the ponderous "easy quarry" of the sky hunt. Attacked from underneath they were unprotected, fore and aft guns not even in sight. Manfred von Richthofen knew to boost his score by shooting the easier prey. His 80 confirmed kills included 46 two-seaters.

A ponderous craft routinely plundered. This came to mind during my recent spread activity. IBM attracted my attention because it was on an upslope and had a conservative price/earnings ratio of 18, making it a good candidate for a horizontal calendar spread with out-of-the-money call options. My recent profits from IBM options were neither a plus nor a minus in my decision. The latest facts carried the significance.

With IBM just slightly above 100 a share, call options with strike priced of 110 were close enough to the stock price to be plump but far enough not to be placed in-the-money by slight fluctuations. I did these calculations during the third week of July. August options had already begun to undergo time-decay but September and October were hardly touched and differed from each other only slightly price-wise. A mere single point separated them.

I phoned the broker with my customary buy 10/sell 10 order. "Buy 10 IBM call options, October expiration, strike price 110, to open a position. Sell 10 IBM calls, September 110, also to open. Both day orders. With a one-point debit." The amounts of the buy and the sell could be anything but the one-point debit fixed the difference between them to no more than $1,000, the amount that I would have to pay plus broker's commissions.

Later that day the broker informed me that I had purchased the 10 Octobers for $4,625 and sold the 10 Septembers for $3,625. The money my account gained selling the latter paid for all but $1,000 of the former. That was my expense or the amount of my investment plus $115 for two (buy, sell) brokerage commissions. Anticipating a similar pair of commissions when I closed or exited the position, I figured on a point and a quarter or slightly below ($1,250 roundly or $1,230 precisely) as the break-even amount.

Whoever bought the Septembers I sold paid $3,625. Whoever bought Octobers for the same price I did but without spreading paid $4,625. With my one-grand investment between these bigger amounts, I felt like the fighter pilot cutting open the larger, lethargic two-seaters. It was written that the speculator utilizes the risks already inherent in a situation, as opposed to the gambler creating artificial risks. I can add that the speculator utilizes inequalities and "unfair" advantages such as no gambler has available. No gambling hall will permit a deck of different-sized playing cards or a roulette wheel three-quarters red and one-quarter black. For these you must look to airplanes and option contracts.

Manfred von Richthofen enjoyed other advantages. As squadron commander, he often had his wing men at his sides when he dove on an enemy plane. This protected him against attack and also made him more likely to score a kill and be credited than the wing men. Precisely two weeks after I opened the above-described IBM position, the former single-point spread reached a width of 1¾-points, a $500 advance after commissions if I were to take profit, or a 40% gain in two weeks annualizing to 1,000%.

Then in three days, the IBM shares fell four points from 109 & a fraction to 105 & a fraction. The September calls fell from 4½ to 3-3/8, 25% drop. The Octobers dropped from 6¼ to 5, 20% set-back. The spread inched from 1¾ to 1-5/8, down only 7%. In such an instance I feel as though I am protected by September and October wing men who are taking the buffeting while I keep most of my gain.

We arrive at what must have been regarded in the air wars as killing off the incompetent and the disabled and what is known on the ground as "fleecing the suckers." This could be called the sad side of aerial combat, gambling and financial trading, the within-limits sorrow of Sorrowful Jones the bookie and his partner Regretful. Let us say that you and a poker opponent both have "smarts" and both steadily add to your knowledge. You notice that he scratches his ear when bluffing. He notices that you whistle Dixie when holding high cards. You both try diligently not to give off such signals and to gain some advantage.

Then who shows up at the poker table? A young beginning card player with penthouse dreams and dime store abilities, and an older compulsive gambler who has been losing for years. It is in the cards that you and your expert opponent will both shortly be blessed with fat wallets. Of course, these dupes have their counterparts in trading and investing: The neophyte who expects vast wealth in at the most a few effortless weeks but gets shafted and bled. The compulsive trader who keeps losing and keeps adding money to his brokerage account. Almost inevitably their cash ends up in the hands of the smarter and more expert.

What insights can the wooden bi-planes of 1914-1918 provide? British flying ace James McCudden shot down 57 German planes. He wrote of an artillery-spotting German observation plane he defeated: "This crew deserved to die, because they had no notion whatever of how to defend themselves, which showed that during their training they had been slack and lazy. They probably liked going to Berlin too often instead of sticking to their training and learning as much as they could. I had no sympathy for those fellows."

McCudden sounded like a prep school instructor invoking the rigor of the athletic training field. He disregarded the fact that his own side was vulnerable to like criticism. The Royal Flying Corps was more prone than the Luftstreitkrafte to rush hastily trained, inexperienced pilots into battle against the big boys. The royal squadrons had many able, experienced aviators, but lots of "still greens" filled in the gaps. Von Richthofen was an avid hunter like his nobleman father and the Kaiser himself, and in the air was less inclined than McCudden to be judgmental toward his "quarry." How many sandlot or beginner's-slope flyers the Red Baron shot down can only be guessed, but it must have been more than just a brace of quail.

Also, the Kaiser's War marked the infancy of military aircraft and rapid-fire weapons were in the own Model-T stage. Not infrequently a pilot experienced engine trouble or jammed guns. Stand-procedure consisted of heading back to base fast. Manfred von Richthofen had a particularly keen eye at spotting an enemy plane leaving the formation or the battle in the direction of its own lines. He would pursue the lame aircraft and imperiously send it plummeting in flames.

The Red Baron was an A-One flyer and shooter, the expert of experts on the stick and the trigger. Yet he also had a talent for appearing in lopsided competitions--scoring kills against the "fat lady" observation plane, the "grandmotherly" pilot new to flying, the gun and engine "cripple" of the air. This contains a lesson regarding where to put your money if you are gunning for profits. The bookmaker "plays fair" to keep down your winnings, which you must avoid. In sports and sports betting, Rocky Scapparelli cannot box a grandmother or a man on crutches. Yet it happened aplenty in the clouds over France and it happens daily in options-trading.

On December 28, 1917, Captain James McCudden downed three German two-seater, two-gun bombers in 20-minutes, the first of which he surprised with a rear attack. He later wrote, "I hate to shoot down a Hun without his seeing me, for although this is in accordance with my doctrine, it is against what little sporting instincts I have left." This did not appear to torment him too much when he was awarded the Victoria Cross by the King of England in April 1918, and subsequently promoted to major. Nor does it usually bother option trader when he routinely profits from financial bloodbaths.

According to widely-accepted estimates, more than 90% of all out-of-the-money options expire worthless. Bad news to the crap-shooters and instant-wealth types who think they have "inside information" that a stock will skyrocket or a "hunch" that it will plummet. Good news to the sellers of call options covered by shares they own, to the sellers of naked puts and calls, and to spread strategists who buy long-end options and sell short-end ones. The latter three face risk but it is casino or horse parlor risk, the money-goes-into-the-cashbox-and-the-wagerer-usually-loses kind of risk. A casino or bookmaker can go broke but they certainly do so far less often than the gambler.

What goes up must come down, but when two objects descend at different rates, the spread strategist profits. Time-decay pulls down the value of all options, but not all descend at the same speed. Let us say that one airplane is flying at 10,000 feet and another at 8,000 feet. Obviously, both aircraft are burning fuel and both will have to descend to ground zero eventually. However, it is known that the 8,000-feet plane has used up more of its gasoline then the 10,000-feet one and will give up altitude faster. So what is the spread strategist's role in all this and what does he do?

He invents his money in the 2,000-foot difference or "spread" between those two planes. As time passes, both continue burning fuel and both lose altitude. The higher one has descended to 9,000 feet and the lower one to 6,000 feet. So what? The one on top is still on top and both are still losing altitude. What's the big deal? The distance between them has widened from 2,000 feet to 3,000 feet, 50% increase on the investment! This explains why the spread strategist is perpetually conscious of "the distance between." It is the widening ore-field to which most of mankind pays little attention.

I make it a point not to launch a second spread until the first is more than slightly ahead. Anything is possible. If you launch two option spreads at the same time, you are exposed to the possibility of two losses. If the first is ahead when you launch the second, the one counter-balances if the other disappoints. Intel was on an upslope and had a price/earnings ratio of 23, certainly better than the other NASDAQ technology leaders (Microsoft P/E 53, Dell P/E 46). The common shares fluctuated in the high 80s and had gone no higher than 90 in the previous year (adjusted for a split) so call options with strike prices of 95 seemed far enough/close enough.

Near the end of July, I bought 10 October 95s and sold 10 September 95s (calls) with a spread of a point and a half plus commissions, resulting in a break-even figure of 1¾ points. Specifically, I bought 10 for $4,375 and sold 10 for $2,875, paying the $1,500 difference plus commissions. In the next few days the amount of the spread fell a sliver to 1-3/8 then inched up to the 1-5/8 - 1¾ area as the shares moved above 90.

I had wanted Intel stock to climb, but not that much that fast as what happened August 4. It rose above the 95 strike price to 96¾. I tolerate short-end options being in-the-money only fractionally and only overnight. This was more than a fraction and I anticipated the shares would keep rising (which they did in subsequent days). A continued climb could "squeeze" or narrow the spread, which it started to do already. I wanted out, but of course with as small a loss as possible.

In the early afternoon, the September calls posted a bid/ask of- 6-1/8 to 6½ and the Octobers 7¾ to 8¼. What if I told the broker to "Close out the position at the market?" At worst I would buy back/close out the Septembers at 6½ (the high figure in the bid/ask) and sell the Octobers at the bid/ask low of 7¾. That meant a spread of 1¼. Allowing ¼ point for entering and exiting commissions, I would emerge with just one point or $1,000 on approximately a $1,750 investment.

Another corker was the wide gap in the October bid/ask (7¾ to 8¼), a half-point or $500 difference on 10 contracts. A quarter of a point would have been more normal. How does one calculate intelligently with such a broad-range "maybe?" Your cavalry force might be 600 men or it might be 30. Now make a battle plan. If the sale of the Octobers occurred in the high portion of that $500 range (8 or above) -- good. If at the low end (7¾) -- bad. Such were the broad-ranged possibilities if I told the broker to close me out "at the market."

In the past, I had said "at the market" when exiting a spread only if the short end's high figure (the ask) and the long end's low figure (the bid) were farther apart. Now, that was not worth considering and I had to do better. I had to buy back the short-end Septembers at less than their high figure and sell the long-end Octobers for more than their low figure. I decided that such precision shooting was better done in person than over the phone, so at the start of the last hour of trading on August 4, I arrived at the York Securities brokerage office on Broadway near Wall Street.

With a short (option-selling) position, in-the-money options carry the danger of an exercise. If the Intel September calls I sold were exercised, I would be obligated to deliver 1,000 shares and to obtain them I would have to exercise the 10 October calls that I bought or "longed." That would wipe out my $1,000 investment and would also require that I pay commissions on the stock-buy and the stock-sale. Clearly the option-seller or taker-of-a-short-position must always be exercise-conscious, including the spreader who buys a long end and sells a short end.

Options are "assigned overnight," i.e., exercise orders are matched up with in-the-money puts and calls after the close of trading. So there is zero chance of the option-seller getting "assigned" or "exercised" during the trading day. Thus I arrived at the discount broker's with an hour left to trade and with a precise task: A tactical withdrawal without the abandonment of artillery and supplies.

I sat next to broker Bill Meehan at his desk, he with his computer screen and I with my out-of-pocket note paper. "Usually when I go into or out of an option spread," I explained to Bill, "I enter the two orders together--short-end, long-end--each dependent on the other. This time, I want to buy back the short-end Septembers and, I want to sell the long-end Octobers to close the position, but as separate orders. Each order going in by itself."

The adage "Buy low, sell high" now had a special meaning. I had to buy back the September options for as low a price as possible and sell the Octobers for as hefty a price. I asked Bill Meehan for a quote on Intel September 95 calls. His computer screen showed 6-3/8 bid, 6¾ ask, last trade 6-5/8. The 6¾ ask was the high figure indeed to beat by getting below it. Since 6-5/8 was the current trading price, it offered the likelihood of a transaction. I told Bill, "I want to sell 10 Intel September 95 calls at 6-5/8."

The computer's real-time quote showed October 95 calls at 8 bid, 8½ ask, last trade 8¼. That half-point gap between the bid and ask again! I needed to sell for more than that low figure, the 8 bid. The latest trade was 8¼ so I said, "I want to sell 10 Intel October 95 calls at 8¼." Rising and strolling the office, I stood ready to wait perhaps 15-minutes and ready to move either the buy or sell offer an eighth of a point in a less favorable direction if one or another transaction failed to materialize.

I could have timed the wait with a sprint-track stopwatch. Bill Meehan approached me with penned confirmations in hand, the news good as well as rapid. He said, "You bought the 10 Septembers at 6-5/8 and you sold the 10 Octobers at 8¼." I jotted this on my note paper. A spread of 1-5/8 points. A gain of an eighth without commissions but a loss of an eighth with. Nevertheless, far better than the single-point exit which had threatened. A loss of $125 instead of almost $750. I gave Bill the heartiest of handshakes. His actions as well as mine were to thank for the minimal loss of artillery.

Days later, action on the IBM front. The stock declined from a day's-ago high of 109 & a fraction past 105 & a fraction to 103. The September 110 calls slid from 4¾ to 2-5/8. The October 110s fell from 6½ to 4-3/8. My outright-buy or long-buy wing men were certainly catching the bullets. Glance again at those figures, however, and you will note that the spread between September and October remained at 1¾. It has wobbled occasionally (1-5/8, 1-13/16) but has nonetheless shown commendable steadiness under fire.

Let us pause for field briefing about one's learning and self-development, more crucial in speculating than most other places. Of course, people should be wise and informed within any financial specialty. Yet if a market wizard and an elderly widow who confuses easily both hold Bank of Boston common shares, both will receive the cash dividend such as the stock has paid every year since 1784. Options, futures, casino junk bonds, initial public offerings from cold-calling brokers all carry the possibility of profit, but lack kindness of heart.

In their book, All About Options, Wasendorf & McCafferty wrote of losers. "They are usually attracted to options for wrong reasons -- to make a lot of money fast without exerting much effort. Therefore, they don't spend the time required to learn some of the more complicated, strategies that are more-conservative by comparisons." An excellent statement, it nevertheless detours around one gloomy, unyielding fact: Losers are essential. The trader's aim is not to abolish them but to stay out of their ranks.

To say that option-trading or other forms of trading is "adversarial" or "hardball" understates the case. It is gladiatorial. Someone must lose a pound of flesh for everyone who gains a pound of flesh. On the capability hierarchy, the new, borderline competent pilots and stodgy planes were the fodder, providing many of the wrecks and corpses that resulted in Von Richthofen's Blue Max and McCudden's Victoria Cross. Losing horse-players subsidize bookmaker and winners.

In zero-sum games where losses precisely match wins, losers pay for everything. Yet nobody wants to be in their category. Yet plenty of people always are. If your reading chair is your flying school and your practice battle-line, put in championship-grade time and effort at that crucial stage. Remember the graves in Flanders and the "How I lost my Citizens Bank passbook" barstool stories off those who did not.

Wasendorf & McCafferty also said in their highly-recommended book, "It's sad to see the number of traders we've seen over the years who have waffled from one approach to another without any clearly-stated plan. They wander in and out of the market, often making the same mistakes over and over. Your written plan need not be fancy."

As already suggested, calendar spreads with stock options will provide a fine strategy and written plan. However, let us focus on that other phrase "making the same mistakes over and over." To many traders, a "switch to a new approach" is like the casino gambler who says, "Gee. Maybe if I change tables it will improve my luck."

We all like to think that we improve with time and experience, but that does not always happen even with the intelligent and the educated. If you are over 35 you may remember the Groucho Marx quiz show "You Bet Your Life" on radio in the late 1940s and on TV from 1950-61, still on the rerun circuit. Groucho's side man was college math whiz, George Fenneman serving as score-keeper and courtly announcer. Both are now deceased.

According to one book on TV history, Fenneman also served as a "reality figure." As Groucho clowned, George's gentlemanly presence reminded everyone that this was a real quiz show. However, to label him a "straight man" or "half a comedy team" as some journalists did miss the target. Whenever Marx threw some humor at him, he became flustered and embarrassed. Fenneman had little if any comedic knack and absolutely no sense of uptake. Years later he said in an interview, "I ad-libbed out of terror. How that man could embarrass me!"

Some viewers wrote angry letters criticizing Groucho for "picking on" George. However, one could also fault Fenneman for never developing or "growing into" the role of comedy partner. 15- years as a fake doctor you're going to learn something! But no, George Fenneman never learned comedic repartee just as Ed Sullivan never learned posture or pronunciation. So face it. Not everybody develops. Even in the most challenging or inviting circumstances. Not even off the trading floor or on it.

In trading and elsewhere, growing and developing as a person means doing research. The supposed menace of it keeps many would-be "great authors" at the daydream stage. Utterances about creativity and visions of renown flee at the prospect of such a sweaty, chancy job of work. Also, neophyte traders anticipating "fast and easy wealth" skip fact-finding as easily as they skip basic training and strategic planning. In his book Renaissance in Italy: The Fine Arts, John Addington Symonds wrote of Leonardo Da Vinci:

"Through long days he would follow up and down the streets of Florence or of Milan beautiful unknown faces, learning them by heart, interpreting their changes of expressions, reading the thoughts through the features. These he afterwards committed to paper. We possess many such sketches -- a series of ideal portraits, containing each an unsolved riddle that the master read; . . . In some of them his fancy seems to be imprisoned in the labyrinths of hair; in others the eyes deep with feeling or hard with gemlike brilliancy have caught it, or the lips that tell and hide so much, or the nostrils quivering with momentary emotion."

Whoever said, "God is in the details" may have spoken for DaVinci. Yet the would-be novelist and the "instant wealth" trader count it beneath them to do some pavement-pounding, eye-work and paperwork. Macabre humor abounds when self-trained-between-pilsners optioneers go into battle as the nine sheep attacking five wolves. They exchange shots with speculator, Major McCuddens who said, "This crew deserved to die."

It is great being able to bet on a pit-bull fighting a peacock, but to make sure you are not the one with the feathers requires professional-strength, self-training, preparedness and research. Yet the latter need not always be voluminous. In the library, poring over Standard & Poor's large volumes, I scrutinize the detail cogs and foundation stones of optionable companies, condensed in these pages. Book value is a factor. Also, the up-ramp or down-ramp of earnings in years immediately preceding.

An earnings sob-story could bode well for a put spread. Statements by optimistic executives and projections of good future tallies require a skeptical eye. Malcolm Forbes said it best "Anybody who thinks businessmen deal in facts and not fiction has never read old projection reports." The researcher separates the wheat from the chaff and the baronial estate ad from the fire-trap by the swamp. Research will not entirely erase risk and unknown factors, but reduce them it does. Baron von Richthofen and the clumsy newly-arrived pilot and the flyer in the unmaneuverable plane and the one with his guns jammed all faced risks and unknown factors. But one flew with them reduced.

While in the library, I also read parts of Georgio Vasari's Lives of the Painters and Sir Joshua Reynolds' Treatises on Art. It remains my long-time wish that each trader also be "a gentleman and a scholar" and that a woman trader be a Catherine De Medici or "Lady of the Renaissance." Sadly, others are advancing a like notion but as part of a poisonous sales-pitch.

There is a cigar brand called "DaVinci" with the Mona Lisa reproduced in miniature on the box and the band. You may have seen the piece on the financial cable channel about cigar stocks ("in danger of being a passing fad") which also covered the trendy "cigar bars" with their British gentlemen's club atmosphere, mahogany leather chairs and copies of paintings by Gainsborough and Watteau. The glossy, bi-monthly Cigar Aficionado makes pretensions to gentility that would rival Town & Country Magazine.

Unfortunately, the closest many "gentlemen" will ever come to Old-world elegance and style are in these adjuncts to cancer-peddling. Cigar boxes carry illustrations of the English manor-house, the Italian villa, the Spanish hacienda. Some people will read John Ruskin's writings on traditional architecture. Others will buy a tape and hear the strum of a Spanish guitar under hacienda moonlight or the songs of the Italian vineyard and olive grove. Still, others just puff the panatella. The first two groups make better traders as well as better actuarial cases.

Without smokescreen or jeweled-crown insignia cigar band, please peruse the following by H. A. Taine, the French art historian who spend much time in Italy. In his 1869 book Italy: Rome and Naples, he wrote of two Venetian artists some of whose paintings were on display in Rome:

"Titian stands in the centre, equally strong on the side of sensuality and on that of energy. In a beautiful Italian landscape, fading away in blue distance, and near a fountain whose waters are disbursed by a little Cupid, his Callisto has fallen, violently stripped by her nymphs. No mere prettiness or epicureanism exists in this bold composition. The nymphs do their office brutally, like common women with vigorous arms. One, especially, erect and with a superb, almost masculine, torso, is a virago capable of giving a man a drubbing. Another, with the cruel malice of an experienced hand, bends the back of the poor culprit, in order the sooner to detect the signs of her misfortune."

"But in Titian's other picture, 'Vanity' naked on a white bed with a scepter and crown, a waving and elegant figure so seductively soft, is the most alluring mistress that a patrician could dock with his purple, and make use of at evening to feed his practiced eyes with exquisite sensuality."

"Finally comes Paul Veronese. He is a decorator, free of the virile gigantic lustiness which often carries Titian away; the most skillful of all in the art of distilling and combining those pleasures which pure color in its contrasts, gradations and harmonies, affords the eye."

"His picture represents a woman occupied it arranging her hair before a mirror held by a little Cupid. A violet curtain enlivens with its faded tints the beautiful flesh framed in by white linen. A small plaited border rests its delicate frill on the amber softness of the breast. The auburn hair is gathered in curls over the brow on the edge of the temples. You see the forms of the thigh and breasts beneath the chemise. With that vague vinous blush on those mingled faded darks of dead leaves, the entire flesh, permeated with inward light, palpitates, and its round pulpy forms seem to be trembling and if with a caress."

If your only contact with such as this is from a fancy humidor or a cigar box decorated with gilded epaulets, please be advised that you can do better. You must do better. A class-act trader, a gentleman and a scholar, needs fine arts, vintage music and literature to help him avoid bad company. Alright, you already avoid skid row and seedy pool hall, which is wise. Those folks chance of dragging you down may be small, but it is much bigger than your chance of pulling them up.

Something similar is true of the suit and tie "Who's Rachmaninoff? Who's Bernini?" types: Rush Limbaugh, Pat Buchanan, Judge Robert Bork, Reverend Pat Robertson and their Right Wing reactionary devotees. You have as much chance of transforming them into gentlemen of culture and real tradition as you have of transforming goose liver into gold. If you want to avoid them, figure that you have a one-percent chance of meeting them in a pornography shop and something like a zero-percent chance of meeting them in an opera house or an exhibit of Florentine and Venetian art. There is always the possibility of their straying but do they ever stray into anything cultural?

Their vision of "tradition" is not only dime storeish but involves a continual remake of the past. In his 1996 book, Slouching Towards Gomorrah, Judge Robert Bork hatcheted rock and rap music and while doing so he praised reverentially the old-time orchestras of Benny Goodman and Duke Ellington. He also honored the old movie-censoring Hays Office which he misspelled "Hayes." Will Hays' key subordinate was Catholic publisher Joseph L. Breen.

In 1934 before he moved to Hollywood, Joe Breen published the New World periodical which declared "whether indecencies be staged under the direction of unscrupulous directors of Hollywood or by command of the pagan kings of Babylon; . . . whether theme music echo the debauchery of Jezebel or reek with the jungle vulgarity of Duke Ellington, they all belong to the same category of filth."

The Duke sure had a mixed-reputation among "old-fashioned" types. Maybe one lover of "sweet yesterdays" does not like to think of his six-decades-past brethren as too much of a witch-hunter. So Bork said-nothing of Breen's evaluation. Is "witch-hunt" too strong a phrase? I shall let the evidence speak for itself. The state of Pennsylvania formed a film censorship board in 1911. One of its early decisions was to ban a silent film scene which showed a woman knitting clothes for her unborn child.

Under the 1930s Production Code, censorial movie scissors routinely snipped: Hula-dances in grass skirts. Any glimpse of a cow's or goat's udders. Any scene with a toilet or chamber pot visible in the background. The words "bathroom," "pregnant" and "diaper." The phrases "alley cat," "traveling salesman," "hold onto your hat" and "farmer's daughter jokes." In 1952, Cecil B. DeMille's circus epic The Greatest Show on Earth passed the censors only after much argument and debate because of the abbreviated costumes that women performers routinely wore under big top.

You must expect this with "old long ago" sorts who think that Correggio and Tintoretto drove a Capone rum truck. If you drink in the cobalt skies and rosy flesh-tones and swan-white linen under a gold chalice from the brush of Titian or Veronese, the gulf will widen between you and those who went to go back to censoring grass skirts and cows' udders. You will be as unblendable as oil and water with the folks whose vision of their cherished past jumps from Biblical times to the Coney Island songs and the illustration of the old farm house with no phone booth in the back yard.

That will keep you away from bad company as well as any minister blocking the doorway of a pool hall. Their fluttery thinking should not clutter or clog your trader's knack, which you must continually fine-tune. You can do that better without any cigars. The enemy plane you face may be good or mediocre, and fortunately for you there are plenty of the latter. But if you want a one-sided contest in your favor, leave the lagging and laxness to somebody else.

Let the other flyers be guilty of "going to Berlin too often instead of sticking to their training and learning as much as they could." Then the silver Victory Cup that all think they deserve will gravitate toward your hands.

UPDATE: At the time of this writing, the IBM September/October call spread stands at 1-7/8. Still in flight: No profit taking yet.


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