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 Jewel Box Guarded by the Cobra

When a medical quack -- whether a jungle witch doctor or a Grub Street magnetic healer--tells of all the wondrous cures he has effected, you suspect the stories are fictional but you cannot see the trails of corpses. But every gambler and trade sees many losers, many monetary corpses. Yet he gazes into the eyes of Lady Luck and says, "You'll be true to me, won't you?" or perhaps, "You conquered and destroyed them, but I'll make you my kitten," or maybe even, "You bankrupted all of them so it's only logical that you'll enrich me."

According to an old joke, "Second marriages symbolize the triumph of hope over experience." So does much of the trading that goes on. Any experience at all with The Exchanges reveals Lady Luck behaving like Delilah or Mata Hari, poisoning men like Lucrezia or stabbing them in the manner of Tosca. Every opera-goer knows the phrases "as cold as the heart of Musetta, as deadly as Tosca's kiss." Speculators should also know these, so they will not keep expecting Lady Bountiful and getting the knife. Dame Fortune can be subdued but the jewel box guarded by the cobra attracts too many dabblers, picnic forty-niners, and this-amulet-will -protect-me types.

Despite all the Delilah's haircut symbolism in the above paragraph, it is not my intention to be anti-female. The murders committed by Lucrezia Borgia on the dramatic stage and Floria Tosca on the operatic stage were apocryphal. The trading losses suffered by the fellows in the sports bar or the hunter's den could not be more real. Female speculators have their hits and misses but are far outnumbered by men who go too abruptly from the boy scout handbook and the tent-pitching to the financial trenches and artillery.

Yes, Dame Fortune can be subdued -- one man's one-man technique to appear shortly -- but what a victim list she has! Week-end warriors. Fresh water sailors. Tenderfoot scouts with rifles. In Iowa, the RA Investment Club was formed to trade purely in futures and futures options. The RA stands for "resident advisors" -- the members are all employed as resident advisors in halfway houses of the Iowa Department of Corrections, helping newly-released inmates return to society.

Those members could have used a halfway house between insured deposits and dicey risk. The New York Times quoted the club secretary Craig DeMaris as saying, "We were always hearing those commercials on the radio that said, "Turn $5,000 into $25,000!" They ventured into unleaded gas, then wheat, then soybeans, during which time they turned $6,000 into $400. Subsequent investment only in grains brought a fractional recoup. (February 1, 1993-2014)

The radio commercials carried an obligatory warning, "Risk Is Involved." The broker-advertisers keep that brief and the venturers give it about as much attention as bikers and their chicks give a sermon on celibacy. If options and futures appeared in the pages of an elementary school reader, it would say, "Zero sum game. Dick must lose a dollar for Jane to gain a dollar. Each must lose another nickel to pay Spot a commission. The kiddies who played the game last week don't anymore. Empty pockets."

One wonders if those resident advisors would have joined the fracas if the radio commercials had said, "This game robs Peter to pay Paul. Sign up and maybe you'll be Paul if you're not Peter." Okay, nobody expects travel bureau ads to mention shark attacks or trouble with the natives. But if the tourist wipe-out rates were anything like the 80 to 90% losses suffered in options and futures, would anybody get on an airliner? Would anybody be satisfied with a mere fine-print warning?

Samuel Johnson wrote, "There is no occupation in which a man can be more innocently engaged than the making of money." Granted, profit-taking is more innocent and virtuous than murder or adultery. Back in the 1700s, though, Dr. Johnson never saw motion pictures on late night TV. In the 1930s movie musical Swingtime, Fred Astaire visits a dancing school where Ginger Rogers teaches. He asks another instructress the price of lessons. She replies, "Lessons are $45 but first we give you a try-out to see if you have any talent. That's why this school is so successful. We never turn down $45. I mean, uh--"

Switch channels to the Errol Flynn film They Died With Their Boots On. The baddy is a Golden West profiteer who claims to sell rifles only to friendly Indians. His working definition of a "friendly" turns out to be any Indian with $75. A commercial interrupts. A brokerage firm proclaims fantastic profit potential and quests after "suitable clients:" Suitable. You must breathe and have a bank account and not practice cannibalism. Think of all the Titanic passengers and Zulu tribesmen who would not qualify.

The TV and radio commercials abound because they anxiously need speculator recruits to fill the vacancies created by last month's Verdun campaign or expedition against Sitting Bull. Yes, Dame Fortune can be subdued, and you can become paid Paul rather than robbed Peter. It can be done regularly, consistently, without calculus or computer or degree. But do not take to the air with just shooting-gallery skill and judgment, as many do, and then attack the bloody baron's 80 fighter planes, as many do. Improved skill and judgment and smaller squadrons for quarries can make you the winner again and again.

Nobody likes to think of himself as Peter being pick-pocketed, yet millions of pockets get picked. Your sense of judgment connects intricately to the clockwork of your personality and your thinking. Whether it also connects with the realities of trading is another question. Too many timepieces point to 6:30 and ring 4:00 at the stroke of noon. Plethoras of bankruptcies attest to that.

Nearly everyone likes his or her own sense of judgment, or at least is comfortable with it, because it is part of "the real me." But does it steer a financial ship through the shoals? A fervent much length in print and broadcasting, giving a three-ring circus exhibition of how his mind works. Yet should he or you or anybody else invest large monies on ventures that rise or fall based on arrival of a UFO? Clearly, the intelligent investor must adjust his thinking to the financial realities rather than expecting the other way around.

Yet the picnic forty-niner expects huge, shiny nuggets to place themselves along a path that will not tire his tootsies and will not require more than a paltry amount of time to walk. The tenderfoot scouts at the battlefront expect a medal before they get bored with it all. The broker enlists them readily because a human punching bag's commission dollar spends as well as a champion's. Brokers' "inactive client" files overflow with people who were sensible according to most measuring sticks but who were no more willing than the flying saucer fanatic to alter their thinking or overhaul their judgment or learn something substantial.

The New York Times told of Lynda Bryson's experiences after joining the High Peaks Investment Club, a Colorado coterie: "Over the next few months, at least as Ms. Bryson saw it, many members showed little willingness to learn investing concepts. She said they joined "to get very, very rich. I don't think the hard-work part really got through to them." They did little research and figured their stock portfolio would ride with the bull market. After about a year they disbanded with a 20% loss of principal. (February 1, 1993-2014)

The shares were bona fide securities but the atmosphere and approach resembled a pyramid scheme. Dollars would multiply and profits would pour in! No, I do not stereotype the members as mountain dew or biddies with their brains in their knitting baskets. Quite the contrary. Presumably they knew the effort required in studying for a real estate licensing exam or an insurance agenting license or learning the cogs and gears of any business. Yet they ventured much cash and apparently with less diligence than they used to give their childhood piano lessons.

It happens far more often with individuals than with investment clubs, most of which at least try for a semblance of fine-tuned management. W. D. Gann's Golden Maxim was and is, "Handle speculation like a business, not like a gamble." Who could disagree with such wise words? Yet it is one of the most shunned of all aphorisms and, in its way, one of the most menacing. Menacing like an issue of Popular Electronics to a "Flick the switch and forget it" type.

Like a business, not like a gamble. An expedition-with-maps is a challenge more demanding than a barroom bet. Wholesale merchanting is more complicated than poker or roulette. Back office diligence lacks the ease of hunch bets at Hialeah. Is it any wonder that gamblers overflow the land despite the resulting crop of empty-pocketed suckers? Or that so many people turn trading and investing into a bingo game instead of a business?

Ruckelshaus said, "Mention economics and everybody is bored. Mention money and their eyes light up." My statement is a half-variation on that: "Mention making more money and people's eyes light up. Mention learning a new business and they react like kids to a doctor's needle or a pound of spinach." Do you really think that only children bristle at doing homework? Watch the adult speculator reach for his checkbook while bypassing the "trader's techniques" schoolbooks of George Angell, Lawrence G. McMillan, Courtney Smith and Dave Caplan. "Learn a new business at my age? I feel inside I have a 'gift.' Besides, a friend of mine, a bank janitor, feeds me inside information."

In my specialty of equity option spreads, precisely how does one "handle it like a business" as opposed to like chips in a casino? One key item is the element of time, or stated more practically, patience and good timing. I may wait a few days or a week until what I consider a good position avails itself and I enter an opening or starting transaction. What's the opposite? A, gambler's antsy itch to get a bet down.

There also arises the element of time after the spread strategist has opened the position. How much time is involved, and compared to what? Welded to that is the question of how much profit is a "good" profit. Ben Franklin's Axiom "Time is money!" could not be truer in trading, My previous article in CTCN ended with a still-cooking spread in IBM call options which has since concluded and will serve to illustrate.

On January 29, 1993-2014, I bought 10 IBM April 105 calls at 3-3/8 and sold 10 March 105 calls at 2-1/8, paying the "spread" or difference between them of 1¼ points or $1,250 plus commissions. This was a "debit spread" because I had to pay the minus amount and a "calendar spread" because I bought the far-in-time options and sold the near-in-time ones and a "horizontal spread" because the bought calls and the sold ones had the same strike price --105 points.

So what did the calendar bring? In late February, the price of IBM shares inched upward and extended its toes over the options' strike price. On February 25th, the stock closed at 105¼. Since the calls were just a small fraction into-the-money, I let the position stand overnight. The shares could dip the next day and more time-decay on the short end of the spread (the March options) would be advantageous to me. The next day, however, IBM stock fluctuated within various fractions over the 105 mark. Late in the February 26th trading day I "closed the position" (pulled out, in plain English) by buying back the Marches at 2-15/16 and selling the Aprils at 4¾.

The spread of 1¼ points at the opening grew to 1-13/16 at the close. An investment of $1,350 with commissions yielded a profit after commissions of $350 in precisely four weeks. That profit of 25-and-a-fraction percent in four weeks annualizes to better than 335%. (25.8% times 13) Time is money? Obviously, I want bigger profits and faster profits than the "long bond" (federal 30-year bond) investor now receiving under six percent annually.

However, comparisons can work both ways. Handling a 28-day venture, I am plainly more patient than a dice-shooter or a poker player or a daytrader with his unwritten rule, "Never hold a position overnight." Horse racing became a gambler's sport because it is fast--once around the track, very little waiting--and many traders want stocks, options and futures to wear horse-shoes. A spreader buys options at the long end of the spread and sells other options at the short end, just as a dealer in watches or a haberdasher buys a business and sells wares. Financially, to think in terms of more than a week is more entrepreneurial.

Regarding how large a profit should be called "worth it," I considered 25% in four weeks a weighty prospector's nugget and a fine buffalo hunt. Obviously, I did not expect $1,000 to grow into $10,000 between the Monday pizza and the Saturday veal parmagean. Those who do are the ones who start out for the gold fields and end up in the Chief Thunderbird scalp collection. Taking a business-like approach means aiming for realistic profits and gaining consistently, not trying to be a millionaire overnight and getting massacred with thousands of others who grab for the same million.

I do not wish to portray brokers as fiends. Many of them are quite ethical, but too many reach out to the roulette-player rather than the adroit business-person in people. You have probably seen the TV commercials for a large brokerage chain aimed at, "Those with a passion for trading!" Using the words "obsessed" and "addictive," it flagrantly courts those who cannot keep their fingers off the PC keyboard i.e., folks with an antsy itch to get a bet down. Plenty of commissions there. Those commercials do not say, "Learn the nuts and bolts of a new business and handle it intelligently." Nor do they say, "Give the self-training at least as much effort as a bar-owner does in learning how to mix drinks."

Some insightful people might say, "Did you ever try to enroll horse-players in a university finance course? If a lot of traders or potential traders won't strain their brains with anything as complicated as a drink-mixing manual or a 'wines of the world' book, well, that is the level that they gravitate toward and operate on. Getting crap-shooters interested in U.S. Savings Bonds is next to impossible, and that doesn't even put a demand on their brains. There's such a thing as expecting mental gymnastics from the wrong people."

Granted, but business requirements are business requirements. Every enterprise, occupation and activity demands specific skills and know-how, and levels of competency whether explicit or implicit, achieved or fallen short of. Slot machines require no skill but are a sucker's game. Self-deception sets in when a pad & pencil roulette-player seeks patterns and thinks he can make a "science" or a "business" of the wheel. Film makers and photographers, beauticians and antique-restorers and electrical engineers all have their skills and levels of competency.

Investing, trading and brokerage can be business-like but, in practice, too often drop to the slot machine level of zombie-like forking over or the pad & pencil roulette level of barstool science. The Wall Street Journal (March 11, 1993-2014) reported that the Commodity Futures Trading Commission has redoubled its efforts against "commodity investment telemarketers who promise quick profits through so-called seasonal trades."

"The CFTC's enforcement division says Hanover Trading Corp. took advantage of a number of unsuspecting elderly investors in the case . . . Individuals should be skeptical of high-pressure phone sales and promises of high profits with little risk. . . Furthermore, many of the elderly had no previous experience investing in commodities, they added."

CFTC deputy director of enforcement Dan Nathan spoke negatively of electronic media hard-sell of futures and options: "Anyone who turns on late-night cable or the radio will hear these solicitations. . . . We want to devote resource where we see a lot of people preyed on" through TV and radio.

Sure, the CFTC is a clanky and questionable Sir Galahad. Nevertheless, where in these high-pressure pitches does one hear, "Handle it like a business" or "Develop a head for this kind of thing" or "Study the manual before you fly?" No. After the tiniest risk-warning the law will allow, they dangle forth the possibilities of palatial wealth. This is on the level of street-corner huckstering and the hard-sell of deeds for swamp or desert and highway billboards from Atlantic City casinos proclaiming "Slot Machine Paradise." Happily, however, one need not pick pockets at a retirement home to have success in business.

God is in the details. One, subscriber to Commodity Traders Club News, a gentleman in Hawaii, wrote to me and asked how I chose which stock options to spread from those long newspaper lists. One begins simply by understanding which month is "near in time" and which "far in time." Usually the "near in time" is the month after the expiration date immediately ahead. Let us say, for example, that "right now" is late March or the beginning of April. Options with April expiration dates still exist but tend to be scrawny in price from having so little time-value remaining.

Therefore, you look to the May options as the potential "near in time" end of the calendar spread. Then you limit yourself to the ones with strike prices no nearer than four and a fraction to the prices of the respective underlying stocks. Within those, you further limit yourself to those having at least two or two and a fraction points in value. That should eliminate all but a handful from the semi-finals of your consideration.

For example, near the close of January, I bypassed options with February expiration dates as too meatless and focused on March and April for the potential near-in-time short end and far-in-time long end of the spread. IBM stock fluctuated around 98 & a fraction/99 & a fraction and seemed to have found a floor in the upper 90s. This meant that IBM call options with strike prices of 105 were sufficiently out-of-the-money and a call-value-sapping fall of the share-price seemed unlikely. Best news of all: The March calls traded at 2-3/16 bid; 2-5/16 ask, last at 2¼. The Aprils 3-3/8 bid; 3½ ask, last changing hands at 3-3/8.

On other stocks in Jan., most March options that far out of the money sold for less than two points, many for less than one. That is why finding a near-in-time option with at least two points of meat on it takes some searching and eliminates many. That large newspaper page of put & call listings will shrink substantially once you impose those requirements. You will have few to choose from, not many, and "few" is only right because you should be picky.

In the above example, the gap between the two bid figures was 1-3/16, as was the gap between the two ask figures. Rounding it off a sliver to the generous side, I chose 1¼ points as the "debit" or difference when I sold the 10 Marches and bought 10 Aprils. This four-week boar hunt pinpoints a couple of rules and guidelines that I hammered out during a few years experience. For one thing, I practically see "2 & a fraction/3 & a fraction" in my sleep. That is, most of my spreads begin with a near-in-time sale at 2 & a fraction and a far-in-time purchase at 3 & a fraction. Note that the above-described IBM call spread fits that patterns.

Another key is the precise size of the debit, i.e., the amount invested plus commissions. When you get back a quarter and a nickel, whether they contain any profit depends on whether you ventured two dimes or a half-dollar at the start. Think small at the opening stage. At least, as small as is practical. "No money down" ain't the name of the game in options and spreads. The timid person wants to risk nothing or almost nothing. The avid gambler bets too large and thus rigs the numbers against what he gets back containing a profit. The Buddhist's "middle path" and the cornhusker's "happy medium" have a place here.

To be precise, a single-point spread is golden (example--sell 2¼; buy 3¼) but hard to find in actual practice. Do not bypass good nuggets while insisting on a one-pounder. A 1-1/8 point gap (sell 2-3/8; buy 3½) is less rare. Regard 1¼ and 1-3/8 as (a) more abundant and (b) usually good investments. (Examples: Sell 2-3/8; buy 3-5/8 and sell 2½; buy 3-7/8). Above this, we arrive in cautionary territory. A while back I took a medium-sized profit with a 1½ point spread and a smaller one with 1-5/8 points. Now I avoid 1-5/8 points and half-avoid 1½. I do not rule out the latter but the fruit boughs have to hang especially heavy for a rule in.

The larger the opening spread, the smaller and more strained the profit if there is a profit. A beginning situation of "sell 3 & a fraction/buy 4 & a fraction" is all right if it fits the other requirements, but usually it does not. Either the strike price is too close to the share price, requiring that you pull out after a few days if your short end crosses to in-the-money. Or both the near-in-time and far-in-time are several months into the future so that time-decay (the gap-widening shrinkage of the short end or sold end) happens at a penny a week for the longest time before it nose-dives into dollars during the final month or two.

One iron-clad rule and sound business practice that I mentioned in the past still stands: That the short end of an option spread should pay for more than half of the long end and preferably close to two thirds. Selling at 2 & a fraction, buying at 3 & a fraction, and limiting the spread or debit to not far over one point all help to fulfill this requirement. Also, previous articles opined that an option spread strategist should also be a trend tracker, positioning a call spread over a rising stock and a put one under a falling stock.

A share's meteoric move in the wrong direction can bleed the long-end options white. The fact that a strategy as described above is mostly other people's money provides armor and buffering but not total protection. I did recommend also call spreads over stocks with conservative price-earnings ratios and put spreads under shares with inflated PEs. During the recent galloping bull market, I have found it necessary to rank trend over PE and concentrate on calls.

In authors' journals, an article will list 10 rules for writers and then will say, "Break one of them if you have a really great reason to." Such an amendment could be applied to traders but is 20 or 30-times more dangerous. Too many speculators and other tycoons have made vast profits and then scrapped their hammered-out rules, guidelines and safeguards. Their ghosts haunt the bankruptcy courts. Their success intoxicated them with the notion of "I'm a wizard and can't fail." They abandon methodologies and related precautions that made them triumph and think that "brilliant me" is all they need for the next financial safari into head-hunter land.

Did my expedition suffer a loss that makes me preach against relaxing one or two rules? No, just fewer diamonds from the jungle mines. In early March, Computer Associates and Computer Sciences were both in the news due to the former's attempt to buy the latter. Both were sound companies according to printed indicators, not infallible but here there seemed no reason to doubt them. Computer Assoc. stock was rising gradually but steadily and had a PE in the upper 20s. Computer Sciences bounced around share-price-wise amid take-over talk, with a PE just over the 30 mark. The former thus seemed the better prospect for a call option spread.

On March 6, 1993-2014, Computer Associates stock traded at 50 and a fraction, or 4 and a fraction from the April 55 and May 55 calls. The Aprils traded at 1½ bid; 1¾ ask, last selling at 1¾. The Mays at 2-5/8bid; 3 ask, last changing hands at 3. The bid figures were 1-1/8 points apart, the asks 1¼ points. A try for a 1-1/8 point spread could succeed, but a problem loomed. The prospective short-end Aprils had value of less than two points. Less time-decay profit potential. Notwithstanding fewer guns for the safari, I instructed the broker to buy 10 May 55s and sell 10 April 55s with a debit of 1-1/8 points, both to open a position.

The results came that day. I bought at 2¾ and sold at 1-5/8, a difference of 1-1/8 points or a cost to me of $1,125 plus $100 for the two (buy & sell sides) commissions. In the weeks that followed, Computer Associates shares climbed gradually but the widening of the spread or gap was slow, happening in tiny increments. On March 25, the stock rose small fractions into the money (55-1/16, 55-3/16) before closing barely out of the money at 54-15/16.

The spread had widened little more than was needed to cover commissions. Nevertheless, the next day, March 26, saw the CA shares cross 55 early on and inch up in fractions toward 56. Hit the ejector switch. Only it was more complicated than a simple bail-out. The April 55 calls were at 2-3/9 bid; 2-7/16 ask, last trading at 2-3/8. The May 55s, 3-5/8 bid; 4 ask, last selling at 3-7/8. What if I pulled out by telling the broker, "Buy back the Aprils at the market and sell the Mays at the market to close the position?" Usually when you say "at the market" you get the worst prices available; in this case, a buy-back at 2-7/16 and a sell at 3-5/8. A gap of 1-3/16 points. A gain of 1/16 before commissions and a loss of about $140 after.

I had to try to buy back the Aprils at less than the high figure or ask price and sell the Mays at more than the low figure or bid price. This is best done when they are not trading at their worst figures, i.e., when they are trading at higher than their bid and lower than their ask. For example, the Mays last traded at 3-7/8--above the bid and below the ask. So I told the broker to sell the Mays at 3-7/8. With the Aprils, the bid and ask were only 1/16 of a point apart. I did not want to take the chance of missing a buy-back over so small a difference so I said to "buy them back at the market." I figured that the worst that could happen was the 1/16 over or more than the 2-3/8.

"At the market" introduced one more hazard. April's ask price went up an additional 1/16 so I bought back at 2½. The Mays did sell at 3-7/8 as desired for a closing spread of 1-7/8 points. A ¼ point gain after commissions came to within pennies of a $50 profit. This 4.08% net in precisely three weeks annualizes to a fraction over 70%. U.S. Treasury Bills (shorter term than long bonds) currently yield slightly over five percent per year. I suppose one should not complain when one receives almost a Treasury Department annual return in just three weeks.

Still, option spreading has accustomed me to bigger gains within fairly short time-spans. You can be sure that I am now more gun-shy about both "at the market" transactions and short-end options worth less than two points. Although no trade is risk-free and no rule fail-safe, "Sell at 2 & a fraction, buy at 3 & a fraction now has the look of a very handy pocket sextant, with the newspaper option-listings as the nautical almanac. One should be grateful when profiting with business-like consistency in the "massacres & replacements" field of options and futures. Grazie, spread strategies.

My attention turned to an old book with a bookmark. The volume was Robert Tristram Coffin's penned-in-Britain essays The Book of Crowns & Cottages with the bookmark on page eight, where the author takes us inside a chapel as evening falls on post-World War One Oxford University after "football" (rugby or soccer in England): "What if Wren's chapel has nicks on its portals; . . . the College is richer by these tokens of wear [and the] carvings of faded gilt lying in the very midst of life, among fresh faces flushed with football and October winds glowing in the candlelight of vespers."

One CTCN subscriber, a medical doctor from California, told me that he really liked my articles' references to art, literature and cultures but I never got it in writing. The "bookmark" was a letter from a businessman in western Pennsylvania: "Your paragraphs about the fine arts support a stereotype. You know, the investors looking at works of art and going to the opera. Where is the carriage trade with the Dalmatians? Please be informed that many of us traders are regular guys, and proud of it. We shop at K-Mart and we talk sports over beer and cold cuts."

He should see me in front of the late-night TV, munching Genoa salami and Swiss while watching the Bowery Boys. However, we need not indulge in "regular guy' one-upmanship. Plenty of Wednesday night poker-players think that filling an inside straight qualifies them for "mercenary duty in the banana republics" of stocks, options and futures. Little republics, big cemeteries. Often the sports page devotee is the recoiler who says, "Learn a new business at my age?" then trades on hunches and hearsay.

If hand guns could be owned only by people who know how to disassemble and re-assemble them, there would be far fewer barbecue party Wyatt Earps' shooting themselves and others. Columnist Art Buchwald complained "My next-door neighbor owns a gun and he can't even handle a garden hose right." Is the situation any better regarding "passion for trading" good old boys with eager fingers accessing the Internet? The "passion for" doing this or that is seldom accompanied by a "passion for" learning the relevant engineering in any depth.

Several years ago, my father and I saw Italy as members of a bus & hotel tour group. As the bus neared Genoa, a 72-year-old man in the group, a retired schoolteacher from Alabama, said of Columbus, "He proved the world was round. Everybody thought it was flat until he proved otherwise." No one disagreed.

The tour group kept getting escorted to "Junk shops" in city after city, furnishing and bric-a-brac showrooms, presumably the result of a kick-back arrangement between the merchants and the tour company. In Florence we saw the Michelangelo David, the Florentine Baptistery, and a merchandise showroom. During the "Go where you like" hours, I went to view the artworks in the Uffizi Gallery and the Pitti Palace. Only rarely did I meet another member of the tour group there. They submitted more readily to the huckstering than to the culture, and felt no loss at missing the treasures of Botticelli and Vasari, Cosimo and Correggio.

In Verona we were led to a burnished balcony overlooking a courtyard. The tour company guide stated, "Legend holds that to be Juliet's balcony where she was courted by Romeo." Recently, I saw a TV travelogue that played up Verona as "The City of Romeo & Juliet," with close-ups of the balcony. Neither tour guide nor travelogue mentioned the city's greatest artist--Paolo Caliari also known as Paul Veronese. When "regular guy" fallacies come, they come in a crowd and do not leave a restaurant table or a train seat for truth.

Whether the ancient Egyptians knew the world was round is not certain. Definitely the ancient Greeks did know. During the sixth century B.C., the Greek philosopher Pythagoras determined that the world was round through inductive reasoning. He saw that the sun, moon and planets in the night sky were spherical, and inferred that the entity on which he stood was also. Aristotle (fourth century B.C.) discovered visible physical evidence of the world's shape. He explained that during a lunar eclipse, the earth threw its round shadow on the moon for all to see. Christopher Columbus' calculations utilized ancient Greek writings that many other Europeans had been reading for centuries.

In English Elizabethan drama of the 1500s, girls' roles were played by boys. Consequently, to show lovers embracing and kissing would have spoiled the illusion. The reason for the balcony on the Shakespearean stage was to keep the lovers apart. The plot of Romeo & Juliet dated back to Ovid (died A.D. 18) and was originally set in Babylon. Anyway, Shakespeare would not have known Verona from Cincinnati.

Yet the city with the courtyard had its real gifts. One of the masterpieces of Paul Veronese hangs in the Vatican--St. Helena Dreaming of the Cross. Frank Preston Stearns wrote "She is dressed in the richest silks and wears an elaborate jewelled coronet; but she is asleep in her chair--not in a deep sleep, but a transient doze--and a large wooden cross appears in a dream before her supported by a cherub. Her face is beautiful, but with that slight modification which sleep gives, and her hands--one drooping, the other supporting her head--are still more beautiful. At her side is a marble column, and behind her chair a richly figured damask curtain."

How is that for mixed-message art? The way of the cross handled with sensuality and allure! Real artworks have greater beauty and sweetness than the bogus balcony or the dime store romance formula-paperback, but "regular guy" fallacies die hard. In trading and investing, they can be poison both culturally and financially. Same with female myths.

The Beardstown Ladies have caused quite a flap. Their 1995 book The Beardstown Ladies' Common-Sense Investment Guide became the biggest of big news and has sold 800,000 copies since its release. These 10 women with an average age of 70 were the subjects of many newspaper pieces and were interviewed on TV nationwide; several became paid consultants for pension funds. At the center of all this popularity was a portfolio which supposedly "put the experts to shame" with a phenomenal track record of 23.4% average annual gain over a 10-year period from 1984 to 1993, during which time Standard & Poor's 500 averaged only 17.2% yearly.

How? Allegedly via the stodgy method of buying stocks in solid giant companies and holding on for the long pull. "The old way works!" came the message from the Beardstown, Illinois, heartland where the women had their investment club. The trouble started in early 1993-2014 when a Chicago Magazine investigative article said that the members' monthly dues ($40 each totalling $4,800 yearly) had inappropriately been counted as profits, so that the dues alone accounted for a double-digit portion of the supposed gains.

However, the club's long-time treasurer Betty Sinnock followed up with a different explanation: The portfolio's profits averaged 23.4% for a two-year period, 1992 and 1993, and this was erroneously entered as the average annual gain for the whole 10 years. Alas, this did not alter the spuriousness of the bottom-line. The real average yearly profit for the much-publicized, claim-to-fame decade was 9.1%. The best-seller had exaggerated by 152%. It put the gals' home-spun cheering section to shame.

Those who praised the Beardstown Ladies' cookie jar virtues had overlooked the hazards of kitchen table accounting. The episode receives mention here for reasons other than the numbers. Before the discrepancies arose, ABC-TV's 20-20 attributed the ladies' success to such heartland virtues as hard work and church-going. After the facts intruded, Frank Rich wrote in the New York Times OpEd page (March 21, 1993-2014): "The Beardstown Ladies were, literally, a G-rated Disney package--archetypes from Main Street, U.S.A., published by Disney's Hyperion Books--so the public and reporters alike threw skepticism aside."

So what does culture have to do with trading or investing? The Disney people sure got their G-rated maple syrup/covered bridge culture into the portfolio cake mix. All it lacked were Dorothy McGuire as the Wheat Belt mom plus a cartoon princess singing, "Wishing Will Make It So." Please fault not me for including some old Lombardy sunsets that inspired the palette of Paul Veronese in my blend.

The "regular guys" out there are urged to trade in a professional manner, not like passionate crap-games in back of McClosky's Bar, and to partake of the art exhibit at the bankers' club.

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