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Stock Options & Spreads Trading

At a cemetery, a man stood weeping before a grave. "Why did you die?" he sobbed over and over. "Why did you die?"

Another man passing by noticed and tried to give some consolation. "Gee, this must be a loved one. A dear member of your family."

"No, no relation," the weeper replied. "I never even met him." Then he began sobbing again. "Why did you die? Why did you die?"

The puzzled passer-by asked who this was who would cause such carrying on. The mourner moaned, "It's my wife's first husband."

The lamentation was not without some scientific validity. Surely one must be a thinker of sorts to weep over a link in the complex chain of causality. A person active with speculative securities should be similarly cause-and-effect conscious. However, said trader can do without the widespread human tendency to blame everyone but himself, including the dead. He can also make better use of that ubiquitous tool known as the word "Why?" which 99.9% of humanity misuses as:  a griper and; ‚a too late utterance.

Scientifically, everything is causality. It has been said that every man is the architect of his own fortune. Some variations say "fate" or "future." Anyway, he who does not ask "Why?" until the building collapses is not much of an architect. If such a collapse is to be prevented, you must address causes and effects at the blueprint stage. As a trader in stocks, futures or options, can you handle the how's and whys, the details and causalities at an early stage rather than saying "What went wrong?" at a late stage?

Most people cannot. Remember that humanity never packed the blueprint room the way it packed Yankee Stadium. Many financial writers have criticized many speculators for going into action without a definite plan. Actually it is worse than the lack of a battle plan. It is bare-faced disregard for the simple fact that the enemy might not cooperate.

The trader's enemy is whatever can go wrong. Many a venturer's expectation of winning is also the expectation that the enemy will cause no difficulty on the battlefield. What reality! This is not the approach of a smart strategist mapping a breakthrough.

At the blueprint session or battalion map session, understand what you are up against by pondering the basic arithmetic. A thousand dollars must double only 10 times to become a million, 10 more times to become a billion, 10 more to become a trillion. The stock, futures and options exchanges, the casinos and racetracks all teem with vast numbers of people, each expecting to double his or her money not once but countless times.

You know, of course, that not one in those vast multitudes has purchased the U.S. Mint. Immense hordes end up without ham and eggs money. It cannot be stated too often that futures and options are both zero-sum games: Somebody must lose a dollar for every person who gains a dollar; worse than zero-sum when you factor in brokerage office expenses and exchange expenses.

In such a milieu, you cannot hope to pile up an impressive bank account unless you have an "edge" over those other fortune seekers. I have found from experience that spread strategies with equity options or stock options provide an excellent edge, although I acknowledge that spreading is also possible with futures contracts and futures options. More about equity option spreads shortly.

For now, please accept this advice: Concentrate on good profits, not on allegedly fast and easy astronomical wealth. What constitutes "good profits" will also be dealt with in more detail subsequently. W.D. Gann wrote, "Handle speculation as a business, not a gamble." The AST program teaches, "Trade for a living, not to get rich overnight." I would say, "Be less of the crap-shooter, more of the gem merchant." The diamond dealer does not expect to keep doubling his money into infinity but he does keep taking his profits to the bank.

It is the crap-shooter and the horse-player, and their anxious counterparts on the exchanges, who anticipate doubling, squaring and cubing their cash into a mansion on Easy Street a month from now. They emerge empty-pocketed and sorry they spurned a passbook or C.D. An effective financial strategy is gear-fitted to reality and flexible enough to change with the shifts that reality brings. A noted surgeon told a group of people, "I could teach any one of you how to remove an appendix in just 10-minutes. But to teach you what to do if something went wrong would take four years."

Becoming a successful trader need not take four years, but you must learn the details and causalities, the trouble-shooting and trouble-preventing. Let us proceed to make a blueprint. During my senior year at Cherry Hill High School West in suburban-south Jersey, history teacher Gregory Egner explained the advantages and disadvantages of different types of business: Sole proprietorship, partnership and corporation. What he said has importance for you and me because a trader is a kind of one-person business.

One of the advantages of sole-proprietorship was, "You're your own boss. If you want to close it up and go fishing, you close it up and go fishing."

With options, I need not close up anything yet I can let the kettle simmer for a couple of hours, then check it by phone from wherever I am. My office is in my pockets and my business phone is the public touch-tone. Lunch at the Boat House Restaurant on Central Park Lake, then call the broker's 1-75% number for a quote. The stock price crosses over the strike-price of the options unexpectedly? Close out the position and take profit while at the Hudson River ferryboat terminal.

No, it is not all vacation. The study and research, the planning and maneuvering, must be of professional magnitude. But handle it capably and you can divide an afternoon between a well-placed trade and an exhibit of ancient Roman coins or Chinese jade or Cromwell muskets or Milanese tapestries.

Another advantage of sole-proprietorship: "Limited paperwork." Every broker complains that his business is the worst in the world for enormous paperwork, but only a small portion of this falls to the individual investor. Attaching to my Form 1040 Schedule D (Capital Gains and Losses) is the breakdown of option "buys" and "sells" which totals only 10 to 12 pages. Yet this is the mother-lode of my income. A one-man cigar store keeps records far more voluminous.

One of the disadvantages: "Unlimited liability." If an unincorporated shop or office goes into debt or insolvency, the proprietor's home and savings face jeopardy. With options, liability can be either limited or unlimited depending on the type of position. Sell naked calls and you risk infinity. Sell naked puts and the risk is limited but can be substantial. If you sell 10 puts with a strike-price of 100 and the stock drops to zero, your loss is "limited to" $100,000. How comforting!

With "horizontal debit spreads" also called "calendar spreads," there is no nakedness because the long-end of the spread covers the short-end. If the short-end is exercised, the long-end produces the stock which covers the short-end obligation. And, liability? Alas, the spreader loses the "in between" money he put up and is required to pay commissions on the buy of shares at the long-end and the sale of them at the short- end. This is with call options. With put options, you receive shares from the short-end and dispose of them on the long-end, also alas.

Very, very fortunately, avoiding an exercise is quite easy. That is why the able spread strategist holds the title "the bookie who never pays off." If a move in the price of the underlying stock places short-end options "in the money," the spreader can buy back the short-end and hold the long, or he can close out the spread completely by buying the short-end/selling the long-end. As I mentioned in previous writings, in-the-money options are "assigned overnight"--matched up with exercise orders after the close of the trading day. You are safe from exercise during the trading day, also if the options go out-of-the-money before the close of trading.

Remember always the gold core of the well-planned spread: Most of the money in it is other people's which helps to cushion and shield your own capital. This does not guarantee either profit or total protection against loss, but it is a substantial deck-stacker in favor of the spread strategist. In contrast to what the straight long-player of options usually experiences, this "other people's money" factor makes wins more frequent, and losses fewer and less severe. Therefore, thankfully, the spread strategist is one sole-proprietor who enjoys "limited liability."

A mournful disadvantage for the sole-proprietor: "Death ends the business."

In the high school class, one fellow asked, "How is that different from any other type of business?" Mr. Egner explained that with a partnership or a corporation, the business can continue. "Yeh," the student said, "but what good does that do you."

No, the focus was on what happens business-wise and financially after the last rites. The question is more complicated for the option trading account than for the barber shop or the one-person realty office because options, like futures contracts, are "wasting assets"--losing value with the passage of time and becoming worthless after expiration. The money in the bank account of the deceased pharmacist or music store owner keeps accumulating interest while the estate drags through settlement but the assets of the departed option trader face danger of disintegration.

Of course, everyone should have a last will and testament. You state in your will, let us say, that in the event of your death, all your holdings be turned into cash and used to fund a rest home for worn-out Republicans. Beards can grow in probate court or surrogate court before the carrying out of that simple "turned into cash" step. Months pass, with slew after slew of options and futures reaching their expiration dates.

I phoned a full-service brokerage house and asked a young broker straight-out: What happens or what should be done if an investor dies and he has options in his account? The gentleman asked me to wait while he checked with someone. He returned and said that the beneficiary in the will would receive the options and would decide whether to sell them or not. Bad advice! That broker simply added options to the standard estate procedure for stocks, bonds and CDs. He completely ignored the fact that these have longevity while options can disappear while waiting to audition.

Then I phoned a brokerage house specializing in options and, incredibly enough, received an even worse answer! The broker said, "You're dead, so what's the big deal?"

Hallelujah. A woman stock broker at the York Securities discount house proved to be the voice of sanity. She enunciated the procedures: "When an options investor passes away, his attorney should immediately Fax me (a) a copy of the death certificate, and (b) the names of the executors of the estate. Then the executors should immediately notify me and grant me permission to liquidate the option positions and turn them into cash."

She told of a past experience in which one of the firm's investors passed away and had a fair-sized number of options as well as other holdings in his account. She explained the above procedure to his family and asked that the lawyer handling the estate and the executors act right away. Months passed with no notification from any of them. The options dwindled in value then expired worthless. Apparently many knowledgeable people who understand stocks and bonds do not comprehend an acronym known as "wasting assets."

Make certain that your attorney and executors understand at least the basics of: securities with expiration dates; and ‚the woman broker's 48-word "what to do" quoted above. Death ends the business for us all eventually, but not everyone is caught unprepared.

Mr. Egner also explained the advantages and disadvantages of a corporation -- theoretically limited liability on the plus side (but no protection against going broke), more paperwork on the minus side. Nothing very persuasive for the individual trader. I know a couple of people who went the "one-man corporation" route: A medical doctor who scrapped it after a year, a private-practice attorney who chucked it after 3-months.

The Gann maxim, "Handle speculation as a business, not a gamble," can be rendered as a locational blueprint. Many if not most financial venturers can be divided into two groups: Grandmothers and crap-shooters. The latter are, of course, the high risk speculators perpetually pursuing astronomical profits and taking ghastly chances. Their "strategies" are so many frontal assaults on machine guns. They stop when they run out of money and are replaced by others who run out of money. Hence the "high turn-over rate" reported by futures brokers, and more than a few stock and option brokers.

The grandmothers - whether young or old, male or female - aim for safety and might or might not find their targets. They are fond of "blue chip" stocks which often fail to produce a profit owing to meager dividends or anemic share-price performance. Grannies will hold such dead weight in their portfolios for years and even decades, always feeling that they are "investing in quality and the solid stuff." Many clutch passbooks, with principal and interest guaranteed by Uncle Sam. The bites taken by inflation are an abstraction the old girl refuses to ponder.

There exists a middle ground - a Golden Mean: Investment and speculation as a business, based on sound business and financial principles. Here, the intelligent trader compares to the gem dealer: More careful and conservative than the crap-shooters, more venturesome and more skilled with the calculated risk than the granny. Bankable profits; no going broke trying to be an overnight millionaire, no paltry sums in the sewing basket. At the center of my locational blueprint lie option spreads.

Near mid-May of 1997, I noticed that IBM common shares appeared to be on a gradual up-slope. This plus solid earnings, P/E and fundamentals made it a viable candidate for a spread with call options. In the low 170s, the stock was close enough to 180 to plump up the calls having 180 strike-prices but far enough under that a slight fluctuation or "muscle spasm" would probably not lift the stock over that line right away.

The IBM 180 calls with June expiration dates traded for a small fraction over 3 points, the July 180s for a slightly larger fraction over 5. My standard strategy is that the nearer-in-time short-end of the spread pay for more than half of the farther-in-time long-end. I phoned the broker to "open a position" and gave specifications for a debit spread of the horizontal or calendar variety.

Typically I buy 10 and sell 10. I told the broker to buy 10 IBM July 180 calls and sell 10 June 180s with a debit of two. When long (bought) options cover short (sold) ones, you must buy before you are entitled to sell. When you enter them simultaneously in one order, you customarily state the "buy" first even though it is more distant in time than the "sell."

The "debit of two" means a two-point difference between the cost of the buy and the proceeds from the sale. One point is $100. When 10 options are bought and 10 sold, it means $1,000. Thus the amount for which I sold the Junes and the amount for which I bought the Julys could have been anything, but the two-point debit fixed the difference between them at no more than $2,000 plus brokerage commission. A "spread" is so-called because of that difference or "gap" which the trader fills in with his cash.

Anyway, that order was not executed. At the end of the trading day, I was notified of a "nothing done." The next day I entered the same order but "sweetened the pot" fractionally by adding a quarter of a point to the debit. On May 16, 1997, I sold 10 Junes for $3,250 and bought 10 Julys for $5,500. Points-wise this translates to a 3-¼ sale, a 5-½ buy, and a 2-¼ debit or $2,250 of my own capital plus two $65 commissions for the two transactions or "ends" of the spread. Multiple commissions are why the phrase "discount broker" is the Scout Oath of the spread strategist.

When I buy 10 puts or calls and sell 10, the two commissions equal about an eighth of a point. Opening a spread position and later closing it total about a quarter point. So figure the amount of capital invested "in the gap" plus approximately a quarter point (roundly $250) as the 'break even' amount or the "figure to beat" if you want to make a profit. Compared to what many businesses pay in overheads this is not a lot. Yet frugality prompts a wise trader to shop among brokers and compare rates.

Within two weeks after opening the position in IBM calls, I was between $300 and $400 ahead after commissions if I wished to pull out. How good is this? Many speculators and investors do not bother "annualizing" because it produces figures they cannot spend. Yet you must annualize to gauge accurately your financial success. Five percent gain in a year? A bank can achieve that for you without risk. Five percent in one week? You did 50 times better than mighty Chase Manhattan or U.S. Treasury Bills!

Many who fluff off this fact are crap-shooters and traders in the throes of speculation fever. Astronomical returns fast or the hell with it! So out of touch with economic reality, these multitudes go broke or continue via MasterCard. They do not resemble the diamond merchant or other sensible and realistic businessman who gets a firm handle on profits. No, they resemble the people who search out the "make a fortune" ads in the back pages of the check-out line weeklies. "Make $100,000 in Four Weeks!" You know how many of them ever became wealthy!

With the IBM options, a $300 gain on a $2,500 (with commissions) investment in two weeks - annualized on the basis of a 50-week year: 300%. This certainly beats 7% per year federal bonds and is anchored in "time is money" economic reality. So in assessing your gains, remember to annualize.

I deferred profit-taking and a couple of things happened. After the gap between the Junes and the Julys began to widen gratifyingly, IBM common split on May 28, 1997. The time-worn phrase "twice as many worth half as much "applied, but with a bit more intricacy, Where I had been long 10 options and short 10, I was now long 20 and short 20. Also, their strike-price was now 90 instead of 180. Furthermore, where the break-even figure within the spread had been 2- ½ points (counting future "pull out" commission) it was now 1-¼.

Companies split their stock to encourage new investors. Potential stock-buyers tend to favor lower-priced shares. Shares in a company often rise after splitting but sometimes not and sometimes only temporarily. In IBM's recent case the effect has been questionable so far. Having closed at 178 on May 27 and just under 90 on May 28 (briefly in-the-money option-wise that day but closing at-the-money or slightly out-of-the-money on a 90 strike-price) IBM has since bobbed up and down in the low and middle 80s.

That bobbing-within-boundaries is good news for the spreader thanks to the effects of time-decay. Nearer-in-time and farther-in-time options both lose value with the passing of trading days and weeks, but with a gradual ramp for the latter and a steeper decline for the former. Since the spreader's vein of gold is between the two, their "growing apart" enlarges his mining stake. What an irony that words which sadden the rest of humanity are "Eureka!" to the spread strategist: Growing apart and time-decay.

The price of IBM's split shares seemed comfortable around 86 and 87. The gap between my 20 short options and 20 long grew to a fluctuation between 1-½ and 1-5/8 points ($500 ahead and $612.50 ahead). Then some trouble. A preliminary announcement on Wall Street stated that Intel's quarterly earnings report due out shortly would be disappointing. That stock's dip pulled other technology shares down along with it. IBM fell to 81-¾ on June 4 and 82-1/8 on June 5.

My reasons for choosing IBM for a call option strategy included solid earnings and fundamentals plus a conservative price/earnings ratio indicating share price was not vastly inflated over basic value. My theory held these would probably create a firm floor or base of support under the stock's price. So I stood pat and waited. The shares' decline had shrunk the worth of both the June and July calls and had narrowed the point spread between to just a $100 or so above break-even.

Also, anticipation of Friday's upcoming federal unemployment statistics was stalling most of the market price-wise and volume-wise. I theorized that both this and Intel were only temporary "downers." However, theories can be wrong. After the federal report, though, IBM climbed late in Friday's June 6 trading to 85-5/8. Excellent date for a victory, a bloodless one better yet.

A stock price floor or base of support had materialized, and soon a couple of up-steps formed: June 9 to 11: 86 and a fraction, 87 and a fraction, back to 85 and a frac, then up a bit. And the spread: 1-5/8, 1-¾, 1-7/8, back to 1-¾. Also, the changing prices of the options tell a story laudatory to spread: June 1, July 2-¾; June 13/16, July 2-11/16. Remember that those who bought the Junes I sold paid out 1-5/8 (adjusted for split) and those who bought the same Julys I did and same time I did but without spreading paid 2-¾ (adjusted for split). The holders of the June options are markedly in the red and the holders of Julys barely break even.

A gap between the Junes and Julys of 1-¾ points translates to $1,000 in the black, a gap of 1-7/8 means $1,250 for the plus column. Recall that at the start I bought $5,500 worth of options, sold $3,250 worth, and paid the difference. Ergo, the total amount of capital in that spread position was about 60% other people's money. That is "how come" the spreader can win even with the identical-twin securities with which other participants lose. It does not guarantee a profit just as a race horse starting 60% closer to the finish line than other horses does not guarantee a win but. . . .

Yet Sea biscuit with a 60% head start against milk wagon nags might stumble on the track. Do not wager everything on one race or even a fifth of everything. With the spread now being analyzed, a deeper and longer-lasting fall in the IBM common shares could have shot most of the meat off of the call options. Risking only a limited part of capital per venture is one Jewelers Row tactic which deserves far more popularity on the stock, futures and options exchanges.

The day of this writing, Friday the 13th, is far from unlucky. IBM stock peaked at 89-¾ and closed at 89, up¾ from yesterday. The spread between June 90 calls and their July equivalents ticked during the closing hour between 2-¼ points and slightly higher. That $2,500 venture (which counted entering and anticipated exiting commissions) has climbed to $4,500, or 80%.

I have not yet closed out the position so as of this evening the profits are still on paper. I adhere to the rule of Nicholas Darvas: As long as the speculation moves in the right direction, stay with it. Then when it starts to turn, grab the money and run like a thief. Item: 80% profit has occurred during four weeks. Penalize yourself three demerits if you forgot to annualize! The 80% times 12-months annualizes to 960%.

Of course I am one joyful prospector with nuggets in the knapsack. Yet how much is a good profit? Remember that a gain of 8.5% per month doubles your money in a year with some coin silver left over. On the cable financial channel today, Ron Insana announced as "big news" that the Dow Jones Industrial Average had climbed 21% in six months. If you do a spread and find yourself 20 or 30% ahead after commissions in two or three weeks, you have blessings to count. The corporate bond investor will settle for less than that in a year. The dice-shooter and the fevered speculator will try for vastly more before wipe-out. You are the able peer of the gems-in-the-satchel businessman.

What about Monday? If the stock climbs over the 90 mark, my short-end calls will be in-the-money with a theoretical hazard of an exercise after the close of Monday's trading. Fortunately there is safeguard in comparative figures. If an option is ¾ of a point into the money and sells for 2-½ points, then the option-holder or long-player can gain ¾ of a point by exercising it but can gain more than triple that by selling it instead. This weighs against an exercise.

It is a protection I never use more than one night at a time. If my short-end options go out-of-the-money the next trading day, I let the spread stand pat. If they persist in staying in-the money even fractionally, I close out the position and turn everything into cash. That is because there is the danger of their going farther into the money, narrowing the golden gap dear to the spread strategist. Also, the danger of an exercise increases as a put's or call's expiration date nears. The week before expiration begins Monday.

What if IBM stock goes down instead of up on Monday? I make a mental "stop loss." 88-1/8 was the share's low for today, so if it goes anywhere below 88, I close out the spread position. Why not just close out the position automatically Monday and take profit? My short-end June options (trading at about a point or just under late today) have only five trading days until expiration and will lose value rapidly during those days. Since they represent an obligation to me, their time-decay is gravy.

At this late date, however, time-decay must be declared secondary. The hazards of a rise in the stock triggering an exercise of the Junes or its fall shrinking the meat-laden Julys take precedence. So I shall stand still on Monday if the stock hovers in the 88 and a fraction/89 and a fraction range. Otherwise, my broker will receive a "Close out the position" call to buy back June and sell July. As a trend-follower, I think that IBM will probably keep rising. If it extends anything more than a small, quick toe over the 90 line, I think I shall tell it good-bye without an overnight stay. Tis getting late.

Having studied the detail-lines of an "option spread" blueprint, let us now repair to the drawing room and the art works on exhibit there. In the past, I have advocated high culture for financial traders because it entails the sense of detail and the grasp of time which they require. I do not presume to be prophetic, but you will note that the word "Byzantine" (meaning intricate and labyrinthine and sometimes devious) is being applied to everything from the court system to plots in novels to computer cyberspace and Websites to Wall Street financial circuitry and circuitousness. Why not a look at the original or something akin?

Also, in the past, I have lambasted Right Wingers, reactionaries and fundamentalists owing to their pretensions as Lords of the Temple of Tradition. They are as alien to anything worthy of the name tradition as astrologers with their dime store charts are alien to the intricacies of the Mount Palomar Observatory. With few exceptions, expecting cultural depth, sense of detail or grasp of time in their ranks is like expecting a 200-inch reflector telescope in a Lassie movie or a revival hall. Admittedly, however, I previously underrated their perennial "Make it compulsory under law!" game-plan.

H.L. Mencken made the observation that the ghosts of primitive peoples have short life-spans. A primitive tribesman would report seeing the ghosts of his father, sometimes his grandfather. Then the spirit population hit a vanishing point and dropped off precipitously. No sightings of spooks from, say, five or six generations back.

Two reasons: As new ghosts are added to the folklore, old ones are forgotten. Primitive folklore continually "loses cargo at the far end." Secondly, primitive peoples lacked history books and portraits to extend their imaginations farther back in time. This "loss of cargo" from the past and this "farther back in time" weakness afflict the Right Wing like a chronic epidemic. One could call it a "qualifying disease."

Today, most music encyclopedias state that the Ragtime Era ended in 1917, but prissily avoid mentioning specifically what happened that year to bring about that conclusion. It was the closing down by police of Storyville, the red light district of New Orleans, silencing the fleet of "genuine article" ragtime pianos that were emblem and imprimatur of the bawdy house parlors.

Though on in years, the white-haired folks who enjoyed rag-time on The Lawrence Welk Show were too young to remember the pulpit sermons preached against "brothel music," too young to remember what used to be the "dirty tunes" of pre-1917. Thus music's harlot yielded up a virginal ghost, thanks to people's forgetfulness and the fiction, "Everything was so decent way back then." Such thinking bloats perniciously when it reached the judicial bench and the halls of congress.

Judge Robert H. Bork wrote a recently published book entitled Slouching Towards Gomorrah which will surely receive the embrace from every lover of "boy and his horse" movies and "country doctor" fiction. In the chapter "The Collapse of Popular Culture" Judge Bork wrote:

"The difference between the music produced by Tin Pan Alley and rap is so stark that it is misleading to call them both music. Rock and rap are utterly impoverished by comparison with swing or jazz or any pre-World War II music, impoverished emotionally, aesthetically and intellectually. Rap is simply unable to express tenderness, gentleness or love. Neither rock nor rap can begin to approach the complicated melodies of George Gershwin, Irving Berlin or Cole Porter. Nor do their lyrics display any of the wit of Ira Gershwin, Porter, Fats Waller or Johnny Mercer. The bands that play this music lack even a trace of the musicianship of the bands led by Benny Goodman, Duke Ellington, and many others of that era."

The 'Tin Pan Alley' angle typifies the "olden days" reactionaries who cannot pronounce the title of a grand opera. You must expect them to detour around any creative form so far removed from The Disney Channel. Still, grand opera staged plenty of murders, seductions and suicides without causing the same in the audiences. Judge Bork also neglected mentioning ragtime with its scarlet beginnings or barber shop quartets and the nearby copy of the pink Police Gazette, with minister disapproved pictures of ladies in tights.

The passing of time has moved these beyond Judge Bork's mental ken, like old jungle ghosts disappearing from the memories of the village elders. This Right Wing "tribal village" vision of the past blacks out approximately the earlier half of Irving Berlin's career. Before "Easter Parade" or "The Girl That I Marry," Berlin had his start as a piano-player in "dives" on Manhattan's Lower East Side.

In 1911, Irving Berlin wrote and published the song "How Do You Do It, Mabel, On 20 Dollars A Week?" (still available in sheet music). According to the lyrics, Mabel moved to Now York City and took a job dancing in a Broadway chorus. Weeks later, her hometown boyfriend visits her and finds her living in a luxury apartment. He sings, "A fancy flat and a diamond bar, 20 hats and a motor car. How do you do it, Mabel, on 20 Dollars a week?"

He ends his visit impressed with her thrift and careful spending. Less naive than he, audiences in 1911 laughed raucously, surmising that behind closed doors she used jam as a substitute for caviar. All right, so old songs left more to your imagination than today's hard rock with four-letter words. Nevertheless, old-time popular music was not all the "Silvery Moon" and "Your Old Wedding Ring" that good-old-days conservatives keep hearing.

The Cole Porter song "Love For Sale" was banned by many radio stations in the 1930s and since. The Cole Porter song "I Get A Kick Out Of You" ("I get no kick from champagne. . . .") began its second verse, "Some, they may go for cocaine." This turns up in various recordings and sheet music as "perfumes from Spain" and "a boppy refrain." The Fats Waller songs were dismissed by many as "colored music" from the "juke joints." The word "juke" derives from the West African Bambara tribal word "dzugu" meaning "wicked."

Numerous newspaper articles in the 1940s warned that big-band swing was morally hazardous, springing from African jungle drums and lust-arousing dances around tribal fire. That any pre-rock music was ever controversial or was ever denounced as a "moral menace" seems to have escaped Judge Bork completely. Such things did not happen in the reactionary's Wonderland known as Yesterday. Owing to his all-those-pieces-missing notion of time and past, Bork praised Cole Porter but failed to credit the revisers who pondered the question, "What rhymes with cocaine?" In the Slouching Toward Gomorrah chapter ominously entitled "The Case For Censorship," Robert Bork wrote:

"Is censorship really as unthinkable as we all seem to assume? That it is unthinkable is a very recent conceit. From the earliest colonies on this continent over 300-years ago, and for about 175-years of our existence as a nation, we endorsed and lived with censorship. We do not have to imagine what censorship might be like; we know from experience. Some of it was formal, written in statutes or city ordinances; some of it was informal, as in the movie producers' agreement to abide by the rulings of the Hayes office. . . . The period of Hayes office censorship was also, perhaps not coincidentally, the golden age of the movies." Back to censorial yesteryear, the learned judge advocates.

Here I must vent my Italian spleen. Under the Motion Picture Production Code (unofficially dubbed the Hayes Office Code), several studios banned nude statues and paintings from on-screen and several others permitted them only ever-so-briefly and limited to the background. They could not be displayed prominently. Consequently, a film could not show Benvenuto Cellini casting the bronze Perseus, but could show Al Capone piling up the corpses. No, I do not blame everything on the non-Italian world. Sadly, there are plenty of Italian-Americans to whom "tradition" is Walt Disney instead of Lorenzo de Medici.

Censorship would make such standards and such thinking "compulsory under law," and they are bad enough when not compulsory. If a barfly believes a dozen different fallacies, that is not necessarily harmful, but eventually he starts putting his money where his mindset is, and that causes damage aplenty. He pours his bank account into playing numbers he dreamed, or buys real estate sight-unseeing or purchases worthless "collectibles," or invests in securities from cold-calling brokers in boiler rooms.

The mind that goes deeper than Tin Pan Alley or the Hayes Office has something extra in the lens and reflector, an edge and a plus factor. The sense of detail, the grasp of time, the ability to cope with whatever may be called Byzantine. An intelligent trader or investor needs edges and plus factors. Regarding an edge at grasping intricacies, let us turn back the centuries for some mental exercise. Henry James was not the only author to declare that fine art affects your vision of the universe.

One of the great "mixed message" artists was Fra Angelico (Guido Giovanni da Fiesole, 1387-1455). He was a life-long devout monk of the Dominican order who painted only religious subjects. Do not, however, let this conjure up any drabness in your mind. He became a giant in art history as a colorist. Mrs. Ady wrote of the picture "Annunciation" at Cortona that "the angel's wings are gold tipped with ruby lights, and his robe is a marvel of decorative beauty, studded all over with little tongues of flame and embroidered in mystic patterns."

Fra Angelico painted celestial paradise which H.A. Taine almost turned into a prose-poem: "Glittering staircases of jasper and amethyst rise above each other up to the throne on which sit celestial beings. Golden aureoles gleam around their brows; red, azure and green robes, fringed, bordered and striped with gold, flash like glories. Gold . . . radiates like stars on tunics and gleams from tiaras, while topazes, rubies and diamonds sparkle in flaming constellations on jewelled diadems."

Wasn't it nice that the good brother entered the monastic life, shunning splendor and opulence? For rich sensuality, an Oriental palace could not match the retinas of his eyes! The financial trader who catches such intricacies and such ironies has to be something better than an exchange dice-roller. Also something better than a Christian Coalition member whose "time-honored tradition" falls short by about seven centuries. He is the sole-proprietor with an edge and something extra.