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: Devon Cream & A Fine Piece of Armor

England 1921. The writing desk of Logan Pearsall Smith: "I found it not difficult to revive with a certain vividness the memory of those cold and rainy November weeks that I had happened to spend alone, some years ago, in Venice, and of the churches which I had so frequently haunted. Especially I remembered the great dreary church in the campo near my lodgings, into which I would often go on my way to my rooms in the twilight.

It was the season when all the Venice churches are draped in black, and services for the dead are held in them at dawn and twilight; and when I entered this Baroque interior, with its twisted columns and volutes and high-piled, hideous tombs, adorned with skeletons and allegorical figures and angels blowing trumpets -- all so agitated, and yet all so dead and empty and frigid -- I would find the fantastic darkness filled with glimmering candles, and kneeling figures, and the discordant noise of chanting.

There I would sit, while outside night fell with the rain on Venice; the palaces and green canals faded into darkness, and the great bells, swinging against the low sky, sent the melancholy sound of their voices far over the lagoons. It was there, in this church, that I used to see Sir Eustace Carr; would generally find him in the same corner when I entered, and would sometimes watch his face, until the ceremonious extinguishing of the candles, one by one, left us in shadowy night.

It was a handsome and thoughtful face, and I remember more than once wondering what had brought him to Venice in that unseasonable month, and why he came so regularly to this monotonous service. It was as if some spell had drawn him; and now, with my curiosity newly awakened, I asked myself what had been that spell?"

What prompted these writing desk recollections and the "curiosity newly awakened," was the suicide of Sir Eustace Carr, a scholar noted for his explorations in the East and his discovery of tombs in the Nile Valley.

Pearsall Smith continued, "For I now sensed that the spell which had been on us both at that time in Venice had been nothing but the spell and tremendous incantation of the Thought of Death. The dreary city with its decaying palaces and great tomb-encrusted churches had really seemed, in those dark and desolate weeks, to be the home and metropolis of the King of Terrors. . . . Might not this be the clue to a history like that of Sir Eustace Carr's -- not only his interest in the buried East, his presence at that time in Venice, but also his unexplained and mysterious end?"

Unfortunately, Logan Pearsall Smith lent his Oxford scholasticism and creative writing flair to a British alehouse fallacy. Wherever tankards foamed, stories issued forth of Egyptologists struck down by "death curses" for invading the tomb of one or another pharaoh. Actually, the life expectancies of university archaeologists were no shorter than those of their counterparts in the Cambridge mathematics and literature departments. Nor does viewing Venetian twilights, rainfalls and candle-lit sarcophagi predispose one toward self-destruction.

Pearsall could be viewed as an object lesson regarding lack of skepticism, and financial traders need skepticism. Yet he deserved credit for addressing the "Where were you yesterday?" question and, relevant to that, the influence of context or milieu, whether crypt or saloon or pinball arcade or paneled clubrooms. The composition of a bowling team may not affect a singer's vocal cords but could affect a speculator's mental fine-tuning.

On New York TV after dark, a spot message appears asking "Do you know where your children are?" It never asks, "Where is the option trader or the stock trader or the futures trader, and what nefarious elements are influencing him?" Someone might say, "They are grown people and can take care of themselves." However, the 80 to 90 percent casualty rate among futures traders and the over 90 percent of out-of-money options expiring worthless indicate quite otherwise.

As an option spread strategist, I have been cautioned to stay out of dark places adorned with stone skeletons. Patrick Smith expressed doubt in print whether it were even possible to profit from option spreads with any consistency. Warren Buffet declared that options should be outlawed! Carefully these men have avoided the pharaoh's curse and death's messenger in the darkening cathedral. Still I go forth with map and lantern.

Nevertheless, environment figures significantly enough that where you have a highball can be hazardous to your wealth. Classroom folklore at a New York University course in finance told of a man, the son of Italian immigrants. He took his degree in engineering, converted to Protestantism, and joined an all-white, all-gentile country club. On repeated occasions, he would return home, buy stocks and curse out minorities, both actions reflective of the talk he absorbed near the club's cocktail shaker.

He would invest in companies that had good strings of quarterly earnings, nice rises in share price, increasingly fine reputations -- all before he bought. He would purchase stock in companies that had just moved to larger headquarters, also thus-far successful retail and restaurant chains opening new units. An occasional club-member was an "insider," i.e., a corporate executive paid to say only good things about his employer.

What beatings that engineer took! He repeatedly -- in fact, systematically -- "bought at the top" to use the standard stock market phrase, and plunged along one downslope after another. In Biblical terminology he kept buying near the end of the "seven years of plenty" and suffering the "seven lean years." After enduring such plague and pox through 1992/93, he turned to bonds and became a devout coupon-clipper.

One could blame the tendency of many Italian-Americans to be "more Establishment than the Establishment." He swallowed whole the official optimism; predict only sunshine over the tennis court tomorrow. Another factor could be the loss of immigrant boat savvy. Sure, plenty of immigrants got suckered via three-card monte, and shell games in dives along the waterfront. Yet often money in a sock provided the down payment for a store. So whether the credentials are "first papers" or a degree, whether the surroundings are Duncan Phyfe and Waterford crystal or clam-shell ash trays, a wine barrel and sawdust on the floor, ways have been found to lose money or make it.

Like most independent traders, I am more than a tobacco can dollar-saver and less than a portfolio manager for Tiffany. Also, I am fallible. As mentioned in previous articles, my standard strategy is to position a call option spread (a horizontal calendar spread) above a stock that is trending upward and has a conservative price/earnings ratio or a put option spread under a stock that is trending downward and has an inflated price/earnings ratio.

In late December of 1997, Microsoft (stock symbol MSFT; option symbol MSQ) hovered around 119 and 120, down from a high of 150, with the price/earnings ratio in the 40s as opposed to the average market PE around 18. MSQ "110" put options appeared close enough to the share price to be plump, but far enough not to go "into the money" on a slight fluctuation. I phoned the broker and said, "Buy 10 MSQ put options, March expiration date with a strike price of 110. Sell 10 MSQ puts, February, strike-price 110. With a debit of 1-3/8 points. The two orders going in together, each contingent on the other, with the "sell" covered by the "buy."

That closing statement is in fact a definition of this type of spread order. The "sell" cannot happen unless the "buy" happens and vice-versa. The bought options covering the sold ones make the latter a "covered sale" as opposed to a "naked sale." That the bought options have a different month as expiration date than the sold (buy March, sell February) makes this a "calendar spread." That the bought and the sold have the same strike-price (110) earns it the name "horizontal calendar spread." Also, since the bought Marches cost more than the sold Februarys bring in (the nearer expiration date, the less time resulting in less value), this classifies as a "debit spread," the debit being the difference that trader must pay. My telling the broker "a debit of 1-3/8 points" limits my cost on 10 bought/10 sold to $1,375 or less plus commissions.

The above is stated strictly for instructional purposes because the tandem buy/sell transactions did not occur. At the end of the trading day the broker said, "Nothing done." The next day, Microsoft shares rose nearly five points to 125 and a fraction. A temporary fluctuation, I told myself. Surely the stock is trending down. I moved my strategy up the map to the put options with the strike-prices of 115. Buy 10 Marches, sell 10 Februarys, I instructed the broker, this time with a debit of 1-½ Another "Nothing done."

That turned out to be most fortunate. Microsoft kept rising. At the time of this end-of-January writing, the shares are pushing 150, shrinking the February 110 and 115 puts to fractions and the Marches to not much more. The $1,375 or $1,500 plus commissions I almost paid would have been worth under a thousand and sinking. Didn't I say I was fallible? Also in previous articles that spread strategies are loss-resistant but not loss-proof? And that too large a portion of one's capital should not be floated on any one venture?

If luck was one factor in turning me away at the door from a losing game, another was my stinginess. Here may be the time to explain how I choose my "debit" figure when applying to open (begin) a spread position. On December 26, 1997, Microsoft's February 110 puts were priced at bid 3-¼; ask 3-5/8. The April 110s were bid 4-5/8; ask 5. The gap between the two bids was 1-3/8, same as the gap between the two asks. So 1-3/8 served as the debit figure I gave the broker.

The bid gap does not always match the ask one. Often the former is smaller so that is the one I choose. Stingy--remember? The next day, when Microsoft shares rose and I switched my focus to the puts with the 115 strike-prices, the February 115s were bid 3; ask 3-1/8. The April bid 4-½; ask 4-7/8. A 1-½ point bid gap but a 1-¾ point chasm in the ask. "A debit of 1-½ points," said the trader to the broker.

An option spreader who does not get at least some occasional "Nothing done" reports is probably paying too much at the "opening a position" stage. Not only does this risk a larger chunk of capital. It makes making a profit more difficult by setting a higher "figure to beat." Also, in my recent near-experience with Microsoft, the stingy size of the debit left too small a door for a bad deal to enter. Swindler George 0. Parker, the original "Brooklyn Bridge seller" of the 1880s, had a knack for estimating the financial capacity of his dupes before he formulated an asking price. Yet within the limits of their available capital, it was the insignia suckers NOT to say, "It's too expensive." If a mark had $10,000, then 10 grand was a "reasonable price." Smart money keeps the bets low.

The game is afoot, Watson! After the second "Nothing done," Microsoft shares kept rising and I abandoned any thought of a put option position around that stock. Despite my previous limited-time satisfaction with Dell Computer, that stock seemed to whipsaw volatile and hard to anticipate in its movements for a careful put or call strategy. A couple of New York bank shares caught my eye. Meaty multi-point options. Limited volatility.

During early and mid-January, Citicorp shares (CCI) moved between 132-¼ and 110 -5/8, gradually narrowing its range to the teens, with a price/earnings ratio of 17. Chase Manhattan Bank (CMB) swam between 98 -9/16 and 112-11/16 before floating in the lower middle part of that range, with a P/E of 13. I focused on Chase Manhattan because of its narrower range. I usually do not position puts under a stock with such a conservative P/E, but Chase appeared to suffer from substantial lethargy in terms of upward motion, more so than Citicorp.

On January 14, 1993-2014, Chase's February 100 put options were priced at bid 2-5/8; ask 3. The March 100s were bid 3-5/8; ask 4. The bid gap and ask gap were the same, a single point. I entered an order to buy 10 Marches and sell 10 Februarys with one-point debit. Same order to "open a position" the next day. Two "Nothing dones." The problem? Low volume in terms of the number of options traded. On January 14, only 34 CMB February 100 puts traded, all early in the day. 80 March 100s traded early in the day and two more later. Contrast this to the hundreds or thousands of puts and calls traded daily on many other stocks. For an option trader, low volume means the deer are spread too far apart in the forest.

IBM had and still has at the time of this writing a fairly conservative P/E of 18. Yet after hitting an all-time high of 113-½ it returned to the same pond it had been swimming in, between approximately 96 and approximately 108. On January 6 and 7, the shares hovered around 106 and 104, dipping a bit, climbing a bit. Appearing lethargic on the upside, it seemed a good candidate for a put spread. IBM's February 100 puts and April 100 puts were 1-½ in the bid gap and 1-1/2 in the ask gap. Stingily I entered a buy 10 Aprils/sell 10 Februarys order with a 1-½ point debit. Nothing done.

Subsequently, though gaps remained approximately the same, I raised the debit to 1-5/8 while entering an otherwise duplicate order to open a spread position. For a tightwad trader, an eighth of a point is a hefty boost of the ante and a quarter point raise is unthinkable. Finally the sweet words cometh: "You bought 10 April 100s at 5-3/8 and you sold 10 February 100s at 3-¾." I was in the game for a debit or "spread" between those two batches at 1-5/8 points, or $1,625 of my own capital plus commissions.

In the trading days that followed, IBM stock twice dipped "into the money" (99 & a fraction) but pulled "out of the money" before the close of trading. Since "in the money" options are "assigned overnight," there is no danger of an exercise during the trading day. Then the shares climbed to 108-3/8 in anticipation of the quarterly earnings report. The earnings were approximately on target, a couple of cents below some estimates, a penny above others. The next day (January 21) the stock fell to 100 and a fraction. Many stockholders believe that even if the earnings report is all right, it is the zenith and time to bail out.

The next day, the shares again dipped fractionally "into the money." During the final hour of trading, I saw that my options were going to close slightly in the money, but I chose to stand pat rather than pull out. My "short end" February puts or "obligation" options on the short end of the spread were bid 3-¾; ask 3-7/8. The "long end" April puts or "mine alone" options on the long end of the spread, were bid 5-7/8; ask 6. The chasm with my money in it had widened somewhat.

The value of the short-end options are a stopgap protection against exercise, which could wipe out the long end. If specific put options are one point into the money and trade on the market for 3-½ points, a put-holder could gain $1,000 by exercising 10 of them, i.e., selling stock shares for $1,000 more than their market value. In doing so, however, he would turn $3,500 worth of options he owns into spent cartridges completely worthless. The put-holder would do 250% better by selling those options.

As I have written previously, it is a protection I use for only one night because of another danger that the trend-follower in me guards against. If the shares continue in that direction and push the options deeper into the money, that tends to squeeze or reduce the size of the spread, a minus for the spread strategist.

Options that are deep in the money vary only slightly in price from one month (one expiration date) to the next, and that is precisely where the spreader wants mucho difference.

Less than an hour before the close of the next trading day, IBM shares inched up to 99-7/8. Wonderful! I anticipated them closing at or above the 100 mark -- out of the money. Then during the last half hour I phoned the broker repeatedly for quotes. 99-1/8!  99-1/16! No. Bail-out time. My Februarys were bid 3-½ ; ask 3-5/8; last traded at 3-5/8. My Aprils were bid 5-5/8; ask 5-7/8; last traded at 5-5/8. The best thing would be my offering to buy back the Februarys at a fraction under their high figure and offering to sell the Aprils at a fraction over their low figure. But there was not time.

With minutes to go in the trading day, I told the broker, "Buy back the Februarys at the market. Sell the Aprils at the market. Both to close the position." Although I hoped for the best, the worst happened, although the worst was still on the plus side. I bought back the Februarys at their worst or higher figure, the 3-5/8 ask, and sold the Aprils at their worst or lower figure, the 5-5/8 bid. An even two-point "spread" at exiting. A profit after commissions of $167. A 9.6% gain on $l,740 (with commissions). Although I had hoped for better, a 9.6% profit in two and a half weeks annualizes to over 190%.

During the next two trading days, IBM continued downward to 95-5/8, squeezing the spread between the Februarys and the Aprils to l-3/8. While I certainly did not "break the bank," nevertheless I could enjoy pocketing some winnings and tipping the croupier a chip. This carafe or this half-decanter is some nice contrast to Warren Buffett and the buffeting of Berkshire Hathaway or the "Soros Funds Take A Bath" financial page headline or Victor Niederhoffer galloping like a financial Custer-knows-he-can't-lose.

One knows that one is doing something right when counting profit dollars while Elaine Garzarelli weeps on her manicotti (or growls over her beef Stroganoff, lest I be accused of sexual or ethnic stereotyping) about the liquidation of her slow-at-the-starting-gate mutual fund. After the "Red Baron" Manfred Von Richthofen shot down an enemy plane, he would have a Berlin jeweler make a two-inch-tall silver trophy-type cup as a shelf commemorative. Etched on the silver were the number in the Baron's sequence of victories and an abbreviation of the plane type that lost. For example, "36 B2" meant "36th kill, Bristol two-seater," a British craft. I do something a bit similar after taking a profit.

Following a win, I buy some permanent item for the drawer or the shelf. Recently I went to the Strand second-hand book store near Manhattan's South Street Seaport and bought the hardcover Book of Crowns and Cottages (dated 1925) by Robert P. Tristram Coffin who, like Logan Pearsall Smith, was an American who went to England, studied at Oxford, and became a noted essayist. Afterward I happened to stroll through the busy ground floor mall of the World Trade Center, New York City's tallest pair of buildings.

The Schwab discount brokers have an office near heavy pedestrian traffic there. Above the display windows, a horizontal-band electric sign showed current stock quotes in lighted letters and numbers moving from left to right. More than a dozen men had gathered to watch. A voice inside told me to keep walking and reminded me of the bagged book I was carrying. Always I have been adamantly against letting speculations or investments be a gambling-style addiction. That scene bore an uncomfortable resemblance to excited horse-players gathered around a radio. "Around the turn, Bluegrass Hank is gaining on Royal Sword!"

I sat at one of the metal tables on the Trade Center's giant outdoor veranda on the sunny but chilly afternoon. The cold lured me to the spring-ish writings in the Tristram Coffin book, particularly, "Saints & Creams & Devon Things." Coastal Devon or Devonshire constitutes the southwest corner of England, bordered on the south by the English Channel and on the north by the Bristol Channel. The population includes Anglo Saxons, Celts and some Danish ancestry from Viking days.

The resulting folklore includes English heroes, Irish Catholic saints and ghosts of Norsemen. Robert Tristram Coffin found just as noteworthy a certain delicacy from the region's cottage kitchens: "I shall never be able to describe Devon cream . . . I know now that it is all the work of the Devon saints and the Devon fairies. The cream will not rise into that thick foam of sheer delight in an alien place. Perhaps the virtue lies partly in the homemade crockery of Devon clay.

"But more certainly it is the witching marriage of the sweet savors of the sea with the matchless tang of thyme and odor of Devon orchards and meadows that makes the food of the angels going by the name of clotted cream. And to such things as these the fairies attend. Whoever has not heard of the Devon saints, or at least felt his religion to be something like apple blossoms or first humble bluets of a young year, full of the grace of simplicity--he has yet to find a real religion. The man who has never eaten his June strawberries with clotted cream has never known the taste of strawberries at all, has never found how closely Eden borders on our earth."

A delightful hillside of red and yellow marigolds for a winter's day! Elsewhere in the volume he wrote of a "spot in England where May comes with miles of bluebells until they look like smoke under the trees" and of the "angel down that is the English morning clouds over the elms.

"Mr. Donio?" I looked up from the pages. I recognized the 30-something woman as one of the assistants at the discount brokerage house that had my retirement account. She heeded my gesture to be seated. "I saw your name on our records," she said, "and the same day I happened to see your name in a Film Flubs book."

It was Film Flubs -- The Sequel by Bill Givens. Givens had printed my name in the book along with an "anonymous authorship" verse I had sent him, an old four-liner that joked about the lack of historical accuracy in Cecil B. DeMille movies: "Cecil B. DeMille/Much against his will/Was persuaded to keep Moses/Out of the Wars of the Roses."

She asked, "Why would a stocks & options man be interested in film flubs?"

"For one thing, I'm a staunch believer that traders should have other areas of interest. Too many of them pace the floor nervous horse-players. It's better to be like the diamond dealer who's also interested in chess or antique bronze." I fingered the hardcover. "Or my reading British essayists."

"Also, a trader needs power of observation and sense of detail, and screen foul-ups are one way to test this. The fellow who watches Paul Revere's ride on screen and doesn't spot the telephone poles in the distance probably won't spot the flaws in a speculative strategy. Somebody in a Wild West movie boards a train to go back east, and the train chugs off into the sunset. The trader who overlooks that could overlook a sly trend in one of the markets."

She responded by talking about an item from the Givens book--The Babe Ruth Story starring William Bendix, set mostly in the 1920s but filmed in the late 1940s. In 1927 the Babe hits his landmark 60th home run, and runs the bases in Yankee Stadium past billboards for Calvert's Whiskey and Ballantine Beer. In 1927 the Prohibition police would not have liked that.

"I remember that movie," I replied. "The film makers were so busy trying to mechanically jerk tears with the boy in the wheelchair and the boy in the hospital bed that they overlooked things like the famous southpaw autographing baseballs after a game with his right hand, just after swatting lefty on the field yet! Didn't Bendix or the director have some tiny memory of the batter's box? A trader has to think more deeply than that and catch more details."

As armchair philosopher in an outdoor metal chair I continued, "I really hate to use that overused phrase 'contrary to popular belief' but a lot of what 'everybody knows' just isn't so, whether they get it from the movies or elsewhere, and a speculator should be one whose knowledge goes deeper than most, even for practice in other areas. There's no evidence that Christians were ever persecuted in the Roman Colosseum. There's no evidence that pirates ever made anybody "walk the plank." Vikings never wore horned helmets except in Wagnerian opera and on screen."

I added that the "quick draw" face-offs between cowboys were strictly a movie and TV invention. Firearms' experts say that if that were ever tried in real life, whoever started to draw first would have such an advantage that it would be no contest. And the Trojan War fallacies!

"There is evidence that the Trojan War really happened," she interjected.

"Yes, but it was Bronze Age, with tools that couldn't cut hard stone or marble. Brick buildings with wood columns. The carved stone temples with the grooved marble columns in the Technicolor movies -- that was Periclean Greece, Iron Age, five centuries later. Five centuries. Hector and Achilles with that background were like Columbus at a shopping mall. Then there's goddess Aphrodite with the vaccination marks."

She smiled. "Well, the set designer was ahead of his time. And the actress set a good example for kids getting their shots. That's one way of serving the community."

Serving the community. The woman and I both happened to be letter-writers to the congressman, senator, governor, editor, and were voters and once-each prospective jurors. I also wrote to a state legislator and a couple of city elected officials.

Home again. During the next three trading days and the early part of the fourth, IBM shares moved within the high 90s. I saw no reason to emend my calculations that the stock swam between the high 90s and mid 100s. I figured that a call option spread at the 105 level would be a good position if the shares showed a sign of pointing upward. Having 96-ed and 97-ed for a couple of trading days, early on that fourth day IBM rose two points to 99 and a fraction. The March 105 calls were bid 2-3/16; ask 2-5/16. The April 105 calls were bid 3-3/8; ask 3-½. The bid gap and ask gap were both a sliver under 1-¼, so that seemed a good debit with which to enter a spread position.

A pointed warning is in order here. "Keeping pets" or "having favorites" can be dangerous for investors and speculators. To think that such-and-such a stock "has" to do what I expect or "can't possibly" go the wrong way or "can't possibly" pull surprises -- beliefs like that create shortcuts to the financial graveyard. I do not claim that IBM is "perfect" or "infallible" or a "sure win" roulette number game after game. I only claim that step by step it has produced -- so far. Currently I decided that it fit my requirements after I looked at other fleshy or meat-on-the-bone options.

After giving the broker a buy 10/sell 10 order with a 1-¼ point debit, I bought 10 IBM call options April 105 at 3-3/8 points ($3,375) and sold 10 IBM calls March 105 at 2-1/8 points ($2,125) paying 1-¼ points ($1,250) plus commissions out of my own capital. What rules-hammered-out-by-experience was I following? The short-end options (the sell side of the spread) must be worth more than half of the long-end (buy side) ones, and preferably something like two-thirds. The March's 2-1/8 point value is almost two-thirds of the April's 3-3/8. Also, the value of the short-end options should be at least two solid points and preferably more. Less than that is too thin a slab of beef. Hence the March at 2-1/8.

For the spread strategist, shrinkage (time-decay) potential on the short end means profit potential. So it needs some kind of bulk to start, like a couple of points minimum.

A few days after opening the March/April spread position, I glanced at some Xerox pages I had of excerpts from the book Italy--Rome and Naples--dated 1869--by French art critic and historian H.A. Taine. Scribbled on the title page was a tiny notation I had made a couple of months earlier, "Views and Films Index. 1906. Art Museums." I reread what Taine had written about the art work in the Monte Casino Chapel south of Rome, work by a leader of the Neapolitan art tradition.

"Paintings adorn the cupola ceiling, extend through the nave, overflow into the chapel, take possession of every corner, and display themselves in enormous compositions over the portals and arches. Colour is as flattering to the eye as a ball-dress. A charming 'Truth' by Luca Giordano, has scarcely any drapery but her blonde hair, and another figure, 'Benevolence' is, they say, a portrait of his wife.

"The other Virtues, so graceful, are the gay amorous ladies of an age buried in ignorance and resigned to despotism, one no longer concerned with aught but sonnets and gallantry. The painter rumples and tosses about his silks and stuffs, hangs pearls in dainty ears, puts glittering gold necklaces on fresh satiny shoulders, and so pursues the brilliant and agreeable that his fresco at the entrance, 'The Consecration of the Church' resembles a sumptuous and tumultuous scene at the opera."

My ballpoint "Films Index" notation referred to a passage in Frank Walsh's book Sin and Censorship. The dawn of mass-audience silent movies was also the dawn of film censorship and relevant controversies. Walsh cited both sides, starting with the 1906 editor of the very first movie magazine Views and Films Index:

". . . To those who claimed that the movies were undermining the country's morals, he pointed out that, when compared to the fully clothed actresses on the screen, the undraped statues in public museums were far more likely to 'arouse prurient thoughts.' But the nickelodeon's enemies knew that no one had ever gone wrong in a museum. Reformers had always viewed the city as a difficult place in which to raise children; these fears were now exacerbated by the sight of boys and girls lining up to enter the dimly lit theaters.

" . . . According to the Illinois Supreme Court, the city's right to ensure decency and morals were especially clear in the area of movies because the low admission price attracted children and the lower classes."

The lower classes? Interestingly, those shabbily-dressed immigrants had, while in the Old Country, seen Giordano's cathedral nudes and Verdi's operas about regicides and soiled virtue, all without it ripping their morals apart. In the past I have criticized Middle American "born agains" of the Rush Limbaugh/Pat Robertson stripe. Yet their bucket of blame is not the whole five gallons.

When I was a boy in Catholic school during the 1950s, those nuns said the words "nude" and "naked" with even more disgust than they said "sin" and "evil." You can imagine how well they knew the works of the Venetian colorists! If Illinois high court judges of Methodist and Baptist persuasions did not swarm through the art museum or the opera house, then neither did the Dominican blackfriars or the Franciscan nuns or the Knights of Columbus. So what happens when people who think like censors attempt to think like artists?

What occurs when the fellow who puts the fig leaf on Apollo tries to sculpt? The film-art equivalent of this actually happened. After World War One, anti-Catholic bigotry became an increasing problem, with the rapid growths of the Ku Klux Klan and Protestant revivalism adding to already-existing anti-immigrant prejudice. Catholic groups and individuals thus far intent on censoring films tried making them, aiming for a "better image" for American Catholics with the help of the big screen. Among the organizations was the National Catholic Welfare Conference, which had a Motion Picture Committee (a de facto "ban the filth" arm) bossed by Charles McMahon. Frank Walsh wrote:

"McMahon himself talked grandly of enlisting the best Catholic writers in the country to tell the real story of the Church in America: stories of the Catholic founding of California, the Jesuit missionaries in the Mississippi Valley, and the Catholic soldiers of the American Revolution. Yet the few movies the Church did turn out, including a four-reeler documenting the work of the New York Archdiocese's charities, had little appeal beyond parish recreation halls.

"The National Catholic Welfare Conference's own effort was a five-reel film in 1919 entitled American Catholics in War and Reconstruction, which it hoped would silence anti-Catholic bigotry forever by documenting the church's role on the battlefield, the home front, and the revitalization of Europe. Unfortunately, a preview at the annual bishops' meeting in Washington indicated that the film itself was in desperate need of revitalization."

Of course, those decent, devout film makers would never corrupt their eyes by going to an art museum, never look at the huntress Diana covered by only a bow-string or the martyred Saint Sebastian, his naked body riddled with arrows, or a bacchanal mural by Rubens or Titian. This left them with only the faultiest sense of the visually vivid, and a notion of tradition very dog-act vaudeville rather than Veronese. The intention was to push the DeMille orgies off the screen and replace them with Catholics doing good works. The results were films with all the artistry and verve of the City Sanitation Code.

Famed director Vincente Minnelli had wanted to be a painter and it showed. So many of his sumptuously-composed movie scenes look like they belong in picture frames. How he must have beheld the art works and trained his eye, developed his power of observation and sense of detail. He would have made a good trader. In your thinking and your touchstones, please be a Vincente Minnelli and not a Charles McMahon. In serving your community, be an enemy to bigotry, of course, but be not a friend to paint-by-numbers thinking in fine arts or finance or any other area of earthly existence.

Option Strategy Update: IBM shares are still in the high 90s. March 105 call options have slipped from 2-1/8 to 1-¾. April 105s have slipped from 3-3/8 to 3. Negative news for non-spreading long players in both of these. But for the spreader? Notice that the gap between these figures is still 1-¾ points. No profit yet, but a fine layer of armor. (Written February 6th)

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