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+272 Technical Analysis of Stock Trends
+it is the general public that buys (rather than sells) options should suggest some syllogistic 
+reasoning to the reader.
+With these facts firmly fixed in mind, let us put options in their proper perspective 
+for the general investor. Options have a number of useful functions, such as offering the 
+trader powerful leverage. With an option, he can control much more stock than by the direct 
+purchase of stock—his capital stretches much further. So options are an ideal speculative 
+instrument (Exaggerated leverage is almost always a characteristic of speculative 
+instruments.), but they can also be used in a most conservative way—as an insurance 
+policy. For example, a position on the long security side may be hedged by the purchase of 
+a put on the option side. (This is not a specific recommendation to do this. Every specific 
+situation should be evaluated by the prudent investor with professional assistance as to its 
+monetary consequences.)
+The experienced investor may also use options to increase yield on his portfolio of 
+securities. He may write covered calls or naked puts on a stock to acquire it at a lower cost 
+(e.g., he sells out of the money put options. This is a way of being long the stock; if the stock 
+comes back to the exercise price, he acquires the stock. If not, he pockets the premium.)
+There are numerous tactics of this sort that may be played with options. Played because, 
+for the general investor, the options game can be disastrous, as professionals are not 
+playing. They are seriously practicing skills the amateur can never hope to master. Many 
+floor traders, indeed, would qualify as idiot savants—they can compute the “fair value” 
+of options in their heads and make money on price anomalies of 1/16, or, as they call 
+it, a “teenie.” For perspective, the reader may contemplate a conversation the editor had 
+with one of the most important options traders in the world who remarked casually that 
+his fortune was built on teenies. The reader may imagine at some length what would be 
+necessary for the general investor to make a profit on anomalies of 1/16. (EN10: The advent 
+of digital pricing has given market makers and specialists even more flexibility to beat the investor 
+by shaving spreads, theoretically, to $0.01.)
+This does not mean the general investor should never touch options; it just means he 
+should be thoroughly prepared before he goes down to play that game. In options trading, 
+traders speak of bull spreads, bear spreads, and alligator spreads. The alligator spread is 
+an options strategy that eats the customer’s capital in toto.
+Among these strategies is covered call writing. This strategy is touted as being an 
+income producer on a stock portfolio. There is no purpose in writing a call on a stock in 
+which the investor is long—unless that stock is stuck in a clear congestion phase that is not 
+due to expire before the option expires. Besides, if the stock is in a downtrend, it should 
+be liquidated, but to write a call on a stock in a clear uptrend is to make oneself beloved of 
+the broker, whose good humor improves markedly with account activity and commission 
+income. The outcome of a covered call on an ascending stock is that the writer (you, dear 
+reader) has the stock called at the exercise price, losing his position and future appreciation, 
+not to mention costs. The income is actually small consolation, a sort of booby prize—a 
+way of cutting your profits while increasing your costs. Nevertheless, covered writes are 
+justified and profitable in some cases.
+Quantitative analysis
+The investor should be aware of another area of computer and investment technology 
+that has yielded much more dramatic and profitable results, but that is in a model-driven 
+market—namely, the options markets. Quantitative analysts, those who investigate and 
+trade the options markets, are a breed apart from technical analysts. In an interesting