OptionMusingS ?
OK ... it is a bit corny! I've struggled to come up with a title which would express my desire to cover several areas of interest to me and, I hope, to you.
I've had an interest in markets since I was in grade school. I've been fascinated by computers and programming since my freshman year in college. Nearly all of my work experience has dealt with one or both of these two areas -- including over eighteen years of trading options on both stock and futures and using a personal computer to help evaluate my positions and analyze strategies.
In the last several years I have found myself wanting to spend more time using the computer to develop teaching tools for trading strategies and techniques and less with the actual trading.
What you are looking at is part of my answer.
This "newsletter" is premiering with an initial run of about 200 copies. Chances are you are a relative, friend from college, or somebody I know from trading. I hope you enjoy reading this -- indulging my pontifications on markets, computers and whatever else might strike me as a "logical" fit.
I plan to publish -- somewhat haphazardly -- four times a year. If I get some great ideas or feedback from you, the frequency could increase.
I have some biases which will probably influence what I say. I tend to be Libertarian in my political views. I believe in markets. I am pro-Apple and Macintosh in the personal computer "wars" -- although I will admit Windows is improving, to me it is still annoying and difficult when compared with the Mac.
Best of all, this letter is FREE!!
I was told to say that somewhere in this letter to get your attention and make sure you read me ... besides, it's true. I'm going to send this letter to you free if you are one of my "charter" subscribers.
If you stay with me, you will see somebody learning about communication. I want to play with expressing my ideas, and you will see some of the results. I am going to learn about "desk-top publishing" (a.k.a. "DTP"), fonts of all kinds, and printers. I expect the form of this newsletter to be protean with respect to how it is displayed -- that is, I'm going to use different type faces (and sizes) and try some different layouts, and perhaps in the next year try to use some color.
You will also learn about a software product I am developing. It is an instructional package for Macintosh users (if all goes well, there will be a similar version for Windows, too). I hope to take advantage of some design features of the Mac and create a software program which will be part book, part interactive program, and part user-modifiable database. My goal is to teach people about futures and options and how they can be used to manage risk -- while occasionally mindful of the fact that "risk management" might be an oxymoron. My tentative name for the product is HyperHedge, and I'm hoping to have it available early next year. You will receive a mailing about it with introductory pricing.
The knowledgeable use of options and futures in business and personal investments will become increasingly important as we see more and more rapid change in technology, governments, and world markets.
I have decided to call my software development Options Management Strategies -- or O.M.S. Hence, the name of the newsletter.
My current computer of choice is the Macintosh LC III. Several years ago it was a Mac LC. I have upgraded the motherboard, so it is now an LC III with a Motorola 68030 CPU running at 25 MHz (megahertz, or million cycles per second). It has 8 MB (megabytes) of RAM, a 14 inch color monitor, a 40 MB internal hard drive, a 170 MB LaCie external hard drive, a PowerUser CD-ROM, and a SupraFAX modem with send/receive fax capabilities; I print with an Apple StyleWriter II. A similar system can be purchased for about $2500 (exclusive of taxes). Apple has four new machines which are nearly identical -- they have been referred to as the "LC IV" series -- and based on the 68040 chip. They are the LC 475, the Quadra 605, and the Performa 475/476. In their basic forms these will be priced at $1300 to $1600 depending on the model and software included. Adding more RAM, a fax/modem, the CD-ROM,, external drive and printer will get you a significantly better system than my LC III for under $2500. The Performas are sold in department and electronic specialty stores (e.g., Sears, Circuit City, Office Depot) bundled with software (I recommend packages with ClarisWorks or GreatWorks, but not Microsoft Works or WordPerfect Works).
A PC comparable to the Performas needs a 33 megahertz 486 CPU with at least 12MB of RAM and 300MB of hard disk storage; this PC will cost about $2400. The price difference is not significant when considering the time taken to learn to operate a Mac and the ease with which future additions (either hardware or software) can be made to the Mac -- if you ever watch a computer expert "set up" a Mac and an IBM PC or clone, you will understand the import of this statement.
My mind boggles at this. I first programmed a computer in a math course called "Numerical Analysis" in 1965. I used a language called FORTRAN on an IBM 7040/7094 which I believe had 64 KB (kilobytes) of memory. This computer sat in an air-conditioned room that was probably twenty feet by thirty feet in the Engineering Quadrangle at Princeton University.
By 1980 I had an Apple II with 64 KB of memory sitting on my desk, and I was teaching myself a language called Pascal (after the French mathematician Blaise Pascal). I recall spending about $2500 for that machine.
Several years ago Apple introduced a low-cost color computer in its Macintosh line -- the LC. With a 14 inch color monitor, 4 MB of RAM, and running on a Motorola 68020 CPU I again spent about $2500. This has become the LC 475 with a Motorola 68040 CPU -- a base configuration can be purchased (with monitor) for around $1300.
Let me digress and explain some of the terms and acronyms I've used -- computers are big on these.
Memory generally refers to chips inside the computer which "hold" the program(s) being run and data being operated on. Sometimes, however, the word means the storage device used to save the program and the data files or the amount of information such a device can contain.
The smallest piece of information is called a "bit" -- from "Binary digIT" -- this refers to the binary nature of this information (i.e., it can take one of two values: on/off, 0 or 1, True/False). Generally, eight bits grouped together make up a byte. A byte can represent up to 256 characters, although some are "non-printing".
Because computers use binary arithmetic almost all numbers associated with computers are powers of 2. Therefore, one often sees references to 8-bit, 16-, 32-, and 64-bit -- the 3rd, 4th, 5th, and 6th powers of 2; as the powers of two increase to sixteen we get 65,536 -- usually represented as 64K. This means 64KB is 65,536 bytes of data (or 64 times 1024 -- 2 to the tenth), and 1 MB is 1,048,576 bytes (or 2 to the 20th). To make matters slightly confusing "K" also has come to stand for 1000 (from "Kilo") and "M" has come to stand for 1,000,000 (from "Mega").
The chips inside the computer come in two basic forms: CPU and RAM. The CPU is the "central processing unit". This chip does arithmetic, handles operations on data, and generally runs the computer and all the equipment attached to it. RAM is "Random Access Memory", the place where the programs being run and the data being manipulated are stored while the work is going on. This memory is called "random" because the CPU can "access" (or go to) any location (or address) in it at any time. Analogously, stereo LPs are a "random access" device, because any song or excerpt can be immediately gone to (in theory, at least) while a cassette/video tape must be searched sequentially (either forward or backward) from the current location to find the desired information. RAM is also random , because at different times the same program or data may be at different locations in memory -- it is up to the operating system and the CPU to keep track of these locations.
The storage media have gone from being large open reel tapes (sequential storage) and large disks for random access, to 5.25 inch floppy disks (yes, they were and are rather flexible) containing about 140 KB of data, to 3.5 inch "floppies" (which are not really that flexible) capable of holding up to 1.4 megabytes (i.e., about 1,400,000 bytes or 10 times an old floppy) of data, to "hard drives" (of varying sizes and degrees of "hardness") which can hold incredible amounts of data.
CD-ROM is another storage medium. The CD stands for "Compact Disc" and ROM stands for "Read Only Memory". Most of us are familiar with compact discs; they have replaced the long-playing album as the medium for issuing recorded music (and with luck making all our "Sergeant Pepper" album covers increasingly valuable). ROM means the information on a disc can be read into RAM but cannot be written back to a CD. Large amounts of information can be stored on these discs: Compton's Encyclopedia, the CIA fact book, movies (such as "A Hard Day's Night"), and libraries of information (such as fonts for use in sending information from the computer -- like these thoughts of mine -- to a printer). With software these CD-ROMs can play the musical discs, and increasing numbers can also display photographs that are stored to disks with a technology developed by Kodak.
The pace of change is similar in communications devices. A modem (from "modulate-demodulate") allows one computer to "converse" with another over phone lines. Fifteen years ago the transmission speed was generally 300 baud (bits per second). Slowly, this speed increased to 2400 baud, but now 9600 and 14,400 are increasingly common rates and available at prices less than what it cost to get 1200 baud rates in the 1980s. And technologies in hardware and software can effectively increase these rates up to 4 times. Many modems also have faxing capabilities -- send and, even, receive. Letters, worksheets, documents of any kind can be created on one computer and sent to other computers for viewing on a monitor or printout. Apple recently introduced two computers which have the modem and faxing capabilities built-in; one of these, the Quadra 660AV, could be also my choice for home or office.
Eventually these increases in productivity and reductions in price will slow. Laws of physics and engineering problems will see to that. In the meantime, if you have not yet computerized, you should consider it seriously. Investing $2500 to $5000 in basic hardware and software can provide an excellent return on your money. But first you must take the step.
Buy a machine. Most of the current Macintosh line and all new models will be upgradeable to the new PowerPC chip being developed by Apple, Motorola, and IBM; this chip will allow you to run Mac and PC software plus the new PowerPC programs. It should be a worthy competitor to the Intel Pentium (the indications I've heard have this chip being significantly better and 50% cheaper to manufacture).
Get some basic software. Use it. Play with it. Yes, get some games, too. Unless you do something pretty stupid (like trying to give your computer a bath), it is a nearly indestructible machine. It won't bite. Not every thing will make sense at first. The computer does what you tell it to ... according to what the program's designers instructed it to -- this is not always what you think you told it to do (or what the designers think either). You will run into programs that seem fantastic and elegant while others drive you up a wall. The Mac interface (compared to "Windows") is still easier to use. New programs are much easier to "install". You will learn more quickly. If your time is money, any price differentials between a Mac and a PC will quickly disappear.
Learn about word-processing (we called it typing or writing a paper while in grade school, high school, and college in the '50s and '60s). Write some letters to family and friends (I find myself writing more now than I have in a long time, because I can save and edit my thoughts without having to copy them over again and again). If security and privacy at the receiving end are not significant concerns, you can use a fax modem to send a two-page letter from your computer faster and cheaper than any other service.
Practice with a spreadsheet (this could have been math, science, econ, accounting, or something else). Learn how to solve some small problems. Try to do something a little more difficult -- perhaps maintain and balance your checkbook (even if you get a program like Quicken).
Many of these spreadsheets have some database capabilities (after all, much of what goes into a spreadsheet could be considered a database) -- a database is a collection of information, such as a phone book collects phone numbers (and addresses) or a cookbook collects recipes. Set up a name/address/phone book. Keep track of your automotive or transportation costs.
Sign up for an on-line service such as America On-Line or CompuServe. Explore what is offered; basic charges are less than $10 a month for several hours per month during non-business hours.
Join a user group. This is a collection of people who have an interest in your computer or computing in general. They generally meet once a month -- bring your kids -- with speakers from hardware and software manufacturers. They often have special prices on certain products. The members have a broad range of experiences and can give you guidance.
Read some magazines -- MacWorld and MacUser are national in scope, while Mac/Chicago is an excellent locally produced magazine. The December MAC Home Journal has some excellent articles. Look for other sources of information -- magazines, newsletters, on-line services or something new. This leads me to suggest finding a copy of a new magazine called 
. More presently ...
You will get an appreciation for what can be done -- for what makes a good program (at least for you) -- as you are mesmerized by the screen.
Shifting gears ...
The stock and bond markets are at levels never before seen, although long-term bonds are about 5% below their highs. The dollar continues to move sharply against other major currencies. The grain markets have been threatened by drought, flooding, and early cold.
There are many undercurrents in these markets which strike me as contradictory. Money is "easy", the economy is growing slowly and inflation seems to be in check. However, we have had a large tax increase which may or may not reduce the budget deficit; we have health care proposals that no sane person can truly begin to grasp the economic consequences of (I think the costs of a national health care system will be significantly greater than any politician, reporter or economist is forecasting. Their highest estimates will be at least 20% under the actual costs -- the demand for care will go up while the supply will stay the same or drop; health costs will be an even larger part of our economy).
There is still a great deal of cash coming out of CDs and other maturing debt which is looking for some kind of return. Yet mutual fund cash levels are near normal while the number of funds continues to grow. This cash could continue to fuel the rally we've been seeing ... yet many indicators are getting to historically high levels. We have not had even a 10% price correction in several years. I feel very strongly both ways about this.
If is at your newsstand, it will jump out at you. It is a visually exciting magazine. It is different. It is a sharp, provocative look at the future of "hard copy". They cover the information revolution -- much more than anything Clinton and Gore think is our (government's) future. The December issue has fascinating, and somewhat scary, articles on data encryption and our government's effort to set up a system for "tracking all financial transactions in real-time -- ostensibly to catch drug traffickers, terrorists, and financial criminals." They also have a provocative list of the seven wonders of our "neosilicate" age -- beginning with the first microprocessor in 1971. "The notion that all of our input about the physical universe -- from the X-ray signature of a supernova to the visual textures of a Van Gogh -- can be broken down into binary code is one of the most useful, thrilling, and arrogant ideas our species has fashioned." If you already belong to America On-Line, you will find all the text of their previous issues available in the "Magazine Rack".
Now that you've come this far, I hope you take a moment to give me some feedback. Write a note, e-mail me.
Do you want more on options and trading strategies? For volatile markets? For trending markets? For sideways markets? As price insurance?
Thoughts on the Mac? The new PowerPC? The new Newton (my first impressions are favorable)?
How about investment software? Educational software? Customizing general application software (such as Microsoft's Excel) for your business/personal use?
Perhaps communications? Desk-top publishing? Information gathering and databases? Neural networks? From a neophyte's point-of-view?
Contact me:
Greg Cramer
O.M.S.
P.O. Box 154
Winnetka, IL 60093-0154
(773) 334-3470 -- Voice/Fax
FYI: The print version of this edition was produced with Nisus 3.06 using several fonts, including Cantoria, Amasis, Italia, Benguiat Gothic, Souvenir, and Utopia. It was printed with an Apple StyleWriter II.
Date created: December 1993 Last modified: July 31, 1997 Copyright © 1993, 1997, Greg Cramer, O.M.S. Maintained by: Greg Cramer optionsms@earthlink.net