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Mr. Kelly has been a stockbroker for approximately 45 years.
During the years at issue, he was employed full time by Shearson
Lehman as office manager of its branch in Bay Shore, New York.
Beginning in 1983, he also devoted considerable time to stock
option trading for his own account. These trading activities and
the market research that informed them would occupy at least 50
percent of a typical workday during this period. The annual
volume of his option trades appears to have fluctuated between
about 450 and 900 during the years at issue. Mr. Kelly was not a
floor trader; he purchased options through a Shearson Lehman
broker who had a direct wire to the floor of the exchanges. The
amount of time he held the options varied from a few hours to a
few weeks. The parties have stipulated that he did not hold any
property as inventory or primarily for sale to customers in the
ordinary course of his trade or business, did not sell to
customers of his own, and performed no merchandising function
with respect to his options transactions.
Mr. Kelly paid commission fees to Shearson Lehman in
connection with the purchases and sales of options for his own
account. As an employee, he received a 30-percent discount
relative to the amount of commissions that a member of the public
would pay. He also earned and received commissions as an
employee in connection with his option trades. The commission
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