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years are overwhelmingly trades that yield losses, not income.
Moreover, the trading pattern shows consistent retention of
unrealized gains to be carried into the next taxable year or years.
Petitioners claim that their trades were motivated by profit
potential; any tax losses were incurred to take advantage of yearend
opportunities. We do not accept this characterization. Petitioners
have presented voluminous expert testimony, computerized charts, and
printouts of past trading in support of their claims that the Merit
trading was profit motivated. The pervasive flaw in these
presentations is that they are taken out of the context of the total
Merit trading. For example, petitioners state that Mr. "Keeler's
account increased in value during January 1982, September, 1982,
February 1983, April, 1983, June, 1983, August, 1983, September,
1983, and October, 1983." The context of Mr. Keeler's trades in
those years shows, however, that the account decreased in value
during the other unlisted 16 months of that 2-year period. The gain
in January 1982 represented the reaping of rollover gains from the
prior year's trades, but these gains were approximately $80,000 less
than the prior month's (and previous taxable year's) losses. The
gains from the other 7 listed months do not reflect any trading
activity; they show only modest market fluctuations that resulted
from application of Mr. Auerbach's algorithms used to create prices
for the Merit markets.
Petitioners next contend that "Of his [i.e., Mr. Keeler's]
combination spreads, from opening to closing, more than 25 percent
were profitable." We are more impressed with the converse; that is,
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