The Arizona sentinel., 1886-11-13
EXCHANGE LINGO.
The Meaning of Puts, Calls, Spreads,
 StraddIes and Similar Terms.

l StraddIes and Similar Terms.
 "What are puts calls spreads and .straddles'P" asked areporter.
 Well" said John E. McCann, the confidential clerk of Russell Sage, of whom the question was asked. '.rll tell you if you will promise never to mem ton the poetical subject again. It re- quires pretty delft wording to make the thing clear, so it is ret an exhlarating subject 10 talk on. You hear good deal about puts and calls but I venture to say that there are 5O.OOO,OO0 people in the United States who do not know what they mean, nor what the needing is of the privileges Now, a privilege is contract by which the maker of it, Russell Sage, S. V. White, Jay Golld or Harvey Kennedy; en- gages to purchase from the holder in the one case. or to sell to the holder in the other case, number of shares of some specified stock at certain price, at any time within the option of the holder Got that?
 "A 'call' is privilege bought of the maker, at q certain price, and the owner of 1t is privileged to call for certain amount of stock at given price, within thirty, sixty or ninety days, four or six months. If a man holds put he has the right to deliver to the maker of the privilege stock at a certain agreed price within certain number of days. Clear? No? Well, let's try once more.
 Suppose Western Union is selling at 70. A man wants a sixty-day put on it at 66, because he believes the stock is going down. He gives Mir Sage. Mir. White, MT. Kennedy or Mir. Gould per cent on the amount of stock he wants to deal in A hundred shares is usual, and per cent. is Sl00 He receives in return slip of paper signed by either one or the other of these gentlemen. Then if Western Union goes below 66 within sixty days he may buy it for whatever it is selling for below that price, and put it to the maker of the privilege at the price agreed on-66- and receives a check for S6, 600. The holder makes the difference. An, YOU understand? If Telegraph does not go below 66 the holder is out his S100. The call business operates exactly in the opposite way. A man buys the priv ilege of calling Western Union at 75 when it is selling at 70. If it sells above 75 YOU can call on the maker of the privilege for a hundred shares at D, and the hundred shares are thus bought by the holder for S7, 300. and he turns around and sells it at 80 if the stock is selling there, and pockets the difference.
 "What about spreads and strad- dles?'"
 "A 'straddle' is put and 'calP combined. The holder of one may put stock to the maker of the privilege or 'calr for it. 'Straddles' come high, be- cause there is money in them whichever way the market may go. if the market does not 90 at all, but stands still, why the maker is in the money he has been paid for the privilege, usually about 3 per cent. or $500. A spread is also a put and 'calr combined, but there is this difference; 'straddle' is made at r the market. That is to say, the maker of the privilege takes the risk that the stock in question does not move to any extent from the price at which it is sell ing when the privilege is sold. In a spread the maker has more leeway. If Western Union is selling at 70, to go back to the old illustration, the maker of the privilege sells a spread, say at .67 and SO If it goes below 67 the holder can put the stock and make the difference, if it goes above 80 the holder can call at that price and reap the sprofits. But so long as the price of the stock keeps within those points the maker of the privilege is safe. To put it in an- other way, the holder of 'straddle' will make if the market for the stock he is dealing in moves at all. The holder of spread doesn't make any thing until the market moves past certain limits. There is one thIng more; the maker of a privilege only receives the money for which he sells the privilege, while the holder may make thousandS-Or noth- ing.
 "The mention of puts and calls re- calls perforce the exciting times two years ago last spring, when the market went down with rush and the holders of puts issued by Mir. Sage invested his office like an army. After the above explanation it will be seen that their privilege of putting stock to Mir. Sage was exceedingly valuable. Their privileges were so many contracts whereby Mir. Sage agreed to take these stocks at aprice which was considerably above the market price. During five days Mir. Sage paid out what few men in New York were probably able to pay out-about S4.OOo,0O in solid cash. He kept on deposit then, and he does now, Sj,O00, 000'in available money at the Importers and Traders Bank. Since that excitement the probability is that Mir Sage has drawn out of this very business on puts and ]. calls more money than he then paid out. A great deal of'the stock certificates which were then put to hfm:= he held and realized when the market advanced. "-M r.