Morris tribune., 1886-12-29
MADE CLEAR AS DAY.
The Pnts, Calls, Spreads and Straddles OF 'Change
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The Pnts Calls, Spreads and StraddIes of f'Change
Described.
What are puts calls, Spreads
and 'straddles?' asked a New York
Mail and Express reporter.
"Well," said John E. Mccain, the
confidential clerk of Russell Sage, Of
whom the question was asked, "IL
tell you if you will promise never to
mention the poetical subject again. 1t
requires pretty deft wording to make
the thing clear, so it is not an exhilar'
ating subject to talk on. You hear
good deal about puts and calls but
I venture to say there are fifty million
people in the United States who dc
not know what they are, nor what
the meaning is of the word privileges
Now, privilege is contr act by which
the maker of it, Russell Sage, S. V
White, Jay Gould, or Harvey Ken
nedy, engage to purchase from the
holder in the one case, or to sell to the
holder in the other case, a number Of
shares of some specified stock at d
certain price, at any time within Ger
tain period, at the option OF the hold
er. Got that?' i
"a CALI is a previlege bought OF the
maker at a certain price, and the
owner of it is prevlleged to call for q
certain amount of stock at a given
price within thirty. sixty or ninety
davs, four or SIX months. If man
holds a put he has the right to de-
liver to the maker of the previlege a
stock at certain agreed price within
acertain number OF days. Clear? No?
Well, let's try once more.
"Suppose Western Union is selling
at 20. A man wants a sixty-day
| put on it at 66, because he believes
| the stock AS going down. He gives
Mr.. Sage, Mr.. White, Mr.. Kennedy, or
Mr. Gould one per cent. on the amount
of stock he wants to deal In. A hun
| dred shares is usual, and one per cent.
is $1OO He receives in return a slip
of paper signed by either one or the
other of these gentlemen. Then ii
Western Union goes below &C
within sixty days he may buy 1t
| for whatever it is selling tor below
that price, and put it to the maker
of the privilege at the price agreed on
-66-and receive check for $4,000.
| The holder makes the difference. All,
YOU understand? If telegraph does
not 90 below Sc the holder is out his
S1OO. The call" business operates
exactly in the opposits way. A man
buvs the privilege Of calling Western
Union at IS when it is selling at 70.
If it sells above rs you can call on the
maker of the privilege for hundred
shares at rs, and the hundred shares
are thus bought by the holder for ST.
| 500, and he turns around and sells 1t
at so if the stock is selling there, and
pockets the difference"
"a 'straddle' is a put and call
| combined. The holder of one may put
stock to the maker of the privilege
or cali for it. 'Straddles' come high,
because there is money in them,
whichever way the market
may. 20. If the market does
not go at all, but stands
still, why, the maker is in the money
he has been paid for the privilege, usu,
ally about per cent. or $500. \
Spread is also a put and a call
combined, but there is this difference;
q 'straddle' is made at the market{
That is to say, the maker OF the priv
ilege takes the risk that the stock In
question does not move to any extent
from the price at which it is selling
when the privilege is sold. In a
Spread the maker has more leeway:
If'Western Union is selling at 70, to
90 back to the old illustration, the
maker of the privilege sells a spread,
say at 81 and 80. If it goes below
81 the holder can put the stock
and make the difference, and If 1t
goes above 80 the holder can call at
that price and reap the profits.
But so long as the price OF the stock
keeps within those points the maker
OF the privilege is safe. To put 1t in
another way, the holder of 'strad-
die will make if the market for the
stock he is dealing IN moves at all.
The holder OF spread doesn't make
anything until the market moves past
certain limits. There is one thing
more. The maker of a privilege only
receives the money Tor which he sells
the privilege, while the holder may
make thousands-or nothing.
The mention of puts and calls re-
calls perforce the exciting times two
years ago last spring, when the market
went down with a rush, and the hold
ers of puts issued by Mr.. Sageinvested
his office like an army. After the above
explanation it will be seen that their
privilege of putting stock to Mr.. Sage
was exceedingly valuable. Their privi-
leges were so many contracts whereby
Mr.. Sage agreed to take these stocks at
a price which was considerably above
the market price. During five days
Mr.. Sage paid out what few men in
New York were probably able to pay
out-about $4, 100000 in solid cash.
He kept on deposit then, and he does
now, $5,OOO,OOO in available money
at the Importers and Traders Bank.
Since that excitement the probability
is that Mr.. 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 him he held
and realized when the market ad'
vanced."