Los Angeles daily herald., 1886-12-02
MADE CLEAR AS DAY.
Wall Streets Ingenious
Speculative Devices.
RUSSELL SAGE THE INVENTOR.

A Confidential Clerk Explains
Them to an Ip1uiring
Novice.
Mr.. Russell Sage was the pioneer who
invented "puts," "calls," "sprcads"
and "straddles." He began dealing in
them when he first came to Wall street
in 1861, after his withdrawal from Con.
gress, and he has been dealing in them
ever since; and the stock markets of the
world have taken up this ingenious
speculative device of Mr.. Sage's, and
stock privileges are just as well known
on the continental bourses to-day and in
the London market as they are here,
and they are largely dealt in. Perhaps
not so largely as here, because the de.
vice is American and an outcome of
American genius, but transcontinental
spectators could not fail to see the ad'
vantage they offered and have perforce
adopted them. London declares that
the nomeh clature, so far as spreads"
and "straddles" are concerned, is not
refined, and call them differently, but
what they deal IN are American stock
privileges all the same.
MADE AS CLEAR AS DAY.
"And what are puts, calls, spreads
and straddles ?" asked the writer when
he first went down Wall street.
"Well," said John 4. Mccain, the
col fiiential clerk of Russell Sage, of
whom the question was asked, "I'll tell
YOU if you'll promise never to mention
the poetical subject again 1t requires
pretty deft wording to make the thing
clear, SO it is not an exhilerating subject
to talk on. You hear good deal about
puts and calls, but l venture to say
there are 10000, 900 persons in the Uni
ted States who do not know what they
are, nor what the meaning OF the word
privileges is. Now, privilege is a
contract by which the maker Of it, Rus
sell Sage. 5. V, Waite, Jay Gould or
Harvey Kennedy, engages to purchase
from the holder in the one case, or to
sell to the holder in The other case, q
number of shares of some specified stock,
at certain price at any time within a
certain period at the option of the hold
er. Got that?"
'CALL" EXPLAINED.
"a call is privilege bought of the
maker at a certain price. aud the owner
is privileged to call for certain amount
of stock at given price, within thirty,
sixty, or ninety days, four or six months.
If man holds put he has the right
to deliver to the maker of the privilege
at certain agreed on price within
certain number OF days. Clear? No.
Well, let's try once more.
Suppose Western Union is selling at
20. A man wants sixty day put on
it at 66, because he believes the stock is
going down. He gives Mr.. Sage, Mr..
White, Mr.. Kennedy or Mr.. Gould l
per cent. ON the amount of stock he
wants to deal in. A hundred shares is
usual, and per cent. is 500. He re-
ceives in return slip of paper signed by
either one or the other of these gentle
men. Then if Western Union goes be-
low 66 within sixty days, he may buy it
for whatever it is selling tor below that
price and put it to the maker of the
privilege at the price agreed on, &C, and
receive check of $1,000. The holder
makes the difference. All, you under
stand. If telegraph does not go below
66 the holder is out his 500. The call
business operates exactly in the opposite
way. A man buys the privilege of call.
ing Western Union at IS when it is
selling for 70. II it sells above IS,
you can call on the maker of the privi-
lege for 100 shares at IS, and the 100
shares are thus bought by the holder
for $500, and he turns around and sells it
at so, if the stock is selling there, aud
pockets the difference.
'sPREADs" AND "sTRADDLEs."
"What about spreads and 'strad.
dles?'"
ga 'straddle' is put and cali com
bined. The holder of one may put
stock to the maker of the privilege or
cali for it. 'Staddles come high be-
cause there is money in them whichever
way the market may go. 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, usually about 3
per cent on 800. A spread is also a
put and cali combined, but there is
this difference, sstraddle' is made at
the market. That is to say, the maker
of the privilege takes the risk that the
stock in question docs not move to any
extent from the price at which it was
selling when the privilege is sold. In a
'soread' the maker has more leeway. II
Western Union is selling at 70, to go
back TO the old illustration, the maker
of the privilege sells spread, say at
81 an 80. If 1t goes below 81, the hold
er can put the stock and make the DIFF.
ference, and if it goes above so, the
holder can call it at that price and reap
the profits. For SO long as the price Of
the stock keeps within hose 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 be is dealing in moves at all. The
holder of spread doesn't make any
thing until the market moves past GER
tain limits. There is one thing more,
the maker of a privilege only receives
the money for which he sells the priv.
lege, while the holder may make thou.
sands-or nothing N. Y. Mail and
Erpress
HOW SATTORS VIEW RJRnS