The New York herald., 1922-02-28

| MS dItlCle Is .ltOl luleuueQ 10
stock options is an illegal or illegiti
cuted in good faith. All that is
sought to be shown is some of the
ways in which this method of doing
business in the stock market can be
used for swindling by an unscrupu
lous house.
Trading in Puts and Calls.
Such an option, as any person IA
miliar with stock transactions knows
is merely the right to buy or sell a
specified stock in specified amount at
n fixed figure within a period agreed
Cn between the purchaser and the
of two general classes-calls and puts
A call is an option to buy; put is an
option to sell.
Thus, If you think the price of a GER
tain stock is going to advance, you
buy from your broker a call, in which
the broker agrees to deliver to you al
your order within a certain period-a
week or a month-100 shares of that
stock at a price fixed in the option
that price usually being several points
in advance of the price of the stock at
the time of the purchase of the op-
ton.
If the price advances beyond the
quotation mentioned in the option you
are privileged to buy the stock with
the certainty of winning by an imme-
diate sale. If the stock fails to reach
the figure in the option, of course, you
do not buy but merely forfeit the
money you paid for the option. A put
is just the reverse Of the call, and is
the form Of option used when you be-
lieve the price of stock is going to
decline, and it obligates the broker tc
buy from you 100 shares of that stock
at the figure mentioned in the put re-
| gardless of how much below that fig
ure the stock may fall.
Requires Less Outlay.
The apparent advantage of the
stock option to the speculator is that
it does not involve nearly so large an
initial investment as If he bought or
margin. The price of an option varies
according to the number of shares in
volved and the life of the option. A
usual Offering, however, is 100 shares
for thirty days at S137.50, whereas II
the same stock were taken on margin
the purchaser would have to put ur
at least 20 per cent. of the market
value of the stock.
The bucketeer therefore argues ia
his prospect who is somewhat slow
about putting UP a substantial sum In
margin, that he can have his chance
to win large amount of money with
a small investment in an option. Now
| 1t must be taken into consideration
that when the bucketeer comes along
with his insistent plea that you buy
an option. he knows much more about
what is going to happen to the par
| ticular stock he advocates than you
do: that when you win you must win
sufficiently to cover the purchase price
of the option above your investment
In the stock before you can consider
that you profited, and that If the
stock fails to pass the option figure
your option purchase price is a total
loss.
The disadvantage of that arrange
ment to the customer when he gets
into the hands Of an unscrupulous
broker is apparent, when it is observed
that such an option is obtainable only
on such stipulated variation from the
market quotation as the broker deems
advantageous to himself.
Only a Long Gamble.
Thus, about the best that could oe
said of an option transaction when
1 you are dealing with n house about
which, you know nothing except that
its representative has been able ia
talk glibly enough to get you hooked,
Is that 1t is a long gamble, with the
broker holding the better end of the
game.
1t will readily be seen, however
that TIE purchaser of a stock option
from such a house is ripe. for the
ancient bucket shop trick of letting
the customer win once or twice ia
give him sufficient confidence to in
trust his entire fortune with the
bucketeer. And that is a trick not in
| frequently worked by the option route
Tie option purchaser is allowed ia
win. just as the broker told him he
would, and his confidence thus being
built up the broker" quickly talks
him into taking one grand big plunge
on a sure thing" Then it is all over
except wondering how it happened
| The option trick that is most fire.
quently worked on the innocent, how
ever. is accomplished by the wash
sales methods revealed in these col
umns last week That swindle, too, Is
used as frequently by the fraudulent
stock promoter as by the bucketeer--
more often. in fact.
That brings the good old sucker list
into play. and involves first a pyro-
technic letter in which 1t is set forth
that the proposal contained therein is
| frankly a gamble, but one in which
the customer absolutely cannot lose q
| cent and stands a chance of winnins
fabulous amounts. There has been
current within tho last week a form
letter sent out to sucker listers offer
ing chance to win more than 81, roo
on an investment OF VS.. And, un-