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THE P U T-A N D-C A L L
ABERDEEN UNIVERSITY PRESS
THE
PUT-AND-CALL
BY
LEONARD R. HIGGINS
LONDON
EFFINGHAM WILSON
ROYAL EXCHANGE
igo6
All rights reserved
140,^5 5 1
ft £
SZ
$*/-/ '/^
TO MY ESTEEMED FRIEND.
Mr. E. HEDLEY CUTHBERTSON,
THIS LITTLE VOLUME IS
IRespectfullB 2>eMcateD.
PREFACE.
The writer of the following pages feels that, in
publishing this little book on Options, he may
be telling many of his professional friends what
they already know perhaps better than the author.
If, however, he succeeds in supplying in a read-
able form an answer to the question which has
so often been put to him by the uninitiated, viz.,
" What is an Option ? " and in placing before those
who have mastered the intricacies of Option deal-
ing the Theory of the "Value of the Put-and-
Call " in a somewhat new light, the object of his
little book will be attained.
June, 1896.
1-5
TABLE OF CONTENTS.
PREFACE.
CHAPTER I.— Introduction.
The Legality of Option Dealing — Day to Day Options — The Stock
Exchange Settlement — Contango and Backwardation — Ecart —
" Distance " ....
CHAPTER II.— Definitions.
Option— Call— Put— Put-and-Call — Call o' More— Put o' More-
Option Money— The Giver — The Taker - - 6-9
CHAPTER III.— Working the Single Option.
A Favourable Call of Brighton "A" — An Unsuccessful Call of the
Same Stock — A Successful Put of Spanish 4 / — A Call of Rio
Tinto Shares — A Put of Rio Tinto Shares — The Conversion of
One Option into Another - - . 10-17
CHAPTER IV.— Working the Double Option.
The Advantage of the Double Option — A Put-and-Call of Louisville
and Nashville Shares — The Put-and-Call turned into a Call — A
Put-and-Call of Milwaukee Shares — A Put-and-Call of Erie
Shares alike Profitable to the Giver and the Taker of the
Option Money .... . . 18-25
CHAPTER V.— The Conversion of Options.
Rules — How the Option Money is Affected and the Option Price
remains the Same - - 26-30
CHAPTER VI.— The Principles Formulated.
More Conversions of Options — Selling Against a Call Over the Option
Price — Selling Against a Call Under the Option Price — How the
" Money " is Affected — Formulae — Examples — Fixing the Option
Price Above or Below the "Right Price" — The "Distance" 31-39
Vlll CONTENTS.
CHAPTER VII.— The Call o' More— Put o' More.
PAGES
Conversion of Call o' More into Call or Put-and-Call — Four Different
Ways of Doing One Transaction — Formulae for Call o' More and
Put o' More - . . 40-48
CHAPTER VIII.— The Call of Twice More, Three
Times More, etc.
The " Distance " Determined — Formulae — Why not Exactly Appli-
cable in Practice — Exercise - - - 49-53
CHAPTER IX. — The Single Option Disguised.
Difficulty of Dealing in Firm Stock for the Option Period Discussed
— The Put-and-Call Sometimes Relatively Cheaper than the Single
Option — Giving for the Put-and-Call Instead of the Single Option
to Disguise One's Position — Illustration 54-57
CHAPTER X.— Option-Dealing Abroad.
London the Option Market of the World — Paris — Berlin — English
Superior to French and German in Expressing Optional Transac-
tions — English, French, and German Vocabulary - 58-63
CHAPTER XI.— The Value of the Put-and-Call.
Options Compared to Insurance — Estir ating the Risk — Average
Fluctuation the Basis of Estimate — Points of Difference between
Option Dealing and Orthodox Insurance — Must be Sufficient Busi-
ness to Establish an Average — The Giver of Option Money and
the Insurer Contrasted — Essential Conditions in Taking Option
Money — Market Quotations for Options Compared with Average
Fluctuations — Table of Average Values ..... 64-76
CHAPTER I.
INTRODUCTION.
The Committee of the London Stock Exchange re-
cognise the legality of optional dealings in stocks and
shares provided that the option period does not exceed
two accounts beyond that for which bargains are being
currently made ; but they will not legislate upon any dis-
pute arising from an option transaction done for a longer
period, nor can a claim be made against a defaulter's
estate in respect of any such unrecognised bargain.
Rule 90, applicable to registered stocks, says : " The
committee will not recognise any bargain in shares
or stocks effected for a period beyond the ensuing
two accounts " ; and Rule 112 relating to securities
to bearer is to the same effect.*
In spite of these disadvantages, however, options
for two or three months, and even further ahead, are
* It must be stated, however, that the above-mentioned rules
do not apply to English, India, Corporation and Colonial Govern-
ment Inscribed Stocks, for under this heading Rule 79 reads :
"The committee will not recognise any bargain for a future
account if it shall have been effected more than eight days pre-
vious to the close of the pending account".
I
2 INTRODUCTION.
easily negotiated in the London market ; in fact, the
" option period " may be said to range from a few
hours to six months. Day-to-day options are not so
largely dealt in as they were in former years, many of
the persistent takers of " day-to-day money " having
found that the risks involved were not sufficiently
covered by the small amount of " money " given, and
that the practice had a tendency to encourage the
running of a large, unprofitable " book ".
The " call o' more to-morrow " and " put o' more
to-morrow " still survive ; for, on the one hand, such
transactions are frequently found by parties interested
in engineering a rise or a fall to be useful in puffing
or depressing the stock which is the object of their
attention, and, on the other hand, provide a more
profitable method of taking option money, as the real
amount of premium involved in a " call o' more '
transaction is greater than would appear at first sight
from the difference between the market price and the
option price of the stock.
" Puts " and " calls " of stocks are commonly done
for one week and for one account, but the majority of
the options negotiated in the London market are for
one month, two months, and three months on.
It may be of interest to mention that dealings in
the London Stock Exchange are settled twice every
month, the dates of the settlements (which are fixed
by the committee three accounts in advance) falling
about the middle and end of each month. The length
of the account ranges from thirteen to nineteen days
INTRODUCTION. 3
and the settlement occupies three days, called respec-
tively, " contango day," " ticket day," and " settling "
or "account day".
On the contango day all stocks not being paid for
or delivered are "carried over" to the following account
at a " making-up " price, which is fixed by the official
broker or by the market, those persons who are unable
or unwilling to pay for stock bought giving a market
rate of interest to those who have money to lend. It
sometimes happens that dealers or speculators, who
have sold more stock than they can conveniently
deliver, have to pay a fine for non-delivery to those
who have bought it. The postponement of delivery
is arranged on the contango day, and the fine imposed
is called a " backwardation " or " back ".
On the second day of the settlement or " Ticket
day " the names and addresses of the persons for whom
brokers have bought registered stock are given to the
sellers on what is called a ticket. This ticket also
bears the name of the member paying for the stock
and the price at which the transaction is done, or at
which the transfer is to be made out, and it is passed
from hand to hand until it reaches the ultimate seller,
who saves the intermediate dealers the trouble of
handling the stock by delivering both stock and ticket
to the original issuer of the latter.
On the third day (the settling day or account day)
all stock passes and is paid for, and " differences " upon
the accounts are settled by means of cheques drawn on
" clearing" bankers.
4 INTRODUCTION.
Consols have a settlement for themselves at or near
the commencement of each month.
Day-to-day options are declared at 2*45 p.m., while
those done for the current account or for a future
account are declared at 12 "45 p.m. on the contango
day (called also the first making-up day).*
Options for future accounts are done, unless other-
wise stipulated, at the price of the stock for the
account in question, viz., the present market price, plus
" contangos " or minus " backwardations ". Thus, if a
stock stands at 50, and the estimated rate of interest
in contango upon that stock is 4%, we must add on
-h of 4%, if dealing for three accounts ahead, bringing
the price up to, say, 50^, or -ri of 4%, for six ac-
counts ahead, bringing it up to, say, 503-, and so
on.
In the case of a "back," the estimated amount of
backwardation for the future period would be deducted
from the present price when fixing the option price for
that period.
Apart from the question of rates, options are fre-
quently done at prices considerably above or below the
actual prices t for the period in question, and in the
examples given of these "fancy" Options, we shall
describe the difference between the market price and
* The first making-up day for mining shares falls on the day
before the contango day for foreign stocks, i.e., three days before
the pay day.
t It is usual to speak of the ordinary market price for a for-
ward bargain in firm stock as the " right " price for the period in
question.
INTRODUCTION. 5
the price fixed as the "distance". The French term
" ecart" expresses the " distance" plus the amount of
option money given ; thus i% given at a price which
is ^% over the market price would be an ecart of ij%,
of which i% is the Option money (i \ ecart, dont i). ■
CHAPTER II.
DEFINITIONS.
Option. The word "option" in connection with transactions
in stocks and shares, means a right to buy or sell
a certain quantity of stock on a given day, at a
price agreed upon at the time the bargain is struck,
for which right the "giver" of option money pays a
consideration to the " taker " ; the said option money
being payable at the end of the stipulated option period.
The payment of option money may purchase the
right :—
call. First, to buy stock at a given price, at a specified
future date, this option being known as a " call ". At
the end of the option period, the "giver" declares
whether he will exercise his option and call the stock
or not.*
Put. Secondly, to sell stock at a given price at a spe-
cified future date ; the option is then called a " put ".
When the option expires, the " giver " tells the
* In actual practice, the formal declaration of an option only
takes place when the market price at option time is so close to the
agreed price of the option that the bargain does not speak for
itself. When the market price of the stock is distinctly above or
below, it is understood by the "taker" that the stock is bought,
or sold, as the case may be
DEFINITIONS. 7
" taker " whether he wishes to put the stock on him at
the agreed price, or not.
Thirdly, to either buy or sell (whichever may suit Fut-and-
the " giver ") stock at a prescribed price at a specified CaU
future date ; the name of this double option is the
" put-and-call ".*
The enjoyment of the double right costs twice as
much as the single option to buy or to sell would have
done. There are, however, exceptional circumstances
where, through great scarcity of stock, or dearness of
money, the double option, or "put-and-call," can be
done more easily than the single option ; in such cases
the "put-and-call" money might not be quite as much
as double the charge for the single option. An
example of this is given in a future chapter.
The premium paid for the right of calling or caiio'niore
putting stock at some future date, at a stipulated
price, is sometimes included in the price at which a
transaction is done, for the same date, in firm stock.
Thus, a " giver " of option money will buy a certain
amount of stock firm for delivery, e.g., two months
ahead, at a figure sufficiently over the current market
price for that period to carry with it the option of
calling a like amount at the same price. This trans-
action in options is known as buying stock " call of
more ".
The "put of more" is the same kind of optional Put o' More
transaction, in the other direction. The giver sells
* In writing this term it is customary to abbreviate it into
p.a.c.
8 DEFINITIONS.
stock to the taker under the market price with the
privilege of being able to sell him another like quan-
tity of the stock at the same price at the end of
the option period. In these cases, the difference
allowed between the market price and the price fixed
upon is regulated by the market value of the option in
question at the time of dealing, and is fully explained
in chapter vii.
A stock may be bought call o' more or bought put
o' more: in the former case the buyer is "giving
option money," and in the latter he is " taking option
money". In like manner if A sells to B stock call o'
more, the option to call rests with B, and A is "taking
option money ". If A sells stock to B put o' more,
he is giving the option money and has the right to
put on B.
The price given for the firm stock may carry the
right to buy twice, three times, or any number of times,
the amount of the firm stock dealt in ; the options
being termed "call of twice more," "call of three
times more," etc., or, in the selling direction, " put
of twice more," " put of three times more," etc. Such
fancy options, however, are not very frequently in-
dulged in.
It may be worthy of remark that "calls " are more
often dealt in than " puts," the reason probably being
that the majority of " punters " in stocks and shares
are more inclined to look at the bright side of things,
and therefore more often "see" a rise than a fall in
prices.
DEFINITIONS. Q
This special inclination to buy " calls " and to leave
"puts" severely alone does not, however, tend to make
" calls " dear and " puts " cheap, for it will be shown in
a later chapter that the adroit dealer in options can
convert a "put" into a "call," a "call" into a "put,"
a " call o' more " into a " put-and-call," in fact, any
option into another, by dealing against it in the stock.
We may therefore assume, with tolerable accuracy,
that the call of a stock at any moment costs the
same as the put of that stock, and half as much as the
put-and-call ; the causes referred to on page 7 being
the only ones which would be likely to bring about an
exception to this rule, and even then the difference
would seldom be important.
io
CHAPTER III.
WORKING THE SINGLE OPTION.
Having discussed option dealing in a general sense,
we will now pass on to some practical examples of
"calls," "puts," and "put-and-calls," explaining how,
in some cases, a favourable movement in the market
price can be turned to advantage by a giver of option
money, and showing the manner in which such deal-
ings are booked. All the examples given have been
based upon actual market movements, between the
years 1888 and 1894, but it is of course understood
that the amount of option money quoted is only
approximately the market value of the option at the
dates mentioned.
9th May, 1892, given 2f % call £10,000 Brigh-
ton " A " at 152| for end June.
28th May, sold £5000 Brighton "A" at 157
end June.
The giver here sells half his option stock for the
end of June, avoids carrying over a " bear" position for
two accounts, and secures 4-g-°/ on £5000 stock equal
to 2ts°/ on ,£10,000. His position now is that whatever
Brightons go to, he can only lose |°/o on £5000, or A%
on £10,000 ; for if they go higher he can secure his
profit on the remaining £5000; and if they fall below his
option price (15 2-|-) he can rebuy the ^5000 sold and
abandon his option ; the whole f°/o would be lost only
WORKING THE SINGLE OPTION. II
in the event of their being quoted exactly 1 5 2% at the end
of June, when he would call only the ^5000 he has sold
and lose the difference of iw on ,£10,000, or ■§ on ^5000.
At the end of June, however, Brighton A are
quoted i58f, at which price he sells the remaining
,£5000, and the account stands thus : —
End June, 18Q2, Account,
gth May.
To 2§ call 10,000 B. A, at
1525 .... £237 10 o
25th June.
To called io/m B. A, 152J 15,287 10 o
Balance - - 243 15 o
£15,768 15 o
2%th May.
By 5000 B. A, at 157 (sold) £7850 o
25th June.
By 5000 B. A, at 158I - 7gi8 15
£15,768 15 o
Balance of profit £243 15
= 2 T V% on £10,000.
We will now take a case which works out less
favourably to the giver : —
13th August, 1892, given 3% call £4000
Brighton A at 158i end October.
By 3rd September the price has risen to 162, but
our giver " seeing " a further rise does not sell against
his option. If he sold the whole ,£4000 at this price
he would obviously secure a profit of f % on the ^4000,
as they "stand him in" at 161^, including option money.
If he sold half (say .£2000) he would secure 3f °/ gross
on ^2000 = i-g-% on ^4000, so that his loss would be
limited to i£7„ on ^4000, and he might have a profit
in the event of either a further rise or a considerable
fall, for if the price at end of October is below 158 \, he
would repurchase the ^2000 and abandon the call.
He does nothing, however, and the price goes
12 WORKING THE SINGLE OPTION.
steadily back, until at the end of October Brighton
" A's" have run down to 153-J-, and his account shows
only the option money to his debit : —
End October Account.
13th August, 1892.
To 3% call £4000 B. A, at
158J £120 o
We will now take the case of a giver for the put of
Spanish 4% Bonds, who prefers covering the whole
position at one price.
26th September, 1891, given 1%% put of
£5000 (£4761 10s.*) Spanish at 71f
(cum dividend) end November.
On 1st October Spanish are quoted 7of " ex divi-
dend " (the quarterly dividend of 1%). This 1% taken
off the price is no source of profit to the " bear," or the
buyer of the put, for it will be debited to him if he puts
the stock, the dividend belonging to the person on
whom he puts it. By the 24th October Spanish Bonds
are quoted 65!- ; still the giver will not buy against his
option, although he could secure 4% net profit by so
* The nominal " one thousand Spanish 4% " is a bond of the
denomination of £952 6s. This was arrived at at the time of the
issue by converting the 24,000 pesetas or francs into sterling at
the fixed exchange of 25-20^, and then adjusting the amount of
£ s. d. to the nearest amount which was divisible by 24, without
making fractions of pence. Thus 1000 pesetas or francs Spanish
4% i s £39 I 3 S - 7& nominal. These twenty-fourth parts are known
as " halfpence of Spanish," the whole £952 6s. being called " a
shilling". In the Paris market the nominal thousand Spanish is
1000 francs Rente (4% on fcs. 25,000), so that the " one" Spanish
French amount is "a shilling and a halfpenny" English; ten
thousand Spanish French amount is " ten and fivepence " English,
and so on.
WORKING THE SINGLE OPTION. 1 3
doing (i.e., the difference between 65^ and 7if — 1%
div. - ii- option money). If he bought back half his
stock at 65I x. d., i.e., 5^ below his option price, he
would be in this position : having secured 5^- on one
half, equal to 2 T V on the whole, he would in any case
make a profit of 2A-i£= itV on the ^5000, and
stand to make an additional profit on the other half of
whatever Spanish were over or under 7of x. d. at the
end of November But he fancies the next coupon
will not be met, and is determined to run his option
for all it is worth. Accordingly, on the contango day
of the end of November account, he takes a profit on
his put of s^% by buying back his ,£5000 Spanish at
64-|-, and putting them at 7 if cum div.
The option is recorded in the ledger as follows : —
26th September.
To ij% put £5000* (£4761 10s.)
Spanish at 71} - - £53 11 4
25th November.
To 5 Spanish (bought 64J) - 3053 6 3
To 1% dividend on do. (tax not
reckoned) - - - - 47 12 4
Balance » 261 17 7
£3416 7 6
2$th November.
By 5 Spanish (put) at 71J - £3416 7 6
£3416 7 6
Balance ... £261 17 7
= 54% °n £4761 ios.
Subjoined are examples of a successful call and
an unsuccessful put of Rio Tinto Copper Shares, in
which a very large option business has from time to
time been done.
On 22nd March, 1890, when Rio Tinto Shares have
been steadily recovering some of the enormous fall result-
ing from the collapse of the copper corner of the previous
year, our operator " sees " a further advance^ and —
14 WORKING THE SINGLE OPTION.
Gives Ittt per share call 200 Rio Tinto at
15f for end June Account.
The price fluctuates within narrow limits for
several weeks, and by 26th April Rio Tinto are
negotiable at i6|-. To sell at this price would not
cover the option money risked ; therefore, as the option
has still two months to run, and copper is rising
steadily, our giver waits off. The following two weeks
witness a remarkable rise, and on
10th May he sells 50 shares at 17£ per
end June.
If he sold for the current account, he would have
a "bear" position in 50 shares to carry over three
accounts (mid May, end May, mid June), so he pre-
fers to sell for the same date as that for which the
option is done. This is, in most cases, the simplest
and best way of dealing against a future option.
On 17th May he sells another 50 shares at
18f per end June.
He has now sold 100 shares at a price averaging
18^ against his call at 1 5-g-, and has thus secured a
difference of 2§ per share on one half of his option,
equal to 1^ upon the whole 200. But he has only
risked 1^ originally ; therefore, whatever becomes of
Rio Tinto, he cannot lose. Let us now examine what
his position is. He has risked if T in option money,
to counterbalance which he has, by selling half his
stock, assured himself of a margin equal to 1^. on the
entire 200 shares, and he still has 100 not realised.
Whatever he can sell the remaining . 100 at, over 15-^-,
WORKING THE SINGLE OPTION.
15
must be net profit. If Rio Tinto stand at exactly 15^
at the end of June, he can make nothing out of the
remaining 100. But if they happen to be below 15^
he will abandon his call and purchase in the market
the shares he sold at i8|- average, in which case he
will again make on 100 shares the difference between
15-g- and the price he buys them at. He practically
has a call of 100 at 1 5^ for nothing, and a put of 100
at 1 5f- for nothing (since all below 1 5|- is his profit on
100); or, to use a professional term, he has given O for
the put-and-call of 100 Rio at 15^.
The conversion of a single into a double option thus
exemplified is one of the most important features in option
dealing, and the principle is further explained in chapter vi.
To follow this option to its successful close we
must observe that on 7th June " Rio" are quoted 22^
(ex dividend of 10/-), and at this price the giver, having
had an exceptional run for his option money, sells
the remaining 100, making upon them the whole differ-
ence between 1 5-f- and 2 2^, and taking the dividend of
10/- on 100 shares as well.
End June Account.
22nd March.
To 1^ call 200 Rio Tinto, 15I 56237 10
(end June)
28th yune.
To called 200 Rio Tinto, 15$ 3175
Balance - - - - 675
10th May.
By 50 Rio Tinto (sold), 17$ -
ijth May.
By 50 Rio Tinto (sold), i8| -
7th yune.
By 100 Rio Tinto (sold), 22^
x.d.
By 10/- div. on 100
Balance of profit
= 6$ on 100 = 3f on 200
£893 15
93i 5
2212 10
50
£4087 10
4087 10
£675
shares.
16 WORKING THE SINGLE OPTION.
A few days after the close of. this successful opera-
tion Rio Tinto have advanced still further — to about 23,
and thinking the price now high enough the operator
turns round on the " bear tack," and on
5th July, 1890, gives If put of 100 Rio
Tintos at 23£ end August.
In the former option we saw that he was able to do
a three months' call of 200 shares at iA per share.
The upward movement has been so rapid since then,
and takers of option money have had such a bad time
in Tintos, that he now has to pay considerably more
for a two months' put than he had before for a call
three months ahead. His view would appear to be
right, when, on the 19th July, Tintos have run back to
22^. If he now buys the 100 shares at 22A for end
August he can save if of his option money, and in
the event of the price being, at the end of August,
First, below 23!-, he puts them and loses if -
13 _ 9
rr — ttt-
Second, exactly 23^, he puts them and loses ^.
Third, above 23^-, he abandons the put and sells his
100 shares, the difference over 23^- going to reduce the
above-mentioned loss of T 9 F : if he can get ^ over 23^
i.e., 23AJ, he comes out of the transaction "even," thus —
100 shares bought22i^-l Difference if, the same as
100 do. sold 23H) the option money risked,
and anything higher than that is his profit on 100
shares.
We saw in the last example how the operator by
selling one-half of his stock against a call practically
WORKING THE SINGLE OPTION. \J
got a put-and-call of one-half the original amount of
stock. In this example we find that our giver, if he
bought back all his stock against the put, would practi-
cally have a call of the same number of shares. This
operation is known as turning a put into a call, and
will be further analysed in a later chapter.
On 26th July the shares have risen again to 2 2-J,
only to react by the following week to 22. Once
more the giver Would have a chance to save a good
deal of the option money (23^- — 22 = i|-) but he does
not like to lose even the difference between if and i-J,
He therefore holds out for a further fall, which, how-
ever, does not come during the run of his option ; for
on the 9th August Rio Tinto are 2 2§, on the .16th
August 23^, on the 23 rd August 2\\, and three days
later his option expires at 12*45 on the contango day,
shares changing hands at 24^. The option money
is consequently a total loss.
End August, 1890, Account.
$th jfuly. I
To i| put 100 Rio Tinto, 23J £137 10 o |
i8
CHAPTER IV.
WORKING THE DOUBLE OPTION.
In the preceding examples the giver of option money
has been made to take a view for the rise or fall of a
certain stock, and to base upon this view an operation
in the single option. Now, it frequently happens that
a giver, wishing to do an option, is undecided as to
the direction which the next few points move will take
in the stock under consideration, so he commences
operations by giving for the put-and-call of the stock
and waits for further developments. This, by the way,
frequently turns out to be a judicious mode of pro-
cedure, especially when the object of the speculator's
attention happens to be one of the American Railroad
Stocks, in which the fluctuations are generally vtolent
and uncertain. The American market has for many
years offered a fair field alike for the giver and for the
taker of option money, both parties to the deal in a
three months' option having, as a rule, plenty of ex-
citement for the money! Indeed, it is surprising that
so many speculators in American shares should con-
tinue to deal in " firm " stock, when so much amuse-
ment can be procured at the moderate prices generally
ruling for American options. A giver of option
money on Americans once observed : " If only I had
WORKING THE DOUBLE OPTION. 19
given for the put as often as I have given for
the call, how much money I should have made
and how little I should have risked!" It is more
than likely that if this operator had nerved himself at
the time to pay twice as much for the put-and-call as
he paid for the single option, he would, in the long
run, have had little reason for regret.
Let us illustrate our subject by a put-and-call of
Louisville and Nashville Railroad Shares.
* 2nd January, 1892, given $5£ per share
put-and-call 200 Louisville at 86| end
March.
This looks a lot of money to give in a quiet mar-
ket, but option takers have unpleasant recollections of
rapid and unforeseen movements in the leading specu-
lative American shares. They cannot forget the bad
* American Railroad Stocks dealt in here are in shares of $100
each (except Pennsylvania Shares and Philadelphia and Reading
Shares, which are of $50 each). The nominal amount of stock, in
dollars, of 100 shares is therefore $io,ooo, which at the nominal or
fixed exchange of $5 to £1 is £2000. The price quoted in
London is arrived at by converting the New York price per cent,
into an English price per cent, at the exchange of the day. The
English price is therefore in £ s. per cent. : thus, $97% New York
at $4.85 is £100% London, so that if one bought 100 shares
(= $10,000) in New York at 97 (= $9700) and sold £2000
(nominal) in London at 100 (= £2000), the proceeds of the
London sale at the exchange of $4.85 would yield 89700 to pay
for the purchase in New York. But it is more convenient and
therefore customary to speak of 50 shares or 100 shares in
the London market, and regard the price quoted as a sort of
English dollar (4/-) price. The above option example is accord-
ingly expressed, " given $5§- put-and-call of 200 shares," but,
correctly speaking, it would be £5 £% put-and-call of £4000 stock.
20 WORKING THE DOUBLE OPTION.
turn Louisville did them in ^October and November,
1890, by dropping 16 points in half as many weeks,
only to catch them " out " again the following autumn,
when the same shares rushed up from 68 to 81 \ in less
than two months.
By 1 6th January Louisville are quoted %\\ (ex
dividend 2 J). In comparing the market price with
the option price the giver has now always to take into
consideration the dividend ; if he puts the shares the
taker will debit him with the dividend ; if he calls
them, he will receive it from the taker. In other
words, he will^^ the stock if it stands below 86f -
2 i = 83-g-, or call it if it is quoted above that figure. It
is usual to say the option price is 83^ x.d.
The shares are now a weak market, and the giver
decides to go with the tendency, and refrain from buy-
ing until his option money is covered.
23rd January, Louisville 79^. If he bought 200
shares at this price he would make $4-|, and lose $5^,
i.e., f|- on balance.
On 30th January they are down to 76^-. Now is
his chance.
On 30th January he buys 200 Louisville at
76J per end March.
This not only covers his $5^ put and call money,
but leaves a profit of $i|- per share as well, and there is
the chance that he might make still more during the two
months the option has yet to run. He cannot make
more if the shares continue to fall — in that case he has
closed his position too soon, and missed a further
WORKING THE DOUBLE OPTION. 21
chance of profit. Nor can he secure any additional
advantage by an advance in price to 83!- x.d. (his
option price), unless, indeed, he has the luck to hit off
a reaction in selling out again and covering with a pro-
fit ; but it must not be forgotten that in selling again
under the price at which he has the right to put he
risks losing part or all of the profit he has already
secured. His only chance of more profit without risk-
ing anything is for Louisville to rise above 83^ in the
next two months. What is his position then ? We
will leave out the i-J- realised profit, and consider it
put away for some future enterprise. By his purchase
of 200 shares he has covered the original risk of $5^-,
but if the price is over 83^- at the end of March he
will not put these 200 ; on the contrary, he will
exercise the other part of his option, viz., call 200
shares, and thus be in the position of having 400
shares to sell. Then his additional profit will be the
difference on 400 shares between 83J and whatever
they fetch. Now, this is equivalent to saying that he
has a call of 400 shares at 83^- for nothing. So he
has, and the operation is known as " turning a put-and-
call into a call " by buying all the shares.
Just as in the example on page 15, we saw that the
giver for the call of 200 Rio Tintos practically became
the possessor of the put-and-call of one half the
amount, so we find now that the giver for the put-and-
call of 200 Louisville is able to turn his option into a
call of twice the number.
To return to the subject of this example, Louis-
22 WORKING THE DOUBLE OPTION.
villes have no recovery in them beyond reacting to 78
on 13th February, and at the expiry of the option on
contango day, at the end of March, the price has
fallen to 75^- : the ledger shows the following entries : —
2nd January, 1892.
To $5j p.a.c. 200 L. and N.
at 86| - - - ^205 o o
$oth January.
To 200 L. N. at 76$ x.d. - 3075 o o
(bought)
To $2^ div. on 200 shares - 100 o o
Balance - - - 75 o o
£3455
27^ March, i8g2.
By 200 Lou. N. at 86| (put) £3455 o
£3455
Balance of profit £1$ o
(if on 200 shares.)
The following shows a put-and-call of Chicago.
Milwaukee, and St. Paul Shares which leaves a small
margin of profit to the taker of the option money, and
is therefore unprofitable to the giver.*
2nd May, 1891, given $4£ put-and-call 100
Milwaukee at 66f end June.
We will suppose, in this case, that the giver is
really in favour of a rise in Milwaukee Shares, but
having often been mistaken before when he has
' ' seen " a rise, he this time secures a put and call on
not too onerous terms, and hopes to be able to do
what we illustrated in a former example, i.e., cover his
risk by buying his ioo shares $4^ lower than his
option price. Then, if within the two months his
* It is not unusual for both giver and taker to make a profit
out of an option, as, on the one hand the eventual difference in
price may still leave a margin of profit to the taker of option
money, and on the other the giver, under the protection of his
option, may have "jobbed in and out" several times, and ulti-
mately have secured more than he originally risked.
WORKING THE DOUBLE OPTION. 23
option has to run, Milwaukees rise well over 66f,
the difference is all his on 200 shares — double his
original option amount.
This speculator is, however, doomed to disappoint-
ment, for he has embarked in his enterprise just before
a period of unusual inactivity for American shares.
The next week Milwaukees are down 1, a fortnight
later they are quoted 65f, only $i^ under his option
price, yet another week brings merely a niggardly £
move, and so on until at the very end of his term the
price has barely managed to drop to 6t,%. He buys
the 100 shares so, and puts them at 66f, saving $3
only out of the $4^- risked.
His account shows his loss thus : —
2nd May, 1891.
To $4j p.a.c. 100 Milwaukees
at 66f - £%$ o o
27th June.
To 100 Milwaukees at 63f - 1275 o o
(bought)
£1360
2"]ih June.
By 100 Milwaukees at 66J - ^1335
(put)
By Balance 25
£1360 o o
Balance ... £25 o
(1 1 loss on 100 shares.)
This $1 J- on 100 shares is the profit to the taker of
the money, unless he has jobbed against the option.
The next is an example of a put-and-call of New
York Lake Erie and Western Shares, where the
giver manages to make a profit by dealing in the
shares under the cover of his option, although the ulti-
mate price shows a margin of profit to the taker.
9th July, 1892, given $2f put-and-call 500
Erie at 26| end September.
Eries having been on the down grade all the year
24 WORKING THE DOUBLE OPTION.
(the price in the preceding January was about 35), the
buyer of the put-and-call thinks there may be a reaction
which will give him an opportunity of selling his shares
and going for a further fall. His chance comes a
month later.
On 6th August he sells 500 Eries at 29|
per end September.
This is $2§ above his option price, so, if Eries con-
tinue to rise, he only stands to lose ^. On the other
hand, if they fall considerably, say below his option
price, he stands to make a profit on the 500 he has
sold, and the 500 he will put. In other words, for the
risk of \ on 500 (= tV on 1000) he has the put of 1000
shares at his option price, or, as a dealer would express
it, he has given t\> for the put of 1000 Eries at
26-J. This would be a case of turning a put-and-
call into a put by selling all the shares. His view
proves to be correct, and the following week Eries
are 28f. He resolves to run the speculation until
he can buy back under his option price, which he
eventually succeeds in doing, for on
9th September he buys 500 Eries at 25f per
end September.
He has secured $4^ on 500 shares, i.e, his 2-J option
money and a profit of $ if besides. He is "even''
in the shares, he has a profit of if on 500 shares, and
his original put-and-call for nothing. At the end of
September he will make an additional profit of what-
ever Eries are over or under 26^, and thus his
circumstances are very comfortable.
WORKING THE DOUBLE OPTION.
25
As a matter of fact, at the end of his time Eries
are 26^ (only f below his option price — a very lucky
quotation for the dealer who ran the risk of the option,
i.e., the taker of the option money, who makes the
difference between 2-J option money and.f loss, unless
indeed he has spoilt it by dealing in the stock), and the
fortunate giver buys again 500 shares at 26J, which he
puts at 26f-.
The transaction is thus stated in the " giver's "
ledger : —
End September, 1892, Account.
gth jfuly.
To $2| p.a.c. 500 Eries at
26| - - £ 28 7 IO °
gth September.
To 500 Eries at 25! (bought) 2537 10 o
Tjth September.
To 500 Eries at 26$ (bought) 2650 o o
To Balance - - - 175 o o
£5650
6th August.
By 500 Eries at 2gf (sold) - £2g62 10 o
27^ September.
By 500 Eries at 20J (put) 2687 10 o
£5650
Balance of profit £175 °
i| + § = i| on 500 shares.
The taker's ledger would show his profit thus,
if he had run his option until the last moment without
dealing against it : —
End September, 1892, Account.
■2.7th September.
To 500 Eries (put at 26
Balance •
-^2687 10 o
250 o o
£2937 10 o
gth July.
By $2$ p.a.c. 500 Eries at 26J £287 10
17th September.
By goo Eries at 26J (sold) 2650 o
£2937 IO
Balance of profit £ 2 5° °
82^ on 500 shares.
26
CHAPTER V.
THE CONVERSION OF OPTIONS.
The arguments employed in the eight foregoing
examples of optional dealings will lead the giver of
option money to the following conclusions : —
1. That a call of a certain amount of stock can be converted
into a put-and-call of half as much by selling one-half of the original
amount.
2. That a put of a certain amount of stock can be turned into a
put-and-call of half as much by buying one-half of the original
amount.
3. That a call can be turned into a put by selling all the stock.
4. That a put can be turned into a call by buying all the stock.
5 and 6. That a put-and-call of a certain amount of stock can
be turned into either a put of twice as much by selling the whole
amount, or into a call of twice as much by buying the whole
amount.
We must now inquire to what extent the original
option money is affected by these hedging operations
in the firm stock, and whether the option price moves
or remains always the same. For this purpose let us
take a simple example for each of the six cases above
mentioned, it being understood that the bargains in
firm stock are effected for the same date as that for
which the option is done.
THE CONVERSION OF OPTIONS. 27
Example i.
Given i% call ^2000 stock at 80.
Sold ,£1000 „ 80.
At the end of the time, if the stock stands at 82,
^2000 is called, of which ^1000 is already sold at the
option price ; the other ,£1000 can be sold at 2% profit,
which equalises the 1% on ^2000. Anything over 82
would be profit on ^1000.
If the stock stands at 78 the call is abandoned, the
" bear" of .£1000 is bought back at 78, and the 2% on
.£1000 again pays the 1% option money on ^2000.
Anything below 78 is profit on .£1000; the position
therefore can be expressed as : given 2% put-and-call
of £ 1 000 at 80.
Hence we are able to formulate the following
rule : —
To sell half the stock at the option price against a call is equi-
valent to giving twice the amount of money for the put-and-call of
half the quantity of stock at the same price.
Example 2.
The second example may, by way of variation, be
explained by combining the single option given with
the double option taken, thus : —
Given 1% put of ^2000 stock at 80.
Bought ,£1000 „ 80.
Then to close the operation —
Taken 2% put-and-call ^1000 at 80.
Whatever may be the price of the stock at the end of
the option period, the operator is "even". He has
neither profit nor loss ; for, firstly, if the stock has risen,
28 THE CONVERSION OF OPTIONS.
say, to 90, he abandons the put of ^2000 at 80, the
;£iooo stock bought at 80 is called of him at the
same price, and the amount of option money given and
received is the same.
Secondly. — If the stock is quoted, say, 70 —
Then he puts ^2000 at 80.
He has bought .£1000 at 80 ; and is
obliged to buy ^1000 at 80,
which is put on him, the option money given and
received again balancing.
The following rule is established from this ex-
ample : —
If option money is given for the put, and half the amount of stock
is bought against it at the option price, the dealer has practically
given twice the option money for the put-and-call of half the stock
at the same price.
Example 3.
A gives 1% call of ^2000 stock at 80 ;
And sells ^2000 ,, 80.
B gives 1% put of ,£2000 ,, 80.
If the stock is over 80 at the expiry of the option,
A calls the ^2000 he has sold at the same price and
loses exactly the option money (1% on .£2000).
B abandons the put and loses 1% on ^2000. If, on
the contrary, the stock is below 80, A abandons the
call and secures as much as he can on the ^2000 sold,
anything below 79 (i.e., 80 — 1% money) being his pro-
fit on ,£2000.
B exercises his put, and also benefits on ^2000 to
the extent of any difference below 80 — 1%. We see
THE CONVERSION OF OPTIONS 29
therefore that whichever way the price goes the
positions of A and B are identical, and our deduc-
tion is : —
If all the stock is sold by the giver against a call at the option
price, it is equivalent to giving the same option money for the put
of the same amount of stock at the same price.
Example 4.
Given 1% put ^"2000 stock at 80.
Bought ^"2000 ,, 80.
If the stock stands below 80 when the option ex-
pires, the ^2000 bought at 80 are put at 80, and the
option money is lost. If it stands over 80 the put is
abandoned, and a profit is made on the ^2000 bought ;
the profit begins at 80+ 1% = 81 ; this is the same
thing as if the giver, had bought the call of ^2000 at
\% instead of the put, and establishes the next rule,
viz. : —
If a giver of money for the put buys the whole of the stock at
the option price, he converts his operation into giving the same
amount of money for the call of the whole amount of stock at the
option price.
The $th and 6th cases are too obvious to need illus-
tration after the above examples, for it follows by in-
version that if a call can be turned into a put-and-call
of half the amount by selling half the stock, this same
put-and-call can be converted into a call of twice the
amount by buying all the stock ; the option money is
first doubled and then halved, and the option price
ahvays remains the same.
The preceding examples have all been treated from
the giver's point of view. It need hardly be men-
30 THE CONVERSION OF OPTIONS.
tioned that the principle remains the same whether the
money is given or taken, only, when looking at it
from the taker's side, the operation in the stock
must be reversed. For instance, a taker for the call
wishing to convert his option into the put-and-call,
buys half the amount ; and a taker of the put-and-call
sells the whole of the stock in order to convert the
operation into taking for the call of twice the amount,
but buys the whole when he wishes to turn it into
taking for the put of twice the amount, etc.
31
CHAPTER VI.
THE PRINCIPLES FORMULATED.
Having propounded the six principal rules of option
dealing, it remains now to be shown how the option
money is affected by dealing in the stock at a different
price from that at which the option has been fixed.
We know that a giver for the call converts his option
into twice as much money for the put-and-call of half
the amount of stock, if he sells half at the option price.
Now, at whatever price he sells half the stock, he still
converts his option into a put-and-call at the original
option price, but the amount of money staked is in-
creased or diminished according as he sells the stock
under or over the option price.
It will not be necessary to give illustrations in each
of the six examples considered in the last chapter, as
the principle which we propose now to discuss applies
equally to all optional dealing.
Firstly*
Selling against a call over the option price.
Given 1% call ^2000 stock at 80.
Sold ;£iooo „ 80^.
* The illustration is in each case regarded from the giver's
point of view.
32 THE PRINCIPLED FORMULATED.
If the stock stands higher than 80 at the maturity
of the option the ^2000 will be called. |% has pre-
viously been secured on ^"1000, so that the other
;£iooo must be sold \\°/ above the option price {viz.,
8i|-) to cover the option money ; anything over 81 \ is
profit on ;£iooo. If the stock stands below 80 the
call is abandoned, and the repurchase of the ^1000 at
\\°/ under the option price (viz., 78^-) will cover the
option money, anything below that being profit on
^"iooo.
Obviously the same result would follow if the giver
paid ij% put-and-call of ^1000 stock at 80. Hence
we derive the following principle : —
If a call is turned into a put-and-call by selling
half the stock over the option price, the put-and-call
money is less than double the call money by exactly the,
difference between the option price and the sale price.
This difference we shall call the " distance," and
adopting the symbols —
C = call money ; p.a.c. = put-and-call money ;
P = put money ; D = distance,
the principle may be thus formulated —
P.a.c. (given) = 2C (given) — D.
From the giver's point of view this " distance " is
favourable, for he sells over the option price. The
formula would remain the same from the taker's
point of view, but in that case the " distance " would
be unfavourable, seeing that he buys half the stock over
the option price.
THE PRINCIPLES FORMULATED. 33
Secondly.
Selling against a call under the option price.
Given i% call ^2000 stock at 80.
Sold ;£iooo ,, 79.
It will be readily seen that if the stock at the end
of the time is over 80, the ^"iooo hitherto unsold
must fetch 83, in order to cover the 1% loss on ^"iooo
and the 1% option money on ^2000. On the other
hand, should the call be abandoned, the ^1000 must
be repurchased at jy, in order to pay the 1% risked on
^2000. In the first case, the difference over 83, and
in the second case, the difference below jj, is profit on
the ^1000, which again is equivalent to the expression,
"given 3% put-and-call of ^1000 stock at 80;" and so
we obtain our next rule, viz. : —
If a call is turned into a put-and-call by selling
half the stock under the option price, the put-and-call
money is greater than double the call money by
exactly the "distance" or difference between the option
price and the sale price.
Here is the formula : —
P.a.c. given = 2C given + D.
In reckoning the amount of option money involved,
when converting any one option into another, it will
be necessary to consider always whether the " distance "
is favourable or unfavourable. The terms are naturally
reversed when the giver's and taker's positions are
compared. In like manner, in turning a put into a put-
and-call, a purchase of half the stock above the option
34 THE PRINCIPLES FORMULATED.
price involves an unfavourable " distance," and may be
expressed —
P.a.c. (given) = 2P (given) + D.
On the other hand, a purchase of half the stock
below the option price ensures a favourable "distance,"
and diminishes the risk of the giver —
P.a.c. = 2P - D.
Again, from the taker's point of view, the "distances" are
reversed, as he has to do the opposite transaction to
that of the giver ; therefore, in the two last formulae +
D is unfavourable to the giver but favourable to the
taker, and — D is unfavourable to the taker but favour-
able to the giver.
It is easy to deduce from the above examples the
necessary formula for the conversion of any other
option by substituting + D for — D and vice versa
when the sense of the " distance" is changed by selling
instead of buying, or by buying instead of selling :
thus, if we wish to turn a put-and-call into a call by
buying all the stock above the option price, we know
that the distance in this case is unfavourable, and that
P.a.c = 2C + or — D ;
therefore 2C given = p.a.c. given + D (unfavourable),
and C = p.a.c. + D
2
Example.
Given 3J% put-and-call of £1000 stock at 80.
Bought £1000 stock at 81£.
How can this be expressed in one term ?
We know that the put-and-call is turned into the
THE PRINCIPLES FORMULATED. 35
call of ,£2000 at 80 ; it only remains to be shown how
much option money is involved. Formula : —
_ p.a.c. + D
2
2 2s/ °
The present operation may therefore be expressed —
Given 2§% call of ^"2000 at 80.
Again, if a put-and-call be converted into a put of
double the amount by selling all the stock above the
option price, the distance here is favourable, and we
know already that
P.a.c. = 2P + or - D
2 P (given) - p.a.c. (given) - D (favourable),
therefore P = p.a.c. — D
2
Example.
Given 2£% p.a.c. £1000 stock at 80.
Sold £1000 stock at 81.
What is the equivalent of this operation in one
term ? Formula : —
_ p.a.c - D
2
,1
._ ^2
2*- I
2
= 3o/
f/o
The equivalent in one term is therefore —
Given f% put of ^2000 at 80.
The utility of the above formulae becomes more
apparent when it is proposed to give or take option
36 THE PRINCIPLES FORMULATED.
money at a price other than the market price of firm
stock for the term in question. For example, the call
of a certain stock at 80 for a fixed period is 1^% ; what
would the call be worth for the same period (1) at 805 ;
(2) at 79I?
Before discussing this point, it is necessary to ob-
serve that the put-and-call money on a stock for a
given period would be the same, whether the actual
market price for the period or a price a little different
be stipulated, providing that the difference does not bear
any considerable proportion to the whole amount of the
put and call money involved. Indeed, it might suit a
taker better to fix a price rather above or below the
actual market price for the period. It is difficult to
define how far this difference may go without affecting
the premium, but it is fairly safe to say that no ap-
preciable difference would be made if the " distance "
did not exceed one-fourth part of the put-and-call
money.
The reason is not far to seek. If a taker is willing
to run the risk of a fluctuation of a stock from 80 for
3%, he would also be willing to fix, say, 80^, as he
would gain in the event of a rise exactly as much as
he would lose in the case of a fall, and he does not
begin his optional transaction with any considerable
portion of his option money "run off". Further, in
nearly every instance in active speculative stocks, the
chance of a rise or a fall is, to borrow a sporting
expression, " even money betting ".
To return to our examples : The call at 80 costs
THE PRINCIPLES FORMULATED. U
1 5%. What is the call worth at 8oJ? Now, we
assume that p.a.c. at 80 = p.a.c. at 8oj- ; we know that
the call must cost less at 80^ than at 80 ; the formula
therefore is —
C = P^_D = 3_-i =if
2 2 8
Again, what is the cost of the call at 79! when the
right price is 80 and the put-and-call 3% ?
The "distance" is unfavourable here to the option
money risked. The formula therefore is —
= p.a.c. + D = 3 + j _ T 5
2 2 8
So we see that if a stock stands at 80, and the put-
and-call is 3% for a certain period at 80 —
The call at 7 of would cost i-f,
„ at 80 „ if
at 8oi ,, if,
l 2>
J 4: " L 8>
and so on, the difference in the call money being
always one-half of the "distance," or, to express it in
another way, in giving for the call you deduct from the
call money half as much as you add on to the price, or
add on to the call money half as much as you take off
the price. This conclusion can also be arrived at with-
out examples by the use of our formulae : —
c =
p.a.c.
2
and C 1 =
p.a.c.
2
±D
C
-0 =
p.a.c.
2
p.;
2
(c-
■0) =
■ D
38 THE PRINCIPLES FORMULATED.
That is, twice the difference in the option money is
equal to the "distance".
It is quite usual for options to be done for long
periods, e.g., three months ahead, where the price fixed
is considerably above or below the "right" price for the
period ; in these cases the call money is arranged on
the basis of a put-and-call increased by an arbitrary
amount calculated to cover the additional risk involved
in taking option money with so much of the money
already " run off" in one direction.
For example, the call of Milwaukees at the actual
price of 65 for three months is, say, $2^ ; that would
make the put-and-call at 65 worth $5. If the giver
wishes to risk $1 for the call, what price must he fix to
do his business ? If the put-and-call at both prices
were equal, the answer would be —
D = 2 (C - C 1 )
= 2 ( 2 i- 1)
Distance = $3 over the price.
Now, a dealer would not, as a rule, care to take $5
put-and-call of Milwaukee $3 over the right price,
although the risk may be said to cut both ways.
Milwaukee would have to rise from 65 to 73 before
the taker would lose, and in the other direction his loss
would begin proportionately sooner, viz., after a $2 fall
to 63 ; the range of his risk, or, as the Americans call
it, his " ten dollar straddle,'' would be from 63 to j$
instead of 60 to 70. But one of the reasons of his un-
willingness to accept the same terms is that a taker of
option money, from the nature of his business, backs
THE PRINCIPLES FORMULATED. 39
the inertia of the stock in which he is trading ;
just as the giver places his money on the rise or
fall, or both. If the stock does not move at all
during the run of the option money (an unusual event
by the way), the taker who has fixed 65 makes the
whole $5, whereas he would only make $2 out of the
$5 if he had taken his put-and-call money on the basis
of 68. When, therefore, a price is fixed considerably
under or over the actual price, the put-and-call is con-
sidered to be worth a little more, but the increase in
value cannot well be expressed in any fraction of the
"distance," or said to bear any particular ratio to the
whole of the " money '' ; it is rather a question of indi-
vidual fancy at the time of dealing.
To come back to our present example : the taker
thinks that in dealing about $3 out of the price, he ought
to have $5^ p.a.c. instead of $5, so, in answer to the ques-
tion, what price must be fixed for Si call of Milwaukees
for three months when the right quotation is $5 p.a.c.
at 65 and the taker asks %\ more for the additional
risk we have recourse to the same formula, C being
2 | instead of 2±
= 2(0-0) *?,
-2(2|-l)
= ?1 ','
2 *>]"'
The price to be fixed is accordingly '$33- over the
current quotation of 65, or $1 call at 68|-.
40
CHAPTER VII.
THE CALL O' MORE— PUT 0' MORE.
Having now firmly • established the principles involved
in turning the single into the double option, and vice
versa, and having discussed the manner in which the
original option money is affected by dealing in the
firm stock at the option price, or at any other price,
we shall be able to cope easily with the apparent in-
tricacies of call o' more and put o' more transactions.
We have seen in the chapter on definitions that the
call o' more is an option carried in a purchase of firm
stock effected at a price which is above the right mar-
ket price for the period in question.
It now remains to be shown, with the assistance of
the principles already laid down, at what prices such
transactions should be arranged, given a certain put-
and-call value.
From its very nature the call o' more or put o' more
must of necessity be an optional bargain at a price
other than the right price, seeing that the option
money is included in the price at which the stock is
bought or sold. Consequently transactions of this
description are not often done for long periods ahead,
for the "distance" would become so large that the option
would have to be very dear to compensate the taker's
THE CALL O MORE — PUT O' MORE. 4 1
risk in commencing a " long shot " operation with a
considerable amount of the money " run off". Call o'
more bargains are therefore more freely done from
day to day or for a week, one account or one month
ahead.
We will first follow one of these fancy options
through in the manner adopted with the examples
given in chapters iii. and iv.
On 20th August, 1892, De Beers Shares stand at
i4§. The three months' call until the middle
November account is worth, say, t# per share. Our
operator " sees his way " to buy
200 De Beers Shares at 15t\ call o' more
middle of November account.
The price of 1 5 A includes the contango rate for
five accounts (end August, mid and end September,
mid and end October), and as this rate has been ruling
about od. per share, tV must be allowed for contangos.
The speculator, therefore, has paid |- above the right
market price for the period for 200 shares, in order to
have the privilege of calling 200 more at the same
price at the end of the time. By 3rd September the
price has reached 1 5x5-, which, with allowance for con-
tangos, would be just about 15A for the mid November
account : he could now sell his firm stock at cost price,
and be left with the call of 200 shares for nothing.
He keeps it, however, for another week, and on
10th September sells 200 shares at 15H for
the mid November account.
42
THE CALL O MORE — PUT O MORE.
Whatever happens now, he will make a profit of
10/- per share on 200 shares, and he still has the call
of 200 shares at 1 5 tV for nothing. For the next month
there are but small variations, and, thinking" to provide
still further against contingencies, on
8th October he sells 100 shares at 15t# per
mid November.
His position now is : having first secured a profit of
\ per share on the firm 200, he again secures f on
100 shares, and, as shown in former examples, he has
the put-and-call of 100 shares at 151F for nothing ; so
that, besides the above profit, he stands to net an
additional gain on 100 shares of whatever De Beers
are above or below 1 5 A at the middle of November.
The rise continues, and by the contango day of the
middle of November account, when his option has to
be declared, De Beers have reached 1 7 J-, at which
price he sells the remainder of his stock, thus scoring
another 2 A on 100 shares.
His account is booked thus : —
Mid November,
7.0th August.
To 200 De Beers at 15^ (call
o' more) - - £3037 10 o
10th November.
To 200 De Beers at 15^
(called) - - - 3037 10 o
Balance • - - 393 15 o
£6468 15 o
1892, Account.
10th September.
By 200 De Beers at 15^ (sold) £3 137 10 o
8tk October.
By 100 De Beers at 15^1 (sold) 1593 15 o
10th November.
By 100 De Beers at 17! (sold) 1737 10 o
Balance of profit -
4 on 200 £100 o
§ on 100 - 75 o
2^ on 100 218 15
£6468 15 o
^393 15 o
£393 IS °
THE CALL O' MORE — PUT O' MORE. 43:
We see from the foregoing example that, in order
to turn a call o' more into a put-and-call, the giver or
buyer must first sell the whole of the firm stock and
then half as much again. He thus obtains a put-and-
call of half the original amount at the same price.
Let us now ascertain what amount of put-and-call'
money was represented in his purchase of 200 De Beers
at 15TF, when the right market price for the period
was i4§ + tf contango = 14 A.
He gave 15A — 141? = ■§ for the call of 200 shares,
at f- distance over the price.
Now, p.a.c. given = 2C given + D (unfavourable)
-if
His option risk, therefore, was on the basis of if put-
and-call at 15TF.
This may be more clearly illustrated in the follow-
ing manner : —
De Beers are 14A per mid November account.
A buys 200 shares at 1 5 A call o' more,
and sells 300 shares at 14A (market price) ;
B gives i|- put-and-call of 100 shares at 15A,
C gives # call 200 shares at 15A ;
and sells 100 shares at 141V ;
D gives 1 \ put 200 shares at 15 A,
and buys 100 shares at 14A.
Whatever De Beers mark at the end of the option
period, all four operators are in exactly the same
position.
A having sold 200 at f- loss, practically gives that
44 THE CALL O' MORE — PUT O' MORE.
amount for the call of 200 shares f- over the price, and
then, having sold another 100 at -| " unfavourable dis-
tance," converts his option into a put-and-call of 100
•shares at the original price—
P.a.c. = 2C + D
= 1 1 + 5
l 4= T 8
= 1 1 p.a.c. at i5tV.
By the same formula we see that C, having con-
verted his call of 200 into a put-and-call of 100, gives
P.a.c. = 2C + D (unfavourable)
= i-J put-and-call at i5xV.
D begins in the opposite direction, but has a
" favourable distance," and his position being also a
put-and-call of 100 shares, is expressed by the for-
mula —
P.a.c. = 2P - D (favourable)
_ »l_ 5
~ z 2 8
= i-g- p.a.c. at I5tV.
A, C, and D, therefore, have only gone a roundabout
way to do what B has done in one transaction,
viz. : —
Given if p.a.c. 100 De Beers at isA.
We have now only to go one step further to arrive
at the formula for the call o' more or put o' more,
which latter works on the same principle as the former,
but in the selling direction.
We have seen that the buyer of the call of more
practically gives the distance for the call at a price
-equal to the market price, plus the distance.
THE CALL O' MORE — PUT O* MORE. 45:
Now, p.a.c. = 2C + D (unfavourable *)
therefore, p.a.c. = 2D + D = 3D
and D = P^"
3
o ?i c
Therefore the distance of a call o' more =
3
nop
and the distance of a put o' more is likewise F
3
Exercise.
If, when a stock stands at 80, A buys ,£2000 at 81J
call o' more, and B is willing to give 4§ put-and-call
of ,£1000 stock at 8i£, what profit would A have if he
dealt with B, and how much stock must he sell to
secure his position ?
If A sells ,£2000 stock at 80, he has then given.
\\°/ call ^"2000 at 8i|- (i|- distance) ; he can turn the
operation into a put-and-call of ,£1000 by selling
another ^1000 at 80 ;
he has then given p.a.c. = 2C + D
= 4-J p.a.c. at 8 1 \.
So that, if he sells in all ^3000 stock, and takes from
B 4f% p.a.c. ;£iooo at 8i£, his position is "even," and
he has secured \% on ^1000 stock.
Exercise.
A stock stands at 80. Given that the put-and-call
is 3% for a certain period, what price is the stock (1)
* N.B. — In buying call o' more, or in selling put o' more, the
" distance " must always be unfavourable.
46 THE CALL O' MORE — PUT O' MORE.
-call o' more ; (2) put o' more ? (3) What is the call
worth at 8of ? * (4) What is the put worth at 79^?
O 3. C
(1) Call o' more = = 1% above the price.
Answer, 81.
nop
(2) Put o' more = * = 1% below the price.
o
Answer, 79.
p.a.c. - D 3
- a
4
(3) Call given = ^ *_A = i*.
Answer, 1^ call at 8o|.
. . _. . p.a.c. - D 3 - h ,
(4) Put given = v - = 6 -^ = ii
Answer, 1^ put at 79^-.
Exercise.
Bought ^4000 stock at 80 call o' more.
Sold 1000 „ 78.
„ 1000 „ 78|.
„ 2000 „ 79f.
„ 2000 „ 80^.
What single transaction would now make the
position even, without profit or loss ?
The first ^4000 stock is sold at an average of 78^-.
The risk is therefore limited to i^- on .£4000, and can
be expressed : Given \\ call ^"4000 stock at 80. Now,
this is converted into a put-and-call of ^2000 by selling
one half the option stock at 8o| —
P.a.c. - 2C - D
= 2
* Presuming that p.a.c. at 80 = p.a.c. at 8of, see page 36.
THE CALL O' MORE — PUT O' MORE. 47
■which can in turn be expressed : Given 2% put-and-call
^2000 stock at 80.
The operator must therefore take 2% put-andrcall
of ^"2000 stock at 80, in order to make himself even
without profit or loss.
Exercise. (From the takers point of view.)
Bought ^2000 stock at 80 put o' more. Given
that this option money has been taken, on the basis of
2^% put-and-call, what is the present price of the stock
for the period in question ?
Now, we know that the stock must stand higher
than 80, for the buyer, who is here the taker of
option money, has allowed for the option money in the
price.
r> > V.3L.C. l\
rut o more = = — *-
3 3
D = |7o.
Therefore, the stock must now be 8of.
Exercise. (From the taker s point of view.)
Sold ^2000 stock at 80 call o'more, given that the
put and call is 3% ; at what price would this dealer buy
stock put o'more ? *
We must first find the market price of the stock.
r 11 ' P- a - c -
Call o more = *
3
therefore D = 1
and the market price must be 79.
Now if the stock stands at 79, and the dealer is willing
* In this exercise the question of contangoes is not con-
sidered.
48 THE CALL O' MORE — PUT o' MORE.
to take 3°/ put-and-call, even if the price fixed is i% out
of the market price, he would also buy the stock put o'
more at a distance of = i. Answer, 78.
In the introduction, it was stated that the amount
of option money involved in a call of more transaction
was greater than would appear at first sight to the
uninitiated. Take the following illustration : From
time to time there have been immense optional trans-
actions done in Consols, and at those times the
difference between the buying and selling price of
£ 1 00, 000 consols would seldom exceed ^%. Thus,
at a given moment we will say Consols are 105^-^.
An option dealer (not a jobber in the Consol market) is
anxious to sell a block of Consols for which he would
perhaps be willing to take 105^. As, however, he has
a buyer of Consols call o' more, he sells them to him at
105!- cau °' more f° r tne account ten days ahead. He
has apparently only asked the full market turn, and
has " thrown in an option ". But on examination
it appears otherwise. It would have suited him to
sell his Consols at 105^, but finding a giver of option
money, he charges him 105! call o' more. The seller,
from his own point of view,, has thus taken ^ call at ^
above the price — equivalent to § put-and-call at 105^;
which will admit of a fluctuation of f% (from 105^ to
106) without causing him loss. Thus a " straddle " of
f % seems to be the result of getting instead of giving
the turn of the market.
49
CHAPTER VIII.
THE CALL OF TWICE MORE, THREE TIMES MORE, ETC.
In doing a call o' more transaction, the price at which
the firm stock is bought may carry the right to pur-
chase more than an equal amount of the stock at the
same price ; it may give the buyer the privilege of
calling twice more, three times more, or indeed any
number of times more ; but in this country such fancy
options are not much done, although in Germany
the call of twice more {zweimal noch) is not unfre-
quently negotiated.
It may, nevertheless, be of interest to give the for-
mulae upon which the prices are based for these
optional transactions, more especially as the sequence
of fractions is somewhat curious and withal easy to-
remember.
Firstly. — If a stock stands at 80, at what price*
ought one to buy it call of twice more, when the put-
and-call is 3% ?
Now, in this case the " distance " given in the firm
stock is to carry a right to call twice the quantity
at the whole distance above the price. The
4
SO CALL OF TWICE MORE, THREE TIMES MORE, ETC.
option money staked is, therefore, one half of the
distance.
P.a.c. = 2C + D
Now here C = —
2
therefore p.ax. = D + D
therefore D = ' ' = — = ij over the price.
Answer 81^.
Again, what is the "distance" of a call of three times
more? Here the call money is one-third of the "dis-
tance " given on three times the amount of stock : —
P.a.c. = 2C + D
here C =
D
3
3
therefore p.a.c. =
5D
3
and D =
3 p.a.c.
5
Hence if the stock stands at 80, and the put-and-call is
57„» then the price would be 83 call of three times
more.
Thus we see that the call of twice more is worth at
least over the price, the call of three times more
% D eL C
over the price, and by the same process we can
ascertain the distance of call of n times more.
CALL OF TWICE MORE, THREE TIMQES-MORE, ETC. 5 1
., ' P.a.c. = 2C + D. Now C = —
■ I-'. (>■> r., :. n \i
therefore' p.a.c. = - — + D ' i
2D + nD ' . " ',
.-,.<* i 1 il
•'I -->• i , ,1 A f ' , -
,\ ; ... = D {n + 2)
n
, n (p.a.c.)
therefore D = — ^ '- , ,
Or, putting it more plainly, the' " distance " involved
in a call of any number of times more is that fraction
of the put-and-call money represented by a numerator
equal to the number of times more, and a denominator
equal to the same number + 2.
To recapitulate —
Call of more = '— LJ - over the price.
.!,'■') , : , 2 p.a,c. _ p.a.c.
„ twice more = _ — „
'• •-, 3 p.a.c.
„ three times m6re' = —*—■ „
4 p.a.c. = 2 p.a.c.
., /our „ g — — - — ■ „
, • ' ' , _ 5 ,P- a - c -
_ 6 p.a.c. _ 3 p.a.c
7 p.a.c/ i '-
„ seven „ -— . ( „
etc., etc. In practice it would be found that a givet
could not as a rule "get on "at the .figures obtained by
52 CALL OF TWICE MORE, THREE TIMES MORE, ETC.
the preceding formula, for the reason set forth in
chapter vi. For instance, supposing a stock is 80 and
the put-and-call 4%, then; according to the formula that
stock would be worth buying at 83 call of six times more.
But what is the taker's position then ? Assuming that
he has sold ^"iooo stock at 83 call of six times more he
must first rebuy the ^1000 firm at 80 ; he has then
taken —
3% on ;£iOOO = |% on ^6000 call at 83..
If he now wishes to turn his position into put-and-
call—
He buys ,£3000 more at 80,
then p.a.c. = 2C + D (favourable to taker)
- 47,
He has taken 4% put-and-call of ^3000 stock with
three-fourths of the option money already run off, and
has dealt in ^5000 stock firm in order to do it. Pro-
bably no dealer would be willing to run such a risk on
these terms, viz., on the basis of the current rate for
the put-and-call.
Exercise.
A stock is quoted at 80, and the put-and-call for a
certain period is about 2^°/o- A is willing to take
2§ c /o put-and-call of the stock at about 1^-% above the
price. B will take 2§7„ put-and-call at about ij c / e
below the price. At what price would a dealer
(1) Sell ^2000 call of three times more ;
(2) Buy ^2000 put of three times more,
to leave himself a profit of ^ on the put-and-call ?
CALL OF TWICE MORE, THREE TIMES MORE, ETC. S3
And how must he hedge in the firm stock to make
himself "even? "
(i) If he wants ^ profit he must secure 2V L put-
and-call.
Now call of three times more = — = - = ii.
5 5
He would therefore sell ^2000 stock at 8i£ call of
three times more, and in order to fix his profit he
must first buy ^2000 stock at 80. He then stands
thus: Taken 1% call of .£6000 stock at 81?. Next,
by buying ^3000 more at 80, his position is : Taken
2-l7o p-a.c. of ^"3000 stock at 8 1 1. He then gives A
2! p.a.c. of ^3000 stock at 8ii. He has thus levelled
his position, has secured I profit on ^3000 stock, and in
order to accomplish this he has had to buy ^5000 stock.
(2) In the same manner,
r 1 ■ 3 P-a.c. 3 x 24
put of three times more = — = = ij;
so our dealer would buy ^2000 stock at 78! put of
three times more. Then, in order to be able to secure
his profit by dealing with B, he first sells at 80 the
^"2000 he has bought at 7 81. He has thus taken ¥L
put of ^6000 stock at 78i He next sells further
^3000 stock at 80, and his position is, by the formula
p.a.c. = 2 P + D : — taken 2\ p.a.c. of ^3000 at 78^.
Accordingly, by giving B 2% p.a.c. of .£3000 at 78I he
secures I profit on ^3000 stock and makes himself
"even," the operation having necessitated the sale of
^5000 firm stock.
i54
CHAPTER IX.
THE SINGLE OPTION DISGUISED.
In all the examples of option dealing considered in
former chapters, the operator has been made to deal
against his options in firm stock for the option . period.
In actual practice this is frequently very difficult to do,,
especially when it is a question of dealing for two or
three months ahead in times of excitement and great
speculation. At such seasons a buyer of stock for.
forward delivery would have to make a great conces-
sion in the price in return for the convenience of
avoiding a difficult contango. Again, it may occur
that, on account of some very bad news, a certain stock
has been much oversold ; that is to say, many people
not possessing any stock themselves, may have sold
"bears" of considerable quantities, which, at the,
follpwing contango day, they must either borrow or
buy back. Holders, in such cases, if they lend their'
stock at all, may demand a "backwardation," of which'
speculative "bulls" also get the full advantage. In
the war scare, some ten years ago, Russian stocks were
so freely sold here by "bears" that the German holders
were able to exact from ^°/ to I i°L backwardation per
account for the loan of their stock for many months.
At that time it would have been more difficult to give
THE SINGLE OPTION DISGUISED. 55
for the put of Russian than for the put-and-call — for
this reason : A taker of option money, as a rule, does
not wish to run a single option, for that would be
purely a matter of taking a view for the rise or the fall.
He likes to turn every single option straight away into
a double option, because, in spite of then " standing to
be shot at " in both directions, he is covered by twice
the amount of option money on half the quantity of
stock, and, as we said in a former chapter, he likes to
back the inertia of the stock in preference to taking
a view of its activity one way or the other. Now, if
an option dealer had already taken money freely for
the put of Russian stock, and in every case sold one
half of the amount for the current account, he would
find himself at each settlement a big borrower of stock
at a growing backwardation, which was perhaps not
allowed for at all at the time of dealing. In such a
case, although he might be willing to increase his
"book" in the put-and-call, he would be very un-
willing to increase his "bear" position in the firm stock.
To put it into figures, he would probably say to an
intending giver : "I will take 5-|% put-and-call of
^5000 stock at 82 for three accounts ahead, but if you
want to give for the put I must protect myself and fix
either 3^% put at 82, or 2§% at 81 ".
An operator, in order to disguise his position and
avoid suspicion, may elect to give for the put-and-call
of a stock instead of either the call or the put, and
afterwards turn his position into the single option by
degrees. There is a story of a German banker,
56 THE SINGLE OPTION DISGUISED.
anxious to dispose of a large amount of some bank
stock, approaching an option dealer who, after some
conversation upon the merits of the stock in question,
took money from him for the put-and-call of a con-
siderable portion of the amount the banker really
wished to dispose of. Some little time after the
option dealer found that the stock was easier to buy
than to sell, and not wishing to have this large block
thrown on his hands he took every opportunity of
raising the price whenever it could be done at the
expense of buying a few thousand pounds more of the
stock. A short time before the option became due the
selling seemed to have ceased, and, in fact, the price
rose so rapidly that the option dealer began to
wonder where he would get the balance of stock
from in case it was called of him. Indeed, so
great was his uneasiness that by degrees he covered
the whole of his position, the seller of the stock,
unknown to him, being his option giver ; and on
the day the option was due, the price was so far
above the option price that no doubt was left in his
mind as to which way the banker would declare his
option. At option time the banker approached the
proddealer, who said : " I congratulate you on the fine
fit you have on your option ; you, of course, call the
whole of your amount ". " On the contrary," replied
the knowing banker, " I do not call any I put it ; on
you." And the operation being well timed, an un-
favourable announcement concerning the affairs of the
institution was made that afternoon, and the option
THE SINGLE OPTION DISGUISED. 57
dealer found himself the unwilling possessor of the
whole amount of stock which had belonged to the
banker, who throughout the operation had never once
been obliged to show his hand.
The above anecdote, which is probably fictitious, is
not quoted so much with a view to dwell upon the
ethics of Stock Exchange transactions as to remind
the reader that the apparent market in ioo shares is
one thing, and the actual market in 10,000 something
very different
58
CHAPTER X.
OPTION-DEALING ABROAD.
Although very large transactions are from time to
time done on the French and German markets in
options, London is par excellence the option market of
the world. Perhaps the largest individual transactions
have been done in Paris, where speculators occasionally-
deal in amounts which are almost unheard of on this
side ; but there is nowhere the same facility for giving
and taking, for operating in long and short options, and
for hedging against a favourable put or call in the firm
stock as that which exists in London. It rarely
happens that an option is done in the Paris market for
more than one month ahead, and in Berlin too the
majority of such dealings are arranged for a similar
period. In London two and three months' calls are
easily negotiated in the active stocks.
Moreover it is curious to note that only in Eng-
lish is it easy to express in one term the various
positions relating to option dealing. Both the French
and the German expressions for any option other
than a plain call are as a rule awkward — frequently
even ambiguous. The difficulty of expressing " which
way " a person intends to deal is sometimes overcome
in German by adding on at the end of the sentence.
OETIONhDEAIXNG. ABROAD'.- S9
"I -remain, still " (Ich bleibe 'itillj, or " you ■ remain
still " (Ihr bleibet still), which means in the.ifirst case
you are giving the option moneys < and innthe latter /
am giving the option money. A certain (icohfueioii; of
the English and German option expressions is. brought'
about by the different sense in which, the words to
give and to take are used in the \ two. languages; fl. In
English, to "give for the call" or. to "give -'option
money " means to buy the option, whereas iii German
geben is generally used in the sense of "ito- .'sell ".
Again, nehmen means to take, but the Germanl'wiord
conveys the idea of buying when applied to transactions'
in stocks.
The French language provides very few direct and
clear expressions in connection with option j dealings.
An option is known as uHe option or une prime
(a premium), but no good expression exists for 'either a
call or a put, the former being known as une prime,
and the latter, on the rare occasions when it may be
required, being interpreted as "the right to be able to
deliver ". The terms for the call and put in German
are more expressive. They are " the forward pre-
mium" (Vorpramie) and the " back premium 1 " (Ruek-
prmnie). In Germany the put-and-call is treated some-
what differently from the London method. It is called
Die Stellage for which no English equivalent can
be found, but which corresponds with the American ex-
pression " straddle ". A put-and-call of, -2% at 80
covers a range of 4°/! from 78 to 82 ; this 4% range or
straddle is called the Spellage in German. There-
60 OPTION -DEALING ABROAD.
fore the straddle or Stellage is twice the put-and-
call and four times the single option.
The term call o ! more finds an equivalent in
German, " the option with more " (Option auf mehr,
or Prdmie mit nock), but none in French. The
best expression that the French language can provide
for the call of more is " the right of being able to claim
the same quantity," but as this operation is hardly ever
practised in France, it does not matter much.
The custom of speaking of " so much option money
at such and such a price " is only prevalent in England.
The foreign mode of expression, "a certain price, oj
which so much is option money," is convenient in rela-
tion to calls, but breaks down completely if one attempts
to apply it to puts. Give f call of ^5000 stock at 80
is very neatly turned as " Achetez, £5000 at 8of, dont
f," or " Kaufet, £5000 zu 8of, dont \ ". But where
are we when we want to telegraph to Paris with as
much economy as is consistent with business principles,
" Give f put of £5000 at 80," and have to say, " Payez
%°/ a pour avoir le droit de pouvoir livrer £5000 a 80 " ?
Again, in a call o' more or put o' more transaction,
there is a crispness in the English expression which
leaves no doubt as to which way the person giving his
instructions wishes to act. It is quite clear that any
one who desires to buy call o' more or to sell put o'
more is a giver of option money, and that he would be
a taker of option money if his instructions read "sell
call o' more," or " buy put o' more ". The intention of
the operator, however, is not quite so transparent when
OPTION -DEALING ABROAD. 6 1
his instructions are given in such terms as, " Achetez
^2000 a 80, dormant le droit depouvoir livrer autant,"
or " Kaufet, £2000 zu 80, mit einmal nock Ruck-
pr'amie ".
The following brief vocabulary in English, French
and German of expressions incidental to dealing in
stocks, more particularly in relation to optional trans-
actions, may be of some little use : —
62 •' Option -dealing abroad.
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OPTION-DEALING ABROAD.
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«4
CHAPTER XL
THE VALUE OF THE PUT-AND-CALL.
The reader of the headline to this chapter will
probably ask, " What do you mean by the value ot
a put-and-call ? The price of a put-and-call may be
quoted in the option market at a given moment, but
what the value of that option is no one can say until
it has expired. " And to a certain extent this statement
would be correct, but it may be worth while to discuss
the conditions regulating the prices of options, and to
see if we can determine some method of ascertaining
at any rate the probable minimum value of a put-and-
call for a certain given period.
In order to do this, let us first see what the givei
for the call of a certain stock really does. He thinks,
for example, that Brighton " A " stock is going to rise,
but having, on previous occasions, found that the
movement of this stock for some inscrutable reason
had been diametrically opposed to the favourable
opinion he had preconceived of it, he seeks to insure
himself against unlimited risk, and is willing to pay an
insurance premium for the convenience. Accordingly,
he goes to an option dealer, who is willing to grant
insurances against rises and falls, and says : " I wish
THE VALUE OF THE PUT-AND-CALL. 65
to speculate in Brighton ' A for two months ; if I
buy ^"5000 stock, at what rate will you insure me
against loss?" The option dealer replies: "I will
take the risk of the rise or fall for 2i°/o. or the risk of
both for 4l%"- Now what is it that suggests the
figure of 4.VU to the option dealer as a reasonable
cover for the risk he is taking over? He must say to
himself: " I do not think, judging from my experience,
that the fluctuation of Brighton ' A ' during the next
two months will be more than 4*%. It has been much
more at times but the market is dull now, 4i°/ is a
good deal of money in hand, and I think the business
is worth doing". He forms in his own mind an
estimate of the probable movement of the stock during
the next two months, and the result of his mental
calculation is that he runs the risk of the rise and fall
from the present market price of Brighton ' A ' for a
premium of 4¥ / o . Had the proposition been Consols
he would probably have asked about t°/ , Erie Shares
2F/0. Milwaukee Shares 5% — all on the same rough and
ready principle. Now, is it not possible to ascertain
by statistics a figure which should represent more
accurately the "probable risk'' run than one which
has been determined, in the first place, by guess work,
and in the second, by the speculative impulse of the
moment.
The writer is of opinion that the risk can be
ascertained with a considerable degree of accuracy ;
and in this belief he has selected some of the principal
speculative stocks and traced their fluctuations from
5
66 THE VALUE OF THE PUT-AND-CALL.
week to week over a period of seven years from
January, 1888, to December, 1894. The price of each
week has been compared with those of the previous
week, fortnight, month, two months, and three months
(the fluctuations being carried out in columns), and
averages have been taken over the whole period in
question.
The stocks selected for the purpose are : Consols,
Brighton ' A,' Spanish 4%, Rio Tinto Shares, De
Beers Shares (since 1890, five years), and the fol-
lowing shares in the American market : Erie, Norfolk
and Western, Union Pacific, Chicago, Milwaukee and
St. Paul, and Louisville and Nashville.
During the seven years under review these ten
representative stocks have been subject to every kind
of influence, financial and political ; they have seen
times of utter stagnation, and times of the greatest
activity ; weak markets and strong markets ; alternate
periods of excessive optimism and desperate depression,
and during the whole term they have moved up and
down consistently with the spirit of the seasons through
which they were passing, the fluctuations at one
moment being rapid and violent, at another almost
imperceptible. If, therefore, an average be ascertained
of the fluctuations for given periods in the market
prices of these representative stocks, would not that
average form a fair basis upon which to calculate the
expected performance of those particular stocks in the
immediate future ? In fact, does it not come to a
question of insurance pure and simple, a premium
THE VALUE OF THE PUT-AND-CALL. 6?
being asked to cover a risk ascertained by a kind of
actuarial calculation ? Very nearly, although there is a
difference between this and other classes of insurance ;
were it not so, one could reduce Stock Exchange
operations to a certainty, which is known, to borrow
Euclid's expression, to be absurd. The difference
lies partly in the fact that the statistics governing
the premiums exacted for insurances upon life, fire,
accident, etc., are obtained with greater accuracy from
results spread over a much longer period than it would
be possible, or even useful, to do in the case of stocks,
and that the conditions from which those results fol-
low are much more regular and reliable. Thus, a life
insurance company knows that out of one thousand
"healthy males" of thirty years of age, it can, with
the greatest amount of certainty, expect eight or nine
to disappear from the scene of its actuarial calcula-
tions before the age of thirty-one. In other words,
the " cost of carrying the life " for one year of a man
aged thirty, of robust health and good habits, is ascer-
tained to be under £g per ^"iooo. Whatever the
company can charge over and above this amount, plus
the working expense, must be its profit, always pro-
vided that it can do sufficient business to establish an
average. And it is precisely these last words that express
the great difference existing between the insurance
against fluctuation of stocks and most other classes of
insurance. To calculate the value of a risk is one
thing, but to make a profit by dealing on that basis is
quite another. An individual might insure the life ol
68 THE VALUE OF THE PUT-AND-CALL.
another to the extent of ^"iooo for ^30 per annum (on
the assumption that the actuarial risk was ^15), and
consider that he was making ,£15 a year by the trans-
action ; but if the insured dies in the first year there is
a loss of ^970 in spite of all actuarial reckoning. He
must "take the money" very many times to make it pay.
It is just so with the taker of option money. Not
only must he ascertain the average past behaviour of
the stock he is about to deal in, but he must be careful
that he can sell this risk a sufficient number of times
during the year to establish the average upon which
his premium is based.
Now, most people who are conversant with the
nature of speculative transactions in stocks, and with
options in particular, will know that owing to the fickle
nature of givers of option money it is impossible to
establish the average as suggested above. In actual
practice, it is found by option dealers that, unlike other
classes of insurers who are willing, e.g., to insure their
lives although they are in the best of health and spirits
at the moment, or their houses in spite of their enter-
taining no immediate fear of being burnt out, the giver
of option money only seeks protection when he con-
siders that the option money paid does not anywhere
nearly represent the risk of which he is relieving him-
self by passing it on to his taker. There is not that
noble unselfishness about a buyer of a put or a call
which is displayed by the man who insures his life only
because "all men are mortal," and provision must be
made for his little ones. Indeed, where would our
THE VALUE OF THE PUT-AND-CALL. 69
great life insurance companies be if they only re-
ceived proposals from people who came in because
they were not feeling very well ? It amounts to this,
that the greatest demand for options springs up at
a time when it is least profitable for the taker to
operate, when dealing against the option in the firm
stock is fraught with the most serious danger and diffi-
culty ; and, per contra, just when the option taker has
a chance of recouping his losses by "running the put-
and-call" in a dull and inactive market, he finds that
there are " no givers " f Then, it may be asked, how is
it possible ever to find a taker of option money at any-
thing like a reasonable rate ? The answer is that the
option dealer does not work upon any regular system
or actuarial basis, but is guided in his operations
mainly by the speculative impulse of the moment.
This speculative impulse does not exist in any other
description of insurance, and had it existed to any
appreciable extent, the life 01 the great insurance cor-
porations would be as extinct at the present moment as
is the business of the majority of the great option
dealers who have found by experience that it is the
givers, and not the takers, of option money who have
gained the advantage in the long run A comparison
of the table of the Average Fluctuations with lists of
option quotations ruling in the market during past
years will suffice to illustrate the argument that takers
of option money have been carrying on an insurance
business with no margin for profit and working ex-
penses, even if they could rely on being able to take
yo THE VALUE OF THE PUT-AND-CALL.
the same amount of option money on the same quan-
tity of stock all the year round and for many years
in succession.
To lay down a distinct rule for the amount which,
in order to provide a reasonable margin for profit and
working expenses, it would be necessary to add in the
shape of "loading" to the option values, as set out at
the end of this chapter, would be extremely difficult ;
for the conditions of the markets vary so much that
what might appear a liberal allowance at one time
would be inadequate at another. It is safe to assert,
however, that in order to carry an option-taking busi-
ness to a successful issue it would be essential : —
Firstly, to ascertain the past average fluctuations
over a considerable period of time of the stock to be
operated in.
Secondly, to consider whether there is any special
influence at work calculated to modify that average
result in the immediate future (such as a particular
scarcity of the stock for delivery, financial strain, or
probability of political complications).
Thirdly, to accept risks on approximately the same
amounts of stock at regular intervals of time.
Fourthly, to add to the " average value " of the put
and call an amount which will give a fair margin of
profit and allowance for working expenses.
Fifthly, to make provision for possible default on
the part of the giver (since the option money only
becomes payable at the end of the option period), and
for special contingencies, such as large differences or
THE VALUE OF THE PUT-AND-CALL. J\
bad debts on option stock carried over — through buying
one half of the stock to convert the call into a put-and-
call — or loss through an unexpected rise in the money
rate, none of these mischances being provided for in
the "average value" tables, which have been calculated
simply from the average fluctuations.
Sixthly and lastly. — To be careful that, having once
accepted a risk, the option shall be allowed to run to the
end of the option period without being tampered with
by hedging operations in the firm stock or "cutting the
loss" before its time, and that at the expiry of the
option the profit or loss shall be taken as final and the
position be absolutely closed.
Neglect of any of these conditions would com-
pletely spoil the average and convert a stocks insurance
business into a mere gamble. Let us examine how far
they have been observed in the quotations of options
for two months and three months respectively in two of
the leading speculative shares of the American railroad
market — Milwaukee shares and Louisville and Nash-
ville.
Tak rig the first-named stock we find that in 1888
fifty-two fluctuations of two months averaged 4*47% ;
the same number of fluctuations in 1889 averaged
3-02%; in 1890, 6-05°/ ; in 1891, 4-63%; in 1892,
2.88°/ ; in 1893, 6-48%; and in 1894, 4-29%— showing
a grand average over the seven years of 4 - 54°/ .
The three months' fluctuations in the same stock
come out as follows : In 1888, 4'20% ; in 1889, 3'i6°/ o ;
in 1890, 8-ii /c; in 1891, 670%; in 1892, 2-go"j o ; in
72
THE VALUE OF THE PUT-AND-CALL.
1893, yo2°U ; in 1894, 5-4070— giving a grand average
in seven years of 5 - 29°/ -
By the same process we find that the two months
and three months' fluctuations of Louisville and Nash-
ville shares were —
Two Months.
Three Months
1888,
- " 3-84°/. ■
4 19/0
1889,
- - 5 '43%
8-027.
1890,
477%
Average,
5-05%
A
1891,
1892,
4-32%
2-88%
* 4-457c
■ 4'59%
2'907o
■
1893.
5-4i%
7-287.
1894,
4"53%.
5*40%,
Average,
5"34%-
Now, to put the argument into a practical form we
will assume that it would have been possible for an
individual or a company to take 4 ~457o for the put-and-
call for two months of 1000 Louisville Shares once
every week from 1st January, 1888, to 31st December,
1894 ; that it was not necessary, in order to do this, to
take for the call of 2000 shares and buy 1000 shares,
thereby indirectly increasing the risk and working
expenses ; that no bad debts were incurred by givers
failing to pay up at the end of the time ; that every
transaction was closed at the expiry of the option, and
that no unfortunate hedge against a dangerous-looking
option was ever done during its currency. The taker
would have had a running risk of 8000 shares against
him, one option maturing every week and another
taking its place ; he would have dealt fifty-two times
in 1000 shares in each year, and again fifty-two times
THE VALUE OF THE PUT-AND-CALL. 73
in iooo shares in re-buying or re-selling to close
his position; that is, in 104,000 shares (of $100
each), or in a total of 728,000 shares in the seven
years, equal to a turnover (taking an average price of
60) of ,£8,750,000, with a result of no profit, many
heartaches, and the whole of his working expenses
to the debit of the account.
But suppose that an individual dealer could conduct
an option business on the above scale at a working
expense of ,£1300 per annum, inclusive of bad debts,
and that, being a modest individual, he would be will-
ing to run a permanent risk against himself of 8000
shares for about ,£5000 a year profit ; finally, that he
uses in his option business only an amount of capital
sufficient to cover the loss on 8000 shares in the
greatest two months' fluctuation in Louisville known
during the last seven years (i6|°/o in November, 1890),
say ^26,000 ; he would then have to charge for the
option —
(1) The " average value," say - - 4^-%
(2) Proportion of working cost .£1300 ■§■%
(3) Proportion of 5% interest on a
capital of .£26,000 - - -g-%
(4) Other contingencies ... i°/
(5) Margin of profit - - - ^%
Total .... 5 f°/ o
Thus, by taking every week 5§ put-and-call of 1000
Louisville Shares for two months ahead, and closing
the operation in each case at option time, a taker
74 THE VALUE OF THE PUT-AND-CALL.
would secure a profit in the average of $J per share,
equal to ^5200 on 52,000 shares. On the basis of 5^
his profit would be ^2600, and at 4§ he would have
paid his working expenses and the interest on his
capital, but have no profit.
Now, to turn for one moment to fact, notice that : —
In the first week of January, 1895, the two months
single options in Louisville and Nashville Shares, and
Chicago Milwaukee and St. Paul Shares were quoted $ 1 %,
equal to %? > \for the put-and-call 7
The three months' single options of these two
stocks on the same date were quoted respectively $2^
and $2§ , equal to $4^ put-and-call on Louisville and
$4f on Milwaukee. The " average values " for three
months come out 5'34°/ on Louisville and S' 2 9°L on
Milwaukee, and, treating these figures in the same
manner as we have done in the case of the two months
options, we find that, on the basis of $6^-, the option
taker would have averaged a profit of $^ per share
during the seven years, 1888- 1894, and that at the
premium of $5§ he would just have paid his expenses
and interest on capital. At any lower premium he
would have worked at a loss.
It is not the intention of the writer to illustrate any
further the difference between the actual market prices
of options and their " average values ". The fore
going examples have been quoted with a view to
suggesting further investigation on the part of the
reader, and for the purpose of placing before him a
method of examination which may make the study of
THE VALUE OF THE PUT-AND-CALL. 75
options and option dealing something better than dry
business and dull figures. The appended table of
average values is by no means complete, although it
has been prepared, as far as it goes, with a consider-
able amount of care, and the main object of intro-
ducing it into this little volume is to offer a practical
reply to those who have been heard to say : "If the
option dealer thinks it good enough to take the money,
it cannot be ' business ' for me to give it ".
7 6
TABLE OF AVERAGE VALUES.
The approximate value of the " put and call " of some leading stocks, as ascertained by the average
fluctuations for the periods in question, between ist January, 1888, and 31st December, 1894.
5>
M
M
•)
a.
V
j£
rt
^
cd
en
n
ra
u
u
><
0}
>
<
OJ
0)
>
<
OS
>
<
c
>
<
. >
<
1888
'25
•40
■67
'%
I'l8
1889
•ig
'29
'39
■58
79
1890
■30
'49
72
i' 06
I '34
CONSOLS.
1891
•25
■36
•47
■64
75
1892
■24
•32
■49
79
I'lO
1893
•23
■36
56
•85
1*07
3894
■22
■24
•38
•37
70
'57
1-17
•86
i'65
1 12
1888
'9 1
1 '39
2'OI
3'6g
5'65
1889
'•41
2'2I
3'8o
6-o8
7'3l
J 890
1'26
2'09
2'g7
3'4°
4'oo
BRIGHTON "A".
1891
1 25
1-88
2'99
464
5'28
1892
i"o6
i'6o
271
475
6*40
1893
1-23
2'00
3-04
4'65
6'25
1894
ri6
1.18
i'6g
■•83
2-87
2*90
3-92
4 '45
473
5-66
1888
•46
74
1 '14
1 '97
2'88
1889
•50
78
1 '29
178
1 '99
l8go
■52
•80
I '20
i'74
205
SPANISH.
1891
75
1-08
i'63
2'25
2-63
1892
•82
I '22
l'93
2'8 5
319
1893 i -6i
1*00
1*63
2-13
2'24
1894 1 '59
•60
■87
■92
1*30
1-44
2-31
2'I4
3'I9
2-59
1888 | -62
•88
I'I4
2-14
2'g5
1889
■61
•96
1 '6g
3"02
3'93
1890
•50
•80
1 '55
2'05
2'64
RIO TINTO.
1891
'42
•6b
•81
I'og
1 "29
1892
'33
'51
•86
rog
roi
1893
'22
'37
'57
•83
1 '06
1894
■28
■42
•38
■64
■60
1-03
'91
1-59
I"02
198
1888
1889
1890
OE BEERS
'44
•59
■92
1 '27
1 '40
1891
'35
'5°
74
no
1 '25
(five years only).
1892
•22
'37
•58
1 '06
1 '47
1893
32
•47
■77
1 '22
l'6i
1894
■32
'33
'39.
46
•66
"73
1-07 1 -18
l'26
l - 39
1888
72
'97
1 "64
2'53 !
2-51
1889
•62
•70
97
I'46
1 '43
1890
'57
'97
1'56
2-36
2-88
ERIES.
1891
'93
1-24
1 '97
3-10
3'8 5
1892
•go
l'25
l'63
2*07
2'22
1893
•go
1 '32
1-89
273
3'22
1894
•56
'74
■83
1-04
1 '43
■■58
2*06
2-33
2'37
2-64
1888
r'45
2'og
3'*3
4'47
4'20
1889
-1*27
l'56
2'44
3*02
316
l8go
I-I6
2 21
3'45
6-04
8'll
MILWAUKEE.
l8gi
1-28
r8i
274
4'63
670
l8g2
rig
1 '44
2 '00
2'88
2'90
1893
1 '95
2'94
4*22
6' 4 8
7'02
1894
ri8
'•35
2'0I
2 'OO
2-97
2'99
4-29
4 '54
4-97
5 '29
1888
I'lO
i'55
2'6o
3'84
4'lg
1889
I "22
176
3'o5
5'43
8'02
1890
I '25
2 "04
3'I3
477
5'05
LOUISVILLE.
l8gi
1 '49
2-05
3'20
4'32
4'59
i8g2
rig
1-44
2*00
2-88
2'go
1893
i'75
279
3-29
5'4l
7-28
1894
'94
1-27
1 '67
1-pO
3'03
2-90
4'53
4 "45
5 '40
5 - 34
1888
'92
1 '33
2'3I
3'I9
3'6o
1889
78
I '22
rg6
3'0I
3'63
l8go
•84
1 '45
2'ig
3'i6
3'2I
NORFOLK PREP.
l8gi
I'OO
1 '32
2*25
3'°3
2'go
l8g2
75
I"22
1-67
2'39
2'59
l8g 3
'97
1 '53
2*04
3'47
47o
1894
■87
•87
l'36
■'34
2'II
2*07
278
3"<>0
3'io
3 '39
1888
n8
1-63
2*13
287
3-48
1889
1-07
1 '42
I'gg
293
3'29
1890
ri8
1 '97
3-01
473
6'i7
UNION PACIFIC.
1891
i'39
2*00
2'62
3'25
3'3°
1892
'93
l'3l
i'8g
3'02
3'82
1893 1-38
2'II
3'°9
4'37
4'92
1894 j 79
1-13 1-34 1-68 211
2'40
2-94
3 '44
3'23
4"03
PREMIER CODE USED— see back.
Telegrams: "EPFINGERE, LONDON". NOVEMBER, 1913.
CATALOGUE
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PUBLISHED AND SOLD BY
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INDEX.
Arbitrage— page
Deutsch's Arbitrage in Bullion, etc. 13
Willdey's American Stocks . . 26
Arbitration —
London Chamber of . . . .24
Lynch, H. Foulks . . . .19
Rudall's 23
Banking —
Balance Sheets
Bank Book-keeping
Banks of the Clearing House
Bibliography (Bank of England)
Easton's Banks and Banking ,
Eastons Work of a Bank
Howarth's Clearing Houses
Hutchison, J., Practice of
Scottish Banking .
Smith's Banker and Customer
Bankruptcy —
Duckworth's Trustees ... 9
McEwen (Accounts) . . .20
Stewart (Law of) . . . .7
Bills of Exchange-
Smith (Law of Bills, etc.) . , - 6
Book-keeping —
Donald (Mining Accounts) . . 14
English Banks . . . .14
Holah . , . . ' . .8
Jackson ...... 17
Johnson's Book-keeping'and Accounts 17
Killik's Stock Exchange Accounts . 18
Merces' (Indian Currency) . 21
Munro's Down to Date and Key . 21
Seebohm's (Theory) ... 8
Sheffield's Solicitors . . .24
Tradesman's Simple Ledger . 19
Van de Linde . . . . 26
Clerks-
Commercial Efficiency .
Corn Trade .
Counting-house Guide .
First Years in Office Work
Kennedy (Stockbrokers)
Mercantile Practice (Johnson]
Merchant's
School to Office
Solicitor's
„ Part II. .
Work of a Bank
rrespondence (Commercial) —
Martin (Stockbrokers) ' .
Coumbe .....
Russian Commercial (Bondar)
Counting-house —
Cordingley ...
Pearce .....
Administration Orders .
County Court —
County Court Practice .
Jones
Currency and Finance —
Aldenham (Lord) .
Barclay (Robert) .
Clare's Money Market Primer
Cobb's Threadneedle Street .
Cuthbertson ....
Del Mar's History .
Del Mar's Science of Money .
Gibbs, Hon. H., Bimetallic Primer
Haupt .....
Indian Coinage and Currency
Poor (H. V.) The Money Question
Dictionaries —
Cordingley's Stock Exchange Terms
French Abbreviations
London Commercial
Milford's Mining ....
Directors —
Pulbrook (Liabilities and Duties) .
Exchanges —
Brazilian Exchange
Clare's Money Market Primer
Deutsch's Arbitrage
Escher's A Foreign Exchange Primer
Foreign Exchange in Accounts
Goschen
Norman's Universal Cambist
Tate's Modern Cambist .
Exchange Tables —
American Exchange Rates
Continental Calculator .
Dollars or Taels or Sterling .
Eastern Currencies
Garratt (South American)
Koscky (Russian) ....
Lecoffre (Austria and Holland)
,, (French) ....
,: (General) ....
,, (German) .
,, (United States) .
Merces (Indian) ....
Schultz (American) ....
,, (German) ....
Uruguay and Argentina .
Insurance —
.Principles of Fire Insurance
Short-Term Table .....
Interest Tables —
Bosanquet ....
Crosbie and Law (Products) .
Cummins (2| °/ ) ....
Dougharty's Simple and Compound
Gilbert's Interest and Contango
Gumersall
Ham (Panton) Universal
Indian Interest (Merces) .
Oppenheim ....
Rutter's General (Decimals) .
Schultz ... , .
PAGE
13
17
IO
12
12
13
X J
14
15
16
13
18
13
21
23
26
12
13
IS
17
IS
IS
19
15
18
19
19
19
19
19
21
24
24
17
18
25
13
13
14
IS
16
16
21
22
5
24
Effingham Wilson, 54 Threadneedle Street, London, E.C. 3
Interest Tables (continued) — page
Stevens on Sums under £i -25
Wilhelm (Compound) . . .26
Investors (see also Stock Exchange
Manuals) —
Houses and Land \ . . . 8
How to Invest Money ... 8
How to Read the Money Article . 14
Investment Ledger . . . .11
Investor's India Year-Book . . 5
Investors' Tables . . . .16
Investment Profit Tables . . 26
Nigerian Mining Manual . . 5
What's What in the City . . 20
Joint-Stock Companies —
Company Frauds Abolition . . 23
Company Management . . .15
Company Transfer Work . . 4
Common Company Forms . . 23
Formation and Flotation . .11
Prospectuses (Law of) . . .4
Pulbrook's Handy Book on Com-
pany Law 23
Pulbrook's Responsibilities of
Directors 23
Receivers and Liquidators . . 4
Reid's Companies Acts, 1900 and
1907 23
Reid's Reminders for Secretaries . 23
Secretary's Everyday Guide . . 15
Secretarial Practice . . . 24
Simonson's Debentures and Deben-
ture Stock (Law of) . . . 24
Simonson's Reduction of Share
Capital 24
Simonson's Reconstruction and
Amalgamation . . . .24
Simonson's Revised Table A . .24
Smith (Law of Toint Stock Companies) 6
Transfer Work .... 4
Law (Various Subjects) —
Abridgment of the Law (Folkard) . 15
Agricultural Holdings Act, igo8 . 17
Bills of Sale Acts .... 16
Charter Parties 14
Children'sAct,PoliceOfneer'sGuidetoi5
Commercial Law (Neave) . . 21
Compulsory Taking of Land . . 9
Constable's (A) Duty . . .20
Death Duties 11
Declaration of London . . . n
Divorce Law and Practice of . .16
Evidence in Brief . . . .18
Factors (Law relating to) . . n
First Elements of Legal Procedure . 10
Foreigners and Foreign Corporations 14
Gaming, Betting and Lotteries , 22
General and Particular Average . 14
High Court Practice . . .22
Injuries to Workmen ... 9
Landlord and Tenant ... 9
Local Government Law (Provincial) 10
Magisterial Handbook . .9
Marine Insurance , , . .14
Law (Various Subjects) (continued) — page
Maritime Law . . . .25
Mortgages ..... 23
My Lawyer . .... 21
National Insurance Act . . .10
The Master Mariner's Legal Guide. 23
Patent Law and Practice (Emery) . 14
Payment of Commission ... 9
Police Officers' Guide . . 15
Port of London Act, 1908 . . 10
Powers of Attorney and Proxies . 19
Railway Law 9
Reduction of Share Capital . . 5
Repairs, Household . . . 12
Small Holdings and Allotments . 17
Solicitors' Forms (Charles Jones) . 18
Sunday Travellers . . . .10
Title Deeds 25
Trade Union Law .... 9
Trust Accounts . f . . 25
Legal and Useful Handy Books —
List of .... . 6-10
Maritime Codes —
German 10
Holland and Belgium . . -23
Italy ...... 23
Spain and Portugal . . .23
Mining-
Accounts of G. M. Cos. . . .14
Gabbott's How td Invest in Mines . 15
Milford's Pocket Dictionary . . 21
Miscellaneous —
Arithmetic (Practical) , . .22
Author's Guide . . . .26
Business Barometers . . . 10
Compound Interest and Annuities . 24
Constable's (A) Duty . . . 20
Copper, A Century of . . .11
Cotton Trade of Great Britain . 14
Dynamics of the Fiscal Problem . 19
German Grammar (Boudar) . . 5
Gresham, Sir Thomas (Life of) . 12
Ham's Customs Year Book . . 16
Ham's Year Book (Excise) . . 16
His Lordship's Whim . . , so~>
Income Tax . . . . 5„ 19.
Kew Gardens (Illustrations) „ , 261
Land Tax Valuation . . ■ 9-
Lawyers and their Clients . . ijfc ,
New York Stock Exchange from
Within e
People's (The) Money ... 13
Police Constable's Guide to his
Daily Work ,
Public Meetings . . . ! 25
Rates, Taxes and other Outgoings . 21
Russian Commercial Handbook . 22
Russiar Grammar, Bondar . . 5
Traders and Railways . . . 26
Workiig Classes, The Future of . 10
X Raj' 5 in Freemasonry-, , . ™
Money Market (see Currency and
Finance).
Effingham Wilson,
Options —
Castelli's Theory
Put-and-Call .
PAGE
12
. 16
Pamphlets 2; , 28
Prices —
Mathieson (Stocks) . . .20
Railways —
American and British Investors . 25
Argentine Railway Manual . 18
Mathieson' s Traffics 20
Poor's Manual (American) . . 22
Railroad Report (Anatomy of a) . 26
Railway Law .... 9
,, Traffic .... 9
Ready Reckoners {see also Exchange
Tables, Interest, etc.) —
Buyers and Sellers' (Ferguson) . 7
Elgies' Metric Ready Reckoner . 14
„ .Wages Reckoner . . 14
Ingram (Yards) . . . .17
Kilogramme Table . . .26
Kinmond's.Universal . . .18
Merces (Indian) . . . .21
Metric Valuation of Weights and
Measures ... .5
Norman's Commission and Due
Dates .21
Robinson (Share) . . . 23
Sinking Fund and Annuity Tables —
Booth and Grainger (Diagram) . n
Dougharty's Annuities and Sinking
Fund .14
Speculation (see Investors and Stock
Exchange).
Stock Exchange Manuals, etc.
Chevilliard's Le Stock Exchange . 12
Contango Tables . . . .15
Copper, a Century of . .11
16
PAGE
Stock Exchange Manuals, etc. icontd.) —
Cordingley's Guide and Dictionary 13
Fractional or Decimal Table . .12
Higgins. Leonard.The Put-and-Call 16
Houston's Canadian Securities . 16
Investor's Ledger . . . .20
Investors' Tables, Permanent or
Redeemable Stocks
Key to the Rules of the Stock Ex-
change
Laws and Customs (Melsheimer) .
Mathieson's Redeemable Invest-
ment Tables
Options (Castelli) ....
Poor's American Railroad Manual
Poor's Manual of Industrials .
Poor's Manual of Public Utilities .
Redeemable Stocks (a Diagram)
Registration of Transfers
Robinson (Share Tables)
Stockbrokers'' Investment Tables
Stock Exchange Values .
Willdey's American Stocks
Yield Tables for £1 Shares
Tables (see Exchange Tables, Interest
Tables, Ready Reckoners, and
Sinking Fund and Annuity
Tables, etc.).
Telegraph Codes —
Ager's (list of)
Hartfield's (list of) .
Miscellaneous (list of) . 29, 30,
The Premier Code ....
The Premier Code Condenser
Trustees —
Investment of Trust Funds
Trustees, their Duties, etc.
. 6
. 6
Wilson's Legal and Useful Handy
Books List .... 6-10
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30 Effingham Wilson,
TELEGRAPH CODES— continued.
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TELEGRAPH CODES— continued.
Official Vocabulary in Terminational Order.
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50s. „ „
50s. „ „
50s. „ „
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AGENT FOR ALL HARTFIELD'S CODES.
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THE
PREMIER
CYPHER TELEGRAPHIC
CODE
Containing close upon 120,000 Words (from A to M,
specially selected from the Berne Official
Vocabulary) and Phrases.
THE MOST COMPLETE AND MOST USEFUL GENERAL CODE YET PUBLISHED.
COMPILED BY
WILLIAM H. HAWKE.
SOME OPINIONS OF THE PRESS.
" It is calculated to save expense by making one word do the duty of two to five
words as compared with other codes, without trouble or loss of time. This result
has been obtained by introducing novel and simple methods of tabulation. The
scope of the code is a very wide one, and makes it suitable to the traveller as well as
to the commercial man." — Telegraph.
" Is distinguished among books of its kind by the unusual width of its range.
For the rest it is a careful work, which keeps constantly in view the practical needs of
men of business." — Scotsman.
" The code is certainly a marvel of comprehensiveness, and at least the translation
of messages would appear to be easy, owing to the system of initial words and cross
references embodied in it, and the conspicuous headings." — Manchester Guardian.
" An extremely valuable cypher telegraphic code. The saving of expense is, of"
course, the primary object of a code ; but another consideration with Mr. Hawke has
been to arrange a code so that what is required to be transmitted can be sent with
the least possible trouble and waste of time.'* — Financial News.
1 ' This compilation is excellent in choice of messages and simplicity of arrangement.
Those who have had to deal with other codes will appreciate this point. Particularly
admirable are the joint tables for market reports, which can give quotations and tone
in one word. What with careful indexing to the matter and ingenious simplicity this code
is certainly one of the best we have yet seen." — Shipping Telegraph, LiverpooL
" An Vollstandigkeit diirfte es von anderen Werke gleicher Art kaum ubertroffen
werden." — Frankfurter Zeitung.
" The systems of tabulation are simple, and the general appearance of the
volume seems to confirm the claim that this is by far the most complete code ever
issued." — Tribune, Chicago.
" Mr. Hawke's long experience as an expert in telegraphic code systems is a full
guarantee of the excellence of the ' Premier Code '." — Liverpool Courier.
Now Ready. Medium 4to. Cloth, price zos. 6d. net.
100,000 WORD SUPPLEMENT TO THE PREMIER CODE.
Words specially selected from the Berne Official Vocabulary, remainder of
alphabet from M to Z.
compiled by WILLIAM H. HAWKE.
For special Tables for Offers, Buying, Selling, etc., the Five Figure
System, worked in conjunction with Keys of Words, numbered from 00,000
to 99,999, and 2440 Reserve Words for Indicating or Catch Words or Special
or Temporary Tables, does not clash with the Premier Code.
These two volumes contain between them all the telegraphically good
words of the Berne Official Vocabulary, as they have been selected with,
the greatest care.
LONDON : EFFINGHAM WILSON,
54 THREADNEEDLE STREET, E.C.
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