OPTIONS. Option dealing is practised much more exten sively on the Continent of Europe than in Great Britain or America, but a fair amount of business of this description is carried out daily on the London and American Stock Exchanges. Option dealing is a complicated matter, and on this account is indulged in more by professional than amateur speculators. As the name implies, an option is a right over certain stocks, com modities or things. It may be the right to buy or the right to sell. In the former case it is termed a "call" option, i.e., the holder of the option has the right to take up the shares or what ever it is; in the case of an option tc sell, it is termed a "put" option, the holder having the right to sell the shares to the person with whom he has entered into the bargain constituting the option. It is possible to buy a "put and call" option, which gives the holder the right either to deliver and obtain for pay ment the stipulated quantity of stock at a date and price arranged when the bargain is entered into, or to call for delivery to him of the same amount of stock at the same price and at the same date.
The first column represents the price to be paid for an option running for one month—or to be more precise, to the last settling day of the month following the conclusion of the bargain; the second column is for an option running yet another month, whilst the third column represents the price asked for a three-months' option. The rules of the Stock Exchange do not permit of deal ings in options which run for more than three months. The price stated is for either a call option or a put option, and the double option (put and call) can be purchased for double the price named. The first price in the above list of I a means that for every LI•15.0. paid at the time the bargain was entered into, the Stock Exchange jobber would give the purchaser of a call option the right to buy of him for settlement on July 26 Lioo of Great Western Ordinary stock at a given price, regardless of what the actual market quotation might be on that date. This given price would be approximately the price of the day on which the option bargain was entered into, plus perhaps a fractional increase to allow for the fact that by the time the option was exercised the Intricacies of Options.—Thus far it might appear as though
the complications of option dealing had been exaggerated ; but now we approach some of the intricacies of the business. To the uninitiated the purchase of a call option would appear to be a perfectly simple matter. The speculator buys on Jan. I an option entitling him to take up at the end of March settlement £i0,000 of Great Western Railway Ordinary stock at, say, ioo. He waits until the closing days of March and then if the price is 103 he sells in the market Lio,000 of stock at that price, calls stock in respect of his option at ioo and delivers it in satisfaction of his sale, netting the difference as profit, less his brokerage charges. If during the period of his option the stock has fallen below par, he simply allows it to lapse, his loss being confined to the cost of the option.
That is how an option transaction appears to the layman. That is pot, however, in the least the idea of the average purchaser of an option. What he desires is not to enter into a bet as to what the price will be on a certain date, but to be able to avail himself of market fluctuations during the life of his option. Suppose, in the case named, that a week after the option has been purchased the price rises to 103, the holder of the option cannot demand delivery of the stock before the expiry of the option, and if he sells a week after he has bought a three-months' option, he will be called upon at the next settlement to deliver the stock he has sold. That is, however, just the sort of position that the ex perienced option speculator desires. He sells at 103 for the next account, feeling that he is in the position of a "protected bear." When the settlement arrives he does not deliver, but has the dividend date would be much nearer. The holder of an option, when he comes to exercise it, is entitled to all dividends, bonuses, or subscription rights that may have accrued during the period of his option. In the case of a put option being required, the price would be the same.