The third description of option is the “call,” which means an operation exactly the opposite of the “put.” It is the option of claiming a specified amount of stock at a future fixed date, such date, together with the price, to be agreed upon at the time the option money is paid. The sum of money that is paid for options fluctuates in sympathy with the changes in the value of public securities, and also depends upon the amount of business doing. An option may be done from day to day, or from account to account. The option money is paid by the principal to the broker at the time the transaction is effected. When the option expires, the person who has paid the money declares whether he buys, sells, or does nothing.[16]
Years of experience of this mode of speculating have only shown, as with other kinds of speculation, that the option money once paid is hardly ever recovered. We have taken the trouble to inquire of those who have been for as many as thirty years in the markets, and such is their experience.[17]
The Fortnightly Settlement.
The Stock Exchange settling days are in the middle and at the end of each month. Each fortnightly settlement occupies three days; the first is the carrying over or contango day, the second is the name or ticket-day, and the third is the day for paying the differences, or the amount of money for stock or shares to be taken off the market. The settlement in Consols is monthly, and near the commencement. The extent of the business transacted in the Stock markets has been very accurately measured since the establishment of the Clearing House. All transactions being settled by cheques, the increase in the Clearing House totals on a Stock Exchange settling day correctly indicates the amount of money which has passed between buyers and sellers.[18]
Speculation by Members of the House.
Speculation inside the Stock Exchange by members of the House does not present many features which entitle it to comment apart from the speculation as it is practised by the public outside. It is natural to suppose that members of the Stock Exchange are better able to operate in stocks and shares, with a view to profit by speculation than the public who, as a rule, are ignorant of the art they endeavour to practise until all they have left is some bitter experience. Those whose daily business it is to be in the Stock markets must of course know that the outside public are always dropping their money, and in this respect the conviction comes nearer home to them that the play is not worth the candle. There are speculators who are members of the Stock Exchange, but we believe it is but a very small minority that troubles itself with speculation as the principal means by which the profits are made. As a rule, it may be laid down that a dealer who goes out of his market to speculate is just as likely to lose his money as an outside haphazard speculator. Each stock, and each description of shares, has its history, and is influenced more or less by special causes, as well as by general causes. Each stock, therefore, requires to be constantly watched, after it has been studied, and its peculiar characteristics well ascertained. When it is said that these stocks and shares are numbered not by tens, or by hundreds, but by thousands, it is easy to understand that no one man can master the special knowledge concerning each, which however every jobber who understands his business should do, within the limit of those in which he usually deals. Consequently, a jobber devotes himself to a few descriptions which circumstances or inclination may cause him to select. He confines himself to a particular market, where he is to be found; and if he speculates now and then, apart from the necessities of his business, and to satisfy a desire for a little excitement, or because some special view of the course of events encourages him to try his luck, it is, as a rule, in the stocks in which he is accustomed to deal.
It may be of interest to some persons to contrast the terms used in England with those employed by stock-brokers and jobbers across the Atlantic, and we append those in use on the New York Stock Exchange, with explanations. The inventive resource which is so characteristic of the American, crops up in the terms used in their Stock markets, as in the case of the “put and call” option with us, which the Yankee cannot be satisfied with, but must invent the vulgar synonym of “straddles,” which is certainly expressive of the pair of operations in one. The mania for getting rich by making short cuts and royal roads engenders apparently an impatience of terms which contain a single syllable or letter that is unnecessary, however hallowed by time, and hence, “put and call” is superseded by “straddles.” [19] The “put” is a contract by which, during a fixed time, usually thirty days, a seller for a consideration agrees to take from a buyer of a “put” a stock at a given price, generally several per cent below the market value.
The “call” is an operation of a directly opposite nature, being a contract by which for a consideration a seller of a “call” undertakes to deliver to a buyer a certain stock at a given price, generally several per cent. above the market value.