SUGGESTION

Ff you are undecided which way a stock is going, always take a " Spread ;" it costs $212.50, and pays a profit if the stock goes up or down.

To take an interest in several different stocks will generally be successful; in the numerous fluctuations which occur everyday, you are certain to make a handsome profit on some of them.

Where a stock has once been in price, you may look for it to sell there again at some time.

Short Of Stocks.-To be "Short (f Stocks," or a "Bear," means that you have sold for a decline, stocks, which you have not in your possession, but your Broker borrows for delivery.

Long Of Stocks.-The expression being " Long of Stocks," or a "Bull," means that you have bought for a rise, and that the shares are in possession of your broker.

Our long experience in stock operations gives us many advantages, and coming in contact with the great stock manipulators, we are often able to judge of the future market and give our customers very valuable information and advice, enabling them to act upon it.

We are always careful to make contracts on parties of undoubted responsibility, and our customers can always obtain the name of the party from whom we have bought or sold contracts or stocks for their account.

The best stocks to secure contracts on are those in which the greatest activity is anticipated. When requested, we will make the invest­ment in such stocks as, in our judgment, will give the largest returns, and will act for parties in securing the profits.

Contracts Left "With Us we will operate against either by buying or selling, in order to secure the various fluctuations of the day. Our customers are entitled to our services in the selection of the style of investment most likely to prove profitable for their account without extra commission charges.

If you think stocks are going down secure a Put; or you can obtain a Call and sell the stocks short against it.

If you think stocks are going up, secure a Call, or you can obtain a Put, and buy the stock against it.

When a telegraphic order is received by us and we have no funds to the credit oi the person sending such order, a check on New York, payable to our order, must be received by us by first mail.

We can always make returns the same day a contract is closed.

Extensions or renewals must be secured before the expiration of the original contract.

No Liability.-There is no liability, or risk, beyond the amount paid for a privilege.

Register all mone letters, send large amounts by express or draft on New York, and address all communications

demand the stock. If on the other hand the stock should de­cline, and not advance above the price named in the Call, the only loss that can possibly occur is the amount that may have been paid for the contract.

An actual transaction illustrated will assist the reader. By referring to our books we find that in March, when Union Pacific was selling at 41, we secured calls on this stock at 43 for 30 days, the cost of which was $106.25. The following is a copy of the contract secured :

Every one per cent. Union Pacific advances above the price named, viz.: 43 is equal to $100 on each hundred shares, so an advance of five per cent., the contract would be worth Five Hundred Dollars, an advance of ten per cent, would be a thou­sand dollars, and so on. This is always the case. One per cent, on a stock that is worth in the market only 15, amounts to just as much as on a stock that is worth 110, because it is always the par value of a stock that is referred to, and not the selling value.

Before the above Call expired, Union Pacific had advanced to 66, at which price we closed the contract by receiving the stock from the maker of the contract at 43, giving our check for $4,300 and selling the stock in the market for 66, the holder of the contract receiving the difference. A statement would be as follows :

March 29th, 100 "0. P. sold C6, less 1/8 Commissions. $6,587.50

March 29th, 100 U. P., called at 43................................ 4,300 00

$2,287 50
Deduct cash paid for Call at 43 and Commissions......... 106. .25

Profit on the transaction................................................ $2.181.25

that when advantage is taken of the contract and a delivery of stock made, it is always profitable for the holder of the contract. Consequently the market or actual selling price of the stock when Put will be less than the Put price. If you hold " a Put," viz, the right to deliver Jones 100 shares of stock for which he agrees to pay you $4,500 and you can buy that stock in the market for $2,500, it is very clear you make the difference between $2,500 and $4,500. Therefore, when Puts are bought, a decline in the market is expected, and the profits are made from the decline. The details of a transaction of this kind, such as furnishing the money to buy the stock, and making the delivery to the signer of the contract, is always carried out by your broker. The last few years puts have resulted very profit­ably. Every time the market has advanced it has been follow d by a greater decline.

Lake Shore on May 8th, 1875. was selling at 72. We find by referring to our books that one of our customers bought-a Put on 100 shares of this stock at 70, for thirty days, for which he paid $106.25.

The following is a copy of the Contract:

The stock declined during May, to 57f but the contract was not closed until the day of its expiration, when the stock was selling for 61, at which price we bought 100 shares and delivered

THE SELLING OF OPTION CONTRACTS Selling Call Options Against a Portfolio

I remember lecturing in Chicago some years ago, and after this talk, during a question-and-answer period, one of my audience said, "I have bought options, but I never knew I could sell them." Well, for every trade-whether in options or clothing or real estate-there must be both a buyer and a seller. It is usually very interesting to my audiences to learn where options come from, who makes them, and why. I'll try to explain the selling of options, the advantages to the seller, the disadvantages, and the pit­falls, for I said at the outset that I would show the good side and the bad.

Options are sold by individuals, funds, trusts and insur­ance companies, and-as I like to say-by anyone who has what I call "a continuous portfolio of common stocks." One who sells options must be percentage-minded-the man who buys a stock at 50 and expects to get 150 for it is not a prospective seller of options, but the man who is satisfied to take a premium of, say, $300 and for that give a Call on his stock for 90 days, and then repeat that pro­cedure over and over again, is percentage-minded and could do well. It is my contention that the selling of options against a portfolio is no more speculative than is the owning of such common stocks.

Consider, if you will, a man (or an institution) who owns 1,000 shares of a stock selling at 50. He sells a Call, good for 90 days, at 50, for which he receives $300 per 100 share Call. This $300 he receives as soon as he sells the option. Let's see what happens if the stock goes up, and also what happens if the stock goes down.

If the stock goes down and is below the Call price when the option expires, the Call will not be exercised. The seller of the Call will still have his stock and will have profited by the $300 which he received for the Option. If he can sell such an option four times a year (and there are four 90-day periods in a year), he will make $1,200 in premiums, or almost 25 per cent per annum on the $5,000 investment.

Let's look at the other side: the stock advances and the stock is selling above the Call price when, or before, the option expires. The stock is "Called" and the seller of the option must deliver stock at 50, less any dividends. He then has:

Sold 100 shares at 50 ....................................... $5,000

Received $300 for Call ........................................... 300

Total Received ... $5,300

I am sure that after Mr. Trader has had his stock Called and Has $5,300 to re-invest, he can think of another stock which he would be willing to buy. Let's say that this stock is also selling around 50, and he buys 100 shares and then sells a Call against it. The stock will either go up or down. If it goes up, he has his $300 premium again for the second Call and he loses his stock. If it goes down, the Call won't be exercised. He has the $300 premium and is at liberty to sell a Call again on the same stock if he cares to do so.

It is just as simple as that and quite automatic. One shouldn't sell a Call at one time and for one expiration date

on all of his stock, but should try to sell a Call on part today, at today's price, and a Call on part of his holdings at a later date at the current market price in an attempt to have staggered prices and options expiring on different dates, like this:

Sold call 200 at 50, expiring June 20 Premium ................. $600

Sold call 200 at 52 expiring July 7 Premium .................... 600

Sold call 300 at 54 expiring July 18 Premium................... 900

I believe that there are two pitfalls to avoid in the selling of options: (1) Never sell a Call option unless you own the stock, and (2) Never sell a Put option without the where­withal to pay for the stock in case it is Put to you. Other­wise, the risk in selling options is no greater, in my opinion -arrived at through years of experience-than the risk in owning like common stocks. For instance, if one had sold Calls freely in the beginning of 1958 without owning the stocks, he could have been Called for stock at 50 when it was selling at 80. If one had sold Puts in the summer of 1957 without having sufficient cash to pay for the stock when it was Put to him, he might have had stock Put to him at 50 when it was selling at 30. The return to be had by selling options almost on an investment basis is inter­esting enough without looking for additional income and additional grief by trying to gain additional premiums.

Before going into the selling of Put options, Straddles, Spreads, Strips and Straps-a word about margins. The New York Stock Exchange has set minimum initial margin requirements for the sale of options by customers of its member firms. However, these member firms may increase these requirements according to house policy. The minimum initial margin for the selling of a Put option is 25 per cent of the Put option price, unless the account is "short" the stock which is already adequately margined. The minimum initial margin requirement for the sale of a Call option is 30 per cent of the stock on which the Call is written, unless the Call is written on stock already "long," in which case the "long" stock is already adequately margined. The minimum initial margin requirement for the sale of a combination Put and Call (Spread or Straddle) where there is no stock position, is the larger of the two requirements for the separate Put or Call, or 30 per cent.

It must be emphasized that these are minimum initial requirements and that they may be increased by the member firm where the customer has his account but they cannot be below these initial requirements as fixed by the rules of the New York Stock Exchange. Before attempting to sell options, arrangements should be made with your stock-exchange broker for the guarantee of such contracts. Your stock-exchange broker will also advise you what the margin requirements are.

When an option is exercised, however, thereby creat­ing a stock position, the position must be fully margined according to stock-exchange requirements.

The Sale of Put Options

An individual (or a company) has $100,000 which he would invest in common stocks. He could buy these stocks in the market or he could sell Put options in an attempt to acquire the stocks a few points below the current market price or to earn premiums from the sale of Put options against the money that he is willing to invest.

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