Word: optional
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Dates: during 1950-1959
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...Call options are most popular with bulls, who think the market will rise. A call is a negotiable contract giving the purchaser the right to buy stock, usually in 100 share lots, any time during a specified period running from 21 days to a year or more. For example, last June Filer sold a six-month, ten-day call on American Motors for $625. This gave the purchaser the right to buy 100 shares of American Motors at 37⅛ at any time before the option expires on Dec. 7. With American Motors now selling around 80, there is already...
...opposite of a call, is favored by bearish speculators. The put is an option giving the purchaser the right to sell 100 shares of stock at a set price at a future date. Last June, Filer sold a put option on Boeing Airplane Co. giving the buyer the right to sell 100 shares at 37⅝ by Dec. 2. Boeing is now quoted around 30, but the buyer of the put can still exercise it at 37⅝. After deducting the $400 costs for the put and commissions, the purchaser has a profit of about...
...purchaser loses when the stock does not move enough to cover the costs of the put or call, or when it moves the wrong way. Then the buyer loses the amount he paid for the option. While puts and calls are primarily used for speculating, they are also being used more to limit losses, protect paper profits, and for tax advantages. Primarily, they are for the stock market sophisticate who can afford to lose the premiums he must pay to speculate...
Premiums for Sophisticates. But there is another group of market sophisticates whose risk in dealing with puts and calls is much less. These are the people who make options available from the stocks in their portfolios. To find them, Filer, Schmidt and the nation's 20 other put and call dealers turn to investment trusts, pension funds and individual portfolio holders who intend to hold their stock for long periods. For selling a put or call the stockholder receives a premium ranging from $112.50 on 100 shares and up, depending on the price of the stock and length...
...option seller to avoid big losses, Filer cites two rules: 1) never sell a call option unless you own the stock, since you may have to buy it at a higher price if the call is exercised; and 2) never sell a put option unless you have the money to pay for the stock if the stock is put to you. "Following these rules," says Filer, "the risk in selling options is no greater than the risk in owning stocks...