If, on the other hand, we think that the price will not be maintained, but may either go up or down, we buy the 'put and call,' for which we have to pay double the price of the single option, so that if East Rands go above 7 1/8 we exercise the call, and if they go below we exercise the put. But those who understand option-dealing thoroughly do not wait, of course, until the expiry of the date before they speculate in their options. On the contrary, they buy and sell during the whole of the period, according as market movements are favourable for them. Option-dealing is thus a favourite mode of speculating with those professional operators who understand it, and those who do not understand it - its intricacies needing not a little laborious study - labour under a disadvantage, and run more risks than those who are thoroughly familiar with its complexities. To make it thoroughly comprehensible to the uninitiated, I should have to illustrate all its varied workings by numerous examples, which the scope of this book will not allow me to do. If, however, I have succeeded in conveying a clearer idea of it than most readers had, and have induced them to study it a little more fully, I shall have attained my present object.
I may add, before dismissing the subject, that the committee of the London Stock Exchange recognise 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 dispute 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. Nevertheless, in practice, options for two or three months, and sometimes even for longer than that, may be negotiated on the Stock Exchange. It may be thought by the uninitiated that the 'cover' system of bucket-shop-keepers, by means of which they try to attract clients, is nothing more or less than the option-dealing I have explained above. It is not so, however, and is a different method of dealing altogether, in which the operator is less protected against fraud and dishonesty on the part of these outside brokers. If we can find a scrupulously honest outside broker, however, who will act fairly and squarely with his client, the risks are greatly lessened, of course, and they may be no greater than in dealing with an inside broker. In their optional dealings on the Stock Exchange the public are greatly protected, but these protective measures are absent in their dealings with some bucket - shop - keepers and their numerous votaries and followers. The latter class will tell you how to make your fortune in a very short period of time by some system of theirs, which they describe as infallible. But the strange and unaccountable thing is that whilst they are ever ready, for a miserably small fee, to enrich others 'beyond the dreams of avarice,' they will not, or they cannot, make their own fortunes by using their own methods. I cannot look upon these men as noble philanthropists, for philanthropy expresses itself in quite other methods than theirs. Those, therefore, who put trust in their pretensions must be exceptionally simple and guileless. But the simple and guileless, like the poor, are always with us. To the poor, however, we can give of our superfluity. We can feed and clothe them according to our means, but it is a far more difficult task to give common-sense where it is lacking. I know of no process that has, as yet. been eminently successful in strengthening feeble minds with this mental nutriment.
Now, in the lists of prices given in our newspapers we often see the letters x. d., x. r., ex. new, cum. div., cum. rts., etc., and these letters are a great source of perplexity to the novitiate in speculation and investment. Briefly, therefore, it may be explained that x. d. means exclusive of dividend; x. r., exclusive of rights; ex. new, exclusive of new shares; cum. div., inclusive of dividend; and cum. rts., inclusive of rights, etc. That is to say, if we buy shares that are quoted x. d. we are not entitled to receive the dividend that has recently been declared upon them, but if the shares are quoted cum. div., then it means that we are entitled to the dividend. We may take it, however, that when a share is not quoted x. d. we really buy them cum. div.; that is to say, we buy them with all the privileges attached to them. The moment, however, that any share is officially declared on the Stock Exchange x. d., even though we may buy them a few minutes afterwards, we buy them without the dividend; but as the amount of the dividend is deducted from the price, we really get the equivalent of it by paying a lower price for the share. For instance, suppose a certain share is quoted 3 3/4 on the eve of the declaration of a dividend, then, if we buy those shares we are entitled to the dividend; and supposing the dividend is at the rate of 5s. per share, or 25 per cent., then the dividend is immediately deducted from the price, and the shares are quoted 3 1/2 x. d.
In that case, therefore, the seller gets his dividend, but gets a lower price for his share if he sells immediately afterwards, whilst the buyer, as I have said, gets the equivalent of the dividend in another way. As time goes on, however, the price improves again, and once more reaches 3 3/4, or even a higher figure, according to the prospects of the company or the demand for the shares. If only another 25 per cent. is likely to be paid at the end of the twelve months, it may go no higher, but if a 50 per cent. is expected, then, of course, the price will correspondingly advance.