If, when Consols are 73, he pays 1 per cent. for a put-and-call option on £10,000 for the end of next month and they rise 2, he can sell them for £7,500; exercise his call, which, with the price he has paid for the option, cost £7,400; and pocket the profit of £100 less the commission of £12 10_s._ which he pays his broker. If during the option period Consols fall 2, then he exercises that part of his option which enables him to put them upon the jobber, and pockets a similar profit less the similar commission which he pays his broker. If Consols during the period of the option do not move sufficiently either way to make it profitable for him to exercise his double option, then he loses the £100 he has paid for it and the broker's commission.
The price at which the operator has the option to buy or sell at the end of the option period is the price at which the stock stands at the time the option is bought. Of course, special arrangements may sometimes be made, but that is the rule. Such being the case, the price payable for an option to call is always exactly the same as the price for an option to put, and the price for a put-and-call option is always double the amount. At first sight it might appear strange that this is so. The jobber, when confronted with the name of any one stock, might be imagined as demanding a much higher price for the call than for the put, if he is of opinion that the price will rise. As a matter of fact, however, if the jobber were really of that opinion, the price of the stock would immediately be put up. In other words, current prices are an exact expression of market opinion. There is no more reason why a jobber should make the price of a call option in any one stock higher than the price of a put option than there is for his going into the market and buying heavily. If he did, the price would rise; he does not because he thinks that the price is at a fair level, and being at a fair level, is just as likely to fall as to rise. As the price is the basis of the option operation, he charges exactly the same for taking the chance of its rising as of its falling. It is no more reasonable to ask why the jobber does not make the price of the call option higher than the price of the put option than it is to ask why he does not go buying; and it is no more reasonable to ask why he does not make the price of a put option higher than the price of a call option than to ask why he does not go selling. The market invariably puts the price of a stock at the exact level which it thinks it is worth, which means that, in the market's opinion, it is just as likely to rise as to fall, and for that reason the price for a put option is the same as that for a call option.