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Brief History of Options

Brief History of Options. Catherine Deatherage & Steven Fang. What is an option?. Contract Premium Right but not obligation to exercise the contract Time value. Early History. Dates back to 624 BC–ca. 546 BC Pre-Socratic Greek philosopher Thales Olive Presses. Holland 1634.

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Brief History of Options

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  1. Brief History of Options Catherine Deatherage & Steven Fang

  2. What is an option? • Contract • Premium • Right but not obligation to exercise the contract • Time value

  3. Early History • Dates back to 624 BC–ca. 546 BC • Pre-Socratic Greek philosopher Thales • Olive Presses

  4. Holland 1634 • The tulip bubble

  5. First option Market in U.S. • Began after opening of NYSE in 1791 • Trading took place OTC • Each contract was unique which in effect locked in each buyer and seller into their particular contract.

  6. First option Market in U.S. • Formed The Put & Call Broker & Dealers Association, Inc. • Goal was to provide a better service through better networking and an expansion of the market for options.

  7. Abuses in the 1920s with Options • This was the manipulation of the option market. • Partnership in crime between speculators and brokers. • On the large scale “option pools” formed

  8. After the Crash of 1929 • 1929 Stock market crash resulted in the formation of the SEC in 1934 • The SEC not only looked at the stock and bond market but was also examining the option market. • Eventually the SEC granted the option market the right to continue its business. • The SEC regulates option trading in the U.S.

  9. Chicago Board of Trade & Chicago Board of Option Exchange • SEC issued license to CBOT to register as national exchange in 1935. • CBOT did not start trading until 1968. • The Chicago Board of Options Exchange (1973) was born out of the CBOT

  10. Option Clearing Corporation • Now owned by all U.S. exchanges that trade listed options. • Standardization of option contracts and formation of OCC has created a more liquid market for option trading.

  11. Questions?

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