Options History Is Surprisingly Ancient
The ancient world also had a version of the kind options that are so popular in today’s stock market. An option can be perceived as a provision of a right to a prospective buyer to purchase an item at a specified price. However, he is under no obligation to do so. These options are divided into call options and put options. The purchase of a call option gives the purchaser the right to acquire the stock at a specific price and with no strings attached that he is under any obligation to buy. This price is a fixed one no matter what the market fluctuation. In olden days, there is evidence that the Romans and Phoenicians used the options to trade. Options history is fascinating because it actually shows links between the ancient and modern finance and how these theories have been further refined with the passage of time.
Options history tells us that in ancient Greece, a mathematician cum philosopher named Thales used his skills to predict the forthcomings years’ olive harvest. He banked on his speculation and on the strength of that he acquired olive presses for a low price and ultimately his faith in his prediction was justified and he made a handsome profit by renting the oil presses to people who had a bumper crop of olives for a much higher price. Ultimately, the option that is exercised should justify the market propensity of that moment; otherwise, it will come a cropper.
In Holland, too both the Dutch growers and the dealers exercised options even as early as the 1600s.Options, history shows how the traders tried to use options to speculate on the rate of the tulips and the growers played safe by fixing a good selling price for their flowers. The tulip growers wanted to make sure that the price received was adequate and the traders attempted to get the flowers at a reasonable price. However, with a lot of speculation, the market collapsed and many debts were not honored. Options history reveals how the economy was devastated and after a similar collapse in London, options were even declared illegal.
Buyers and sellers
According to options history, in the U.S., options were initially not a trade able commodity, as the terms were different for each commodity. Buyers and sellers sourced for each other through advertising. Option s was finally given legal status with the Investment Act of 1934 and was closely scrutinized by the Securities and Exchange Commission. Options history shows us that the growth was slow as initially there were no takers and investors had no concrete idea about the market for the commodity. The dealers merely tried to get a sufficient gap in the actual price and the selling price Also options had to be exercised in person, so a lapse in the deadline meant destruction of the option completely in spite of it’s worth.
Options markets – Options history
Although fundamentally options markets today remain the same, it is more organized and under scrutiny to weed out possible problems. Options history tells us a lot about the state of financial investment growth through the centuries.