History of Options Trading

By Viktoriya Cherkassova

Overview Ancient history of options Early Options in America History of Chicago Board Option Exchange The Option Clearing Corporation Summary

Definition

Options are generally defined as a contract between two parties in which one party has the right but not the obligation to buy or sell a specified amount of an underlying security (stock, bond, futures contract, etc.) at a specified price within a specified time.

Ancient history of options

Romans and Phoenicians Romans and Phoenicians used contracts similar to options in shippingused contracts similar to options in shipping

Thales of Miletus (624BC-547BCThales of Miletus (624BC-547BC)) Greece mathematician and philosopher used Greece mathematician and philosopher used

options to secure a low price for olive presses in options to secure a low price for olive presses in advance of the harvest advance of the harvest

History of options

The Tulip-Bulb Craze 1634-1637 Holland1634-1637 Holland tulip dealers used call options to secure a tulip dealers used call options to secure a

reasonable price to meet the demandreasonable price to meet the demand tulip growers used put options to ensure tulip growers used put options to ensure

an adequate selling price an adequate selling price

History of options

1650 - Yodoya rice market in Osaka, Japan

Royal Exchange in London permitted forward contracting United Kingdom in 1711-1720 The South Sea Company purchased the "rights"

to all trade in the South Seas.

Early Options in America In the early 19th Century, call and put

"privileges" were trade over-the-counter wasn't much in the way of a secondary market

all option contracts had to be exercised in person the terms were differed for each contract

In the mid 1800s, New York financier Russell Sage began creating synthetic loans using the principle of put-call parity

History of Chicago Board Option Exchange

In the late 60th Joseph W. Sullivan, Vice President of Planning for the CBOT proposed: standardizing the strike price, expiration,

size, and other relevant contract terms create a mediator to issue contracts and

guarantee settlement and performance (Options Clearing Corporation )

History of Chicago Board Option Exchange April 26, 1973 CBOE began trading on

standardized, listed options. the first day of trading:

only call option 911 contracts traded on 16 underlying stocks.

By the end of 1974, average daily volume exceeded 200,000 contracts

In 1975 the American Stock Exchange, Inc. (Amex) and the Philadelphia Stock Exchange, Inc. (PHLX) begin trading equity options. Both become OCC participant exchanges

Option Clearing Corporation

founded in 1973, is the world's largest equity derivatives clearing organization operates under the jurisdiction of both the SEC

and the CFTC clears transactions for put and call options on

common stocks and other equity issues equally owned by five participant exchanges that

trade options: American Stock Exchange, Chicago Board Options Exchange, International Securities Exchange, Pacific Exchange and the Philadelphia Stock Exchange

Options Trading

The Black-Scholes model 1983 the CBOE created an option on

an index of stocks. S&P 100, which remains the most actively

traded exchange-listed option. 1985, The New York Stock Exchange

begins listing equity options. Options on NASDAQ stocks are listed

October 1987, stock market crash

Summary http://www.cboe.com/data/AvgDailyVol.aspx