The History of Options

Presented by

Yuhang He

History of Options

Ancient

Greece

Japan Holland US

History of Options

• Thales of Miletus, a Greece mathematician

and philosopher used options to secure a

low price for olive pressers in advance of

the harvest.

History of Options

• The Japanese are credited with

creating the fully functional

commodities exchange in the late

17th century.

History of Options

History of Options

To hedge risk in case of a bad harvest,

tulip wholesalers began to buy call

options, and tulip growers began to

protect profits with put options.

History of Options

But as the price of tulip bulbs

continued to rise, the value of existing

option contracts increased

dramatically.

History of Options

So a secondary market for those

option contracts emerged among the

general public.

“Bubble Burst”

History of Options

So thousands of ordinary Hollanders

lost everything. And options managed

to acquire a bad reputation that would

last for almost three centuries.

Birth of US Options Market

History of Options

In 1791, the New York Stock Exchange opened.

History of Options

By the late 1800s, broker-dealers began

to place advertisements in financial

journals on the part of potential option

buyers and sellers, in hopes of

attracting another interested party.

History of Options

Eventually, the formation of the Put

and Call Brokers and Dealers

Association, Inc., helped to establish

networks that could match option

buyers and sellers more efficiently.

History of Options

After the stock market crash of 1929,

Congress decided to intervene in the

financial marketplace. They created the

Securities and Exchange Commission (SEC),

which became the regulating authority under

the Securities and Exchange Act of 1934.

History of OptionsIn 1935, shortly after the SEC began regulating the over-the-counter options market, it granted the Chicago Board of Trade (CBOT) a license to register as a national securities exchange.

History of Options

In 1968, low volume in the commodity

futures market forced CBOT to look for

other ways of expanding its business. It

was decided to create an open-outcry

exchange for stock options, modeled

after the method for trading futures.

Black and Scholes

Black and Scholes

History of Options

It was immediately adopted in the

marketplace as the standard for

evaluating the price relationships of

options, and its publication was of

tremendous importance to the evolution

of the modern-day options market.

History of Options

Robert C. Merton was the first to

publish a paper expanding the

mathematical understanding of the

options pricing model and coined the

term Black–Scholes options pricing

model.

History of Options

Merton and Scholes received the 1997

Nobel Prize in Economics for their

work.

History of Options

1973 also saw the birth of the Options

Clearing Corporation (OCC), which was

created to ensure that the obligations

associated with options contracts are

fulfilled in a timely and reliable

manner.

History of Options

And so it was that on April 26 of 1973,

the opening bell sounded on the

Chicago Board Options Exchange

(CBOE).

History of Options

In 1975, the Philadelphia Stock

Exchange and American Stock

Exchange opened their own option

trading floors, increasing competition

and bringing options to a wider

marketplace.

History of Options

Due to the explosive growth of the

options market, in 1977 the SEC

decided to conduct a complete review

of the structure and regulatory

practices of all option exchanges.

History of Options

By 1980, the SEC had put in place new

regulations regarding market

surveillance at exchanges, consumer

protection and compliance systems at

brokerage houses.

History of Options

In 1982, the exchange introduced Value

Line futures, making it the first

exchange offering a stock index

futures contract. Options on Value Line

futures were introduced in 1992.

History of Options

1990 saw another crucial event, the

introduction of Long-term Equity

AnticiPation Securities (LEAPS).

History of Options

In the mid-90s, web-based online

trading started to become popular,

making options instantly accessible to

members of the general public.

History of Options

There are an average of more than 11

million option contracts traded every

day on more than 3,000 securities, and

the market just continues to grow.

Q&A

?