Catherine Deatherage & Steven Fang

Brief History of Options

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

• The tulip bubble

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.

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.

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

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.

Chicago Board of Trade & Chicago Board of Option ExchangeSEC 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

Option Clearing CorporationNow 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.

Questions?