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History of Options

History of Options. Ying Xie BA 543 Spring 2013 May, 21st. Timeline of Options Trading Development. 1872. About 1700 BC. 1634-1637. Options Trading in USA--- Russell Sage Options . Tulip Mania in Holland. Genesis 29 of the Bible . 1700 B.C. 1973-Present. Thales of Miletus

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History of Options

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  1. History of Options Ying Xie BA 543 Spring 2013 May, 21st

  2. Timeline of Options Trading Development 1872 About 1700 BC 1634-1637 Options Trading in USA--- Russell Sage Options Tulip Mania in Holland Genesis 29 of the Bible 1700 B.C 1973-Present Thales of Miletus ----Olive Harvest Options trading in London Chicago Board Options Exchange Opens About 624 BC-547 BC About 1700-1733 1973

  3. Ancient History of Options • Genesis 29 of the Bible (1700 BC)

  4. Ancient History of Options • Thales of Miletus (624 BC-547 BC) • Greece mathematician and philosopher used options to secure a low price for olive presses in advance of the harvest. • This was first recorded history of speculative option trading. • The frame of current option trading system.

  5. Early History of Options • The Tulip-Bulb Mania • 1634-1637 Holland • Tulips were very popular and expensive with a high demand, as a symbol of wealth, prestige and great status. • Tulip dealers used______options to secure a reasonable price to meet the demand • Tulip growers used______options to ensure an adequate selling price call put

  6. The Tulip-Bulb Mania----Cont’d • Nov.1636—Feb.1637 • speculative frenzy • price of tulip bulbs skyrocketed • On Feb.1637 • The price of tulip bulbs had gotten so high that it can no longer find sensible buyers to sell to. • The buying frenzy immediately turned into a selling frenzy. • Price of tulip bulbs collapsed • The Dutch economy collapsed and people lost their money and homes. • Options trading gained a notorious reputation for being a dangerous speculative instrument.

  7. Early History of Options • Options Trading in London in 18th and 19th centuries • first became well-known trading instruments in the 1690s • low trading volume --“speculative nature” • was declared illegal in 1733 • was illegal until 1860

  8. Early History of Options • Options trading in the US - 1872 • Russell Sage was the first to create call and put options for trading in the US in 1872. • First OTC options in the US • Making millions within just a few short years • Lost a fortune in the market crash of 1884 • OTC options trading market continued

  9. Options trading in the US---Cont’d • Unstandardized and highly illiquid • exercise price was fixed • the expiry date was three months after purchase • The pricing system was based on what sellers thought was reasonable • Options continued to trade in an unregulated manner until 1973.

  10. Chicago Board Option Exchange • April 26, 1973 CBOE began trading on standardized, listed options. • Under OCC’s performance guarantees • Growing Popularity of option trading ---The first day of trading: only call option ---By the end of 1974, average daily volume exceeded 200,000 contracts • In 1977, put options introduced • Provided a much more liquid and efficient option trading market. • Defined how options are traded over a public exchange the way it is traded today.

  11. Summary

  12. References History of Options Trading, http://www.optiontradingpedia.com/history_of_options_trading.htm Genesis 29 Bible Study, http://biblestudyoutlines.org/bible-study-lessons/old-testament-bible-study/genesis-29-bible-study/ The History of Options Trading, http://ezinearticles.com/?The-History-of-Options-Trading&id=6416873 How an Ancient Greek Philosopher Bet on the Future – and Won, http://leightonvw.com/2013/04/01/how-an-ancient-greek-philosopher-bet-on-the-future-and-won/ Chicago Board Option Exchange History, http://www.cboe.com/aboutcboe/History.aspx A Short History of Options, http://www.tradingmarkets.com/recent/a_short_history_of_options-677437.html

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