Catherine Deatherage & Steven Fang Brief History of Options.

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Presentation transcript:

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 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 Exchange SEC issued license to CBOT to register as national exchange in CBOT did not start trading until The Chicago Board of Options Exchange (1973) was born out of the CBOT

Option Clearing Corporation Now 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?