Thread by @SarangSood

FIRST ACCOUNT OF OPTIONS

We have this perception that Options are relatively new trading instruments, but they actually go back to the times before Christ was born. Getting to know the origins of this fascinating trading instrument can help us appreciate the depth of it.

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The very first account of options was mentioned in Aristotle's book named "Politics", published in 332 B.C. That's how far back humans have used the concept of buying the rights to an asset without necessarily buying the asset itself.

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Aristotle mentioned a man named Thales of Miletus who was a great astronomer, philosopher and mathematician. Thales was one of the seven sages of ancient greece. By observing the stars and weather patterns, he predicted a huge olive harvest in the year that follows.

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Understanding that olive presses would be in high demand following such a huge harvest, Thales could turn a huge profit if he owned all of the olive presses in the region, however, he didn't have that kind of money. Instead, Thales thought of a brilliant idea.

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He used a small deposit to secure the use of all of the olive presses in the region (CALL OPTION) with the presses as the underlying asset. As expected, harvest was plentiful and he sold the rights to using all of the olive presses to people who needed them, making a fortune.

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By controlling the rights to using the olive presses, Thales had the right to either use these olive presses himself when harvest time came (exercising the options) or to sell that right to people who would pay more for those rights (selling the options for a profit).

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The owners of the olive presses , who obviously didn't know how the harvest is going to turn out, secured profits through the sale of the "options" to Thales no matter how the harvest turned out. This contingency claim procedure started the long history of options trading.

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The olive press owners could be the first ever human to have used a Covered Call options trading strategy. They owned the underlying asset (olive presses) & sold rights to using them, keeping the "premium" on the sale no matter if the presses were eventually used or not.

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As you can see the use of options as a financial instrument isn't a new innovation at all. It dates back centuries back & kept on evolving to become one of the most important tools in finance to limit the risks of investors & even become an out & out trading instrument.

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There was also the much famous tulip mania of 1636, where options on tulips were widely bought in order to speculate on the soaring price of tulips.

Source of the information & much more on the history of option trading:

optiontradingpedia.com/history_of_opt…

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