Market Minute - May 5, 2017
by Scott Rosenquist, CFA
History of the Option Market
Option contracts trace their origins back to ancient Greece where they were used to speculate on the olive harvest. If someone thought the harvest in a given year was going to be plentiful, they paid the owners of the olive presses for the right to use them in the future. If they were correct and the harvest was large, then the rights to use those olive presses would be very valuable and could be sold for a profit.
In 17th century Holland, options were involved in the Tulip Bulb Mania. Buyers and sellers would use option contracts to hedge their risk to tulip bulb prices. Since prices kept going up, a market opened for anyone to speculate on them, not just the growers and sellers. This ultimately led to a bubble which eventually burst as prices collapsed.
The option market as we know it today began in 1973 when the Chicago Board of Options Exchange (CBOE) was formed and offered options on just a handful of stocks. In 1975, the Options Clearing Corporation (OCC) began serving as the central clearinghouse for exchange traded options. The market was standardized and regulated, leading to increased interest from investors. The growth in options has increased ever since and in 2014 the CBOE traded 1.3 billion option contracts. Today, options can be found on individual stocks, exchange traded funds (ETF) and other financial instruments. One of the more popular options is on the SPY ETF which tracks the S&P 500.
Options are a useful tool for investors that allow them to express their market views in a variety of ways. From basic trades to more complex, the uses of options are numerous. To learn more on how Vantage uses options please click the link below:
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