A Brief History of Stock Options
By Brian Burns, author of Trading Stock Options
Perhaps you are familiar with stock options, or have even traded them, but did you ever wonder how options came about in the first place? Do you know why were they invented and who used them? You may or may not know that an option is a derivative. A derivative is anything that derives its value from an underlying asset. In the case of stock options, the stock is the underlying asset.
Options come in two flavors: calls and puts. Calls give the option buyer the right, but not the obligation, to purchase the underlying stock at a specified price, known as the strike price. Puts give the option buyer the right, but not the obligation, to sell the underlying stock at a specified price. Both types of option contracts are subject to expiration and can expire worthless. The option contract's length of time, also known as the expiration date, is agreed upon at the time of purchase.
Calls can only be exercised when the underlying stock is above the agreed upon strike price. Puts can only be exercised when the underlying stock is below the agreed upon strike price. During the life of the contract, options can be bought and sold through most online brokers.It's no doubt that options are growing in popularity. Most brokers now offer free option-trading tools, and the commission rates to trade options have continually been on the decline. But when did option trading first originate? Most option historians point to two main examples of how options were first used: Thales the Milesian and the tulip bulb bubble of 1637.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV