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History & Evolution of Options

Options are not a modern invention. Their roots go back thousands of years.

Ancient Greece: The earliest recorded use of options was by Thales, a philosopher who secured the right to use olive presses before harvest. When olive yields turned out abundant, he profited by leasing the presses at higher prices.

17th Century Netherlands: Options became popular in the Dutch tulip mania, where people speculated on tulip bulb prices.

Modern Options: Organized option trading as we know it started in 1973 with the creation of the Chicago Board Options Exchange (CBOE). Alongside, the Black-Scholes model for option pricing was introduced, which gave traders a scientific framework to value options.

Today, options are traded globally — from U.S. exchanges like CBOE, CME, and NASDAQ to Indian platforms like NSE’s Options Market. They’ve also expanded into forex, commodities, and even cryptocurrencies like Bitcoin.

Why Traders Use Options

Options serve different purposes:

Investors: Hedge portfolios (e.g., protective puts).

Traders: Speculate on price moves (buying calls/puts).

Institutions: Manage risk exposure across assets.

Market Makers: Provide liquidity and earn spreads.

Risk Management in Options Trading

Options can wipe out capital if not managed properly. Key practices include:

Position Sizing: Never risk more than a fixed % of capital.

Stop Loss & Exit Rules: Define risk before entering.

Diversification: Avoid concentrating all trades on one asset.

Understanding Margin: Selling options requires large margin because risks are unlimited.

Hedging: Use spreads to limit risk.