Options and Risk Management

When it comes to options, they have in use ever since the time of Aristotle, someone you read about only in books these days. Even the earliest option that was chosen was not related to finance but instead was a real choice. In fact, Aristotle himself recorded all of it. The story was about someone named Thales who was from Milesianand was also a philosopher in Greece. The story went thus:

Thales had decided to agree with some of the conditions set by the masters of the olive trees located in his region. The condition that was set was this: In return for a meagre amount of money which was to remain in deposit, he would be allowed to make a lease of all the presses that took place at market price. This was of course, to take place when the harvest takes place. It eventually turned out that Thales was right about his estimation and in turn, earned a ton of money for himself.

Several centuries after this event took place, in the year of 1688, someone by the name of Joseph de la Vega wrote in his book how these ‘options’ were being traded in The Amsterdam Stock Exchange. There was a good chance that he had realized the relations between these different options and the potential to earn money from them. However, it was only later until 1973 that there was a real establishment which offered options in exchange for monitory benefits. Some countries consider this act as gambling and as such, have banned them permanently.


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