Chapter 1: Introduction to Options Trading

History has proved time and again that derivatives were an innovative solution for risk mitigation. Options trading is no exception. 

In fact, the first-ever option trade dates back to the 6th century BC,  when a philosopher named Thales made a fortune with an option-type contractual agreement. 

Thales, who is idolized in ancient history as “the first Greek mathematician”, is said to have developed what we know as Options today. He anticipated that there would be a good harvest of olives in Greece the following year. 

Thus, Thales reserved the olive presses in advance, at a discount, so that he could rent them out at a high price when demand peaked.

By paying a small amount upfront, he reserved the right to use these olive presses from their owners, who agreed since they were getting an advance payment. 

If things didn’t go the Thales way, he would lose the advance payment as there would be a shortage of olives and no demand for the presses. 

On the face of it, it seemed like a good deal, didn’t it? Indeed, it was a great deal as Thales was right with his prediction – there was abundant production of olives the next year. 

As a result, Thales was able to amass huge wealth by charging higher rent to people looking to use these presses.

This episode came to be known as the first historically known creation and use of Options. Options trading since then has tremendously evolved across the globe. In India alone, options make up 97% of the contracts traded in the futures & options market.

In this guide, we shall focus on what are Options and How can traders use Options to trade in the F&O markets.