Exchanges, bubbles and central banks · 1600s–1790s
1688
The first book about a stock market, with options
Joseph de la Vega describes Amsterdam trading in VOC shares, including calls and puts.
Confusion of Confusions, written by Joseph de la Vega in 1688, is the oldest known book about stock trading. It describes the Amsterdam market in VOC shares, its rumours, panics and tricks.
It also describes options: paying a premium now for the right to buy or sell shares at a set price by a set date, so a trader could limit a loss to that premium.
💡 Why it made sense then
Traders wanted to bet on a price or protect against a move without putting up the full price of the shares.
Ideas it gave us
- 🔮 Call option
A call option is a contract that gives its buyer the right, but not the obligation, to buy a stock at a set price (the strike) before or at a set date. Buyers profit when the stock rises above the strike by more than the premium paid.
- 🔮 Put option
A put option is a contract that gives its buyer the right to sell a stock at a set price (the strike) before or at a set date. Buyers profit when the stock falls below the strike by more than the premium paid.
- 🔮 Strike price
The strike price is the fixed price at which an option lets its holder buy (for a call) or sell (for a put) the underlying stock.
- 🔮 Option premium
An option's premium is the price paid to buy it. It is made of intrinsic value (what it would pay if exercised now) plus time value (the chance it becomes worth more before expiry).
- 🔮 Expiration date
An option's expiration date is the last day it can be used. After it, the option either pays out its intrinsic value or expires worthless.
Practise with $10,000 in play money
Free. No real money involved.