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c.624–546 BC

Bertrand Russell once famously said that “Western philosophy begins with Thales”. Does Western finance also? Although more renowned for his philosophy and mathematics, the pre-Socratic Greek philosopher Thales was an active figure in business in his town of Miletus. Known as one of the seven sages of Greece Thales of Miletus provides us with the earliest known example of what we now know as options trading. .

.. One autumn, Thales predicted that favourable weather the following year would result in an above average harvest and so during the winter he negotiated with local olive press owners for the option to exercise the right to use a number of olive presses in Miletus the following year. When spring arrived, his weather forecast proved correct, upon which he exercised his ‘options' before proceeding to rent out the olive presses at a much higher price than what he paid.

With this, the ‘option' was born.

Whilst today, the ‘option' industry has developed into a vast, complex market, its underlying reasoning remains the same as it was when Thales conceived it: an instrument that grants the holder the right (but not the obligation) to engage in a specific transaction, at a specific time, for a specific price.

“…FOR THEY SAY THAT HE [THALES], PERCEIVING BY HIS SKILL IN ASTROLOGY THAT THERE WOULD BE GREAT PLENTY OF OLIVES THAT YEAR, WHILE IT WAS YET WINTER, HAVING GOT A LITTLE MONEY, HE GAVE EARNEST FOR ALL THE OIL WORKS THAT WERE IN MILETUS AND CHIOS, WHICH HE HIRED AT A LOW PRICE, THERE BEING NO ONE TO BID AGAINST HIM…

…BUT WHEN THE SEASON CAME FOR MAKING OIL, MANY PERSONS WANTING THEM, HE ALL AT ONCE LET THEM UPON WHAT TERMS HE PLEASED; AND RAISING A LARGE SUM OF MONEY BY THAT MEANS, CONVINCED THEM THAT IT WAS EASY FOR PHILOSOPHERS TO BE RICH IF THEY CHOSE IT.”

ARISTOTLE ON THALES, FROM THE POLITICS OF ARISTOTLE