Fierce hostility was the first reaction to the Chicago Board of Trade’s proposal to set up an organised market in stock options in the early 1970s. There were “absolutely unsurmountable obstacles”, said one Securities and Exchange Commission official, according to the Board’s Joe Sullivan, who tells me that the same official went so far as to make the somewhat tasteless comparison that options were held in the same regard as “marijuana and thalidomide”.
Options are financial instruments giving their holder a right but not an obligation, for example, to buy a block of shares at a preset price. Options were traded in 17th century Amsterdam, but as Sullivan discovered three centuries later, age had not made them respectable: they were suspected of being tools of gamblers and stock-price manipulators.
The Chicago Board Options Exchange nevertheless succeeded in gathering support from, among others, financial economists, and finally opened on April 26 1973. The following month, independently, economists Fischer Black and Myron Scholes published a path-breaking journal article on the mathematics of options pricing.