6  •   The Intelligent Option Investor
the producer owns the upside potential from the increase in value of your 
story (option characteristic number 3). Again, it is obvious that the right 
to the literary work has value for the entire term of the contract (option 
characteristic number 4).
Keep these characteristics in mind, and we will go on to look at how 
these defining elements are expressed in financial markets later in this 
chapter. Now that you have an idea of what an option looks like, let’s turn 
briefly to a short history of these financial instruments.
A Brief History of Options
Many people believe that options are a new financial invention, but in 
fact, they have been in use for more than two millennia—one of the first 
historically attested uses of options was by a pre-Socratic philosopher 
named Miletus, who lived in ancient Greece. Miletus the philosopher was 
accused of being useless by his fellow citizens because he spent his time 
considering philosophical matters (which at the time included a study of 
natural phenomena as well) rather than putting his nose to the grindstone 
and weaving fishing nets or some such thing.
Miletus told them that his knowledge was in fact not useless and that 
he could apply it to something people cared about, but he simply chose not 
to. As proof of his contention, when his studies related to weather revealed 
to him that the area would enjoy a bumper crop of olives in the upcoming 
season, he went around to the owners of all the olive presses and paid them 
a fee to reserve the presses (i.e., he entered into a contractual agreement—
option characteristic number 1) through harvest time (i.e., the contract 
had a prespecified life—option characteristic number 2). 
Indeed, Miletus’s prediction was correct, and the following season 
yielded a bumper crop of olives. The price of olives must have fallen because 
of the huge surge of supply, and demand for olive presses skyrocketed  
(because turning the olive fruit into oil allowed the produce to be stored 
longer). Because Miletus had cornered the olive press market, he was able 
to generate huge profits, turning the low-value olives into high-value oil  
(i.e., he profited from the change in value of an underlying asset—option 
characteristic number 3). His rights to the olive presses ended after the har-
vest but not before he had become very wealthy thanks to his philosophical