Looking to the Futures

Abstract

Markets in futures and options contracts are generally regarded as part of the more modern and sophisticated side of the City’s business. There is, as somebody once said, nothing new under the sun. In 1694 a City financier is recorded as having enquired of brokers ‘how many guineas a share’ he might receive for ‘the liberty to accept or refuse such shares at such a price at any time within six months, or other time they shall agree for’. He was offering brokers the option to buy or sell shares in the future at a price agreed now. Exactly the same deal can be conducted today on the London Traded Options Market (merged in 1990 with the London International Financial Futures Exchange — LIFFE). He was actually offering what is called an ‘American option’, since it can be exercised at any time before its date of expiry (‘at any time within six months’). There are also ‘European options’ which can only be exercised on their date of expiry.