Aug

23

Anne L. Murphy University of Exeter in Cornwall

a.l.murphy@exeter.ac.uk

SUMMARY This article uses data from the ledgers of the financial broker Charles Blunt to explore the market in equity options that emerged in London during the stock market boom of the early 1690s. Blunt's ledgers provide a unique opportunity to observe the workings of an early modern derivatives market. They reveal a broadly based and highly active trade in options. The market functioned well, determined value using agreed criteria, and was utilised by a diverse range of individuals to facilitate both risk-seeking and risk-averse investment strategies.

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In June and July 1694 John Houghton's Collection for Improvement of Husbandry and Trade included a series of essays that sought to explain the workings of London's newly-emerged financial market. Houghton gave his readers a brief history of joint-stock companies, explained their purpose, and outlined how the capital was divided and how companies were managed. Further essays told investors where to go to buy and sell shares and detailed the cost of brokerage. Four of the seven essays were concerned either partly or wholly with explaining the trade in equity options.

Houghton also demonstrated a close understanding of the advantages and disadvantages of trading in options. He informed his readership that the purchaser of an option 'for a small hazard, can have his chance for a very great Gain, and he will certainly know the utmost his loss can be'. But he also warned those considering selling options that they ran a very great risk for only a small potential profit.


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