Thales Profited From Massive Olive Harvest

In this day and age, millions upon millions of options contracts are traded every market day.

Did you know that the very first options trade was completed by a philosopher named Thales of Miletus, who was born over 2,500 years ago?

Thales of Miletus wasn't just a philosopher - he was also an engineer, a mathematician and an astronomer.

Thales used astronomy to predict the weather, and he would use this knowledge to make himself an enormous sum of money.

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Using his knowledge, Thales of Miletus predicted that there would be a massive olive harvest later in the season.

How to profit from this knowledge was the question that Thales of Miletus pondered.

Thales hatched a plan that would keep his capital outlay low while not sacrificing any profits.

Instead of travelling around and buying up all of the olive presses that he could (he didn't have the capital for this), Thales instead offered the owners of the presses a different deal.

I'll pay you money to secure the use of the presses when it comes time to harvest at an agreed-upon price, Thales said to the owners. If I decide not to use the presses, you keep the money and sell the presses to somebody else.

This was too good of an offer to refuse for the olive press owners, so they quickly agreed.

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When harvest season began, Thales had been proven correct, as his region was expecting a bountiful olive harvest.

Thales had a contract to use the olive presses, and this contract was worth significantly more due to the bountiful harvest ahead.

Instead of using the olive presses himself, Thales sold the right to use the presses to somebody else for a significant profit.

In doing this transaction, Thales of Miletus had completed the first options contract in the history of the world.

Thales had the right - but not the obligation - to use the olive presses come harvest time.

The owners of the presses received a premium to make their presses available come harvest time, and they didn't care who ended up using the presses.

Thales paid a premium for this right, and ended up making a profit as the right to use the presses at a certain price went up significantly in value. Without a contract in place, the owners of the olive presses could have charged more, which is why Thales' "contract" went up in value.

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Thales used a smaller amount of money to create leverage for himself and ended up posting a significant profit while never actually owning the olive presses.

Filed under: General Knowledge