Compounding Life

I enjoy reading old finance and investing books for many reasons. Most of the time the enjoyment is derived from the history lesson or seeing folly from the past that we continue to repeat in the present. Ocassionally there are some very entertaining gems like the one I found in “The ABC of Options and Arbitrage” (free download from archive.org) by Samuel Armstrong Nelson, published in 1904.

As most of the readers probably know the main difference between American style and European style options contracts is when they can be exercised by the buyer. European style options can only be exercised on the expiration date where as American style options can be exercised any time before expiration.

Why might it be that this difference exists? Samuel proposes one answer:

The London buyer of options is accustomed to “trade
against his options” to a much greater extent than the
New Yorker, and trading of this character calls for quite
complicated calculations that would puzzle and confuse
the average American stock speculator who wants a sim-
ple, rather than a complicated proposition, and who prefer-
ably always demands a quick, rather than a slow decision.
The English stock speculator apparently is slower, more
patient and willing to work harder to secure a profit than
his American contemporary, who despises small profits, and has a world-wide reputation among financiers for his
failure to give proper regard to his interest account.