Selling options on held stocks was argued to violate the efficient-market hypothesis.

Evidence

I am extremely grateful to Emily Schmitz of the Chicago Board Options Exchange for providing me with a copy of the Nathan Report. Like Baumol, Malkiel, and Quandt, Merton Miller also contributed an appendix to the Nathan Report. He felt that some of the case being made for options trading such as Malkiel and Quandt’s conclusion that institutions such as university endowments could earn enhanced investment returns by selling options on stocks they held violated the efficient-market hypothesis. “Organized option trading in stocks is not the greatest invention since sliced bread as some of the puffing by spokesmen for the Board [of Trade] often seems to suggest,” wrote Miller. Such trading was only “a modest marginal improvement in the structure of the capital markets,” albeit “one still very much worth making” (Nathan Associates 1969, vol. 2, p. 51). — Donald MacKenzie, An Engine, Not a Camera, 1552

Categorization

• XREF: Connects to the broader performativity literature where economists like Miller contested the value of new derivative instruments against the efficient-market hypothesis. — connects to: Most finance theorists’ own trading contradicted strict market efficiency. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1114; Efficient-markets theory helped legitimate options trading that regulators had long banned — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62