How A Pre-Socratic Philosopher Taught Me Options Trading

I’m in Las Vegas this week to give presentations to MoneyShow attendees and to speak with subscribers about my newsletter advisory services.

In one of my talks, I told the audience my favorite investing story about how a pre-Socratic Greek philosopher taught me how to trade options. This week I want to tell you, my reader, this story, as it will give you a sense of why I think it’s important to cultivate all kinds of knowledge about the world and not just knowledge directly related to stocks, bonds, exchange-traded funds (ETFs) and options.

So, what do I mean when I say a pre-Socratic philosopher taught me how to trade options? Well, to understand this, we must go back about 2,500 years ago to Ancient Greece and learn about a man named Thales of Miletus.

Thales was a brilliant philosopher and one of the first real Western thinkers and scientists (although “scientist” wasn’t a term that was used at the time). He is best known for his thesis that “all things are water,” which we know now to be erroneous, but was a groundbreaking thought, given the scientific infancy of 6^th century B.C. Greece. Moreover, Thales was among the first thinkers to make hypotheses that were testable and falsifiable, both bedrock principles of scientific inquiry today, but absent among his fellow thinkers at the time.

According to the Internet Encyclopedia of Philosophy, none other than the great Aristotle identified Thales as the first person to investigate basic principles, the first to question the origins of substances and matter and therefore, the founder of the school of natural philosophy.

Among his accomplishments was the successful prediction of an eclipse of the sun that occurred on May 28, 585 B.C.E. Although it’s not known exactly how Thales was able to predict this event, the most likely explanation is that he studied the solar and lunar cycles.

Yet what can we learn as investors from Thales?

To answer that, we must realize that Thales was a philosopher and a man not particularly concerned with the accumulation of monetary wealth. And because of his lack of wealth, he often was criticized by the elites of Athenian society during his own life. In order to prove the elites wrong, and to demonstrate the power of reason and natural philosophy, Thales did something that should put him in the trading history books.

Based on his study, assessment and knowledge of the Greek climate, Thales reasoned that there would be a particularly good harvest for olives one year. But rather than sit on this information, Thales had taken the next step and put deposits down on all the olive presses in Miletus over the preceding winter.

Thales basically cornered the market on olive presses for a small investment. Stated in modern trading terms, Thales bought call options on olive presses and paid a small amount for the right to control those presses (i.e. he paid a small premium for the option).

When his prediction of a bountiful olive harvest did indeed come to pass, Thales’ bet paid off handsomely. The boom harvest created heavy demand for the olive presses, and because Thales held a virtual monopoly on the presses, he was able to rent them out at a huge profit.

In my opinion, this was perhaps one of the most important events — not only in market history, but in the whole of human history.

The reason why is because Thales demonstrated that “science” and the accumulation of wealth really are connected. And, as the old saying goes, knowledge is power. He also demonstrated that if you know what your competition doesn’t, you will have a tremendous advantage over them.

It is for this life lesson, as well as the accompanying investing lesson of Thales and the olive presses, that we should be thankful for the man from Miletus.

I know I am thankful for him, as his foresight and virtual creation of the concept of options trading has allowed me to help investors make some serious profits. And, that’s precisely what we have done this year in my Bullseye Stock Trader advisory service.

Since we launched in late December, we’ve had 14 closed trades, with 12 winners. Moreover, many of those options trades have been double-digit or even triple-digit percentage winners.

To find out more about my Bullseye Stock Trader service, simply click here.

So, the next time someone asks you about who your favorite investor is, forget about Warren Buffett or Ray Dalio or John Templeton. Instead, give Thales of Miletus a shout out.

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Heaven at Night

“Las Vegas looks the way you’d imagine heaven must look at night.”

— Chuck Palahniuk, “Invisible Monsters”

The dark-yet-brilliant novelist’s 1999 tome about a fashion model who is left disfigured after a car accident is a beautiful yet distressing read. In fact, the book was originally considered too disturbing to publish. However, “Invisible Monsters” got a second life after the success of Palahniuk’s first novel, “Fight Club.” And of course, I can’t mention that book without mentioning the unforgettable cultural meme it spawned: “The first rule of Fight Club is you DO NOT talk about Fight Club.” If you haven’t read Palahniuk’s work, you’re missing out on some very good literature.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods