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The World’s First Stock Exchange Page 278 (287 of 305)
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Glossary
was empty. A dealer who shorted VOC shares had a negative position or
was “short.” Naked sellers speculated on a fall in the market.
Nominal value: The value of a VOC share as recorded in the capital ac-
counts. See also market value.
Notarial writ: A notice read aloud by a notary. If two parties disagreed
about a transaction, it was normal for one party (the individual commis-
sioning the writ) to advise the other party (the individual being served
with the writ) through the notary of what he believed he was entitled to.
In the seventeenth century, notarial writs were considered to be the first
step in possible legal proceedings.
Option: The right to buy or sell a share at a preagreed price (strike price).
See call option, put option, straddle, and derivative.
Option premium: The price that a dealer pays to acquire an option. An
option premium can be compared to an insurance premium: a specific
risk (price risk in the case of share options) is covered in exchange for
payment of the premium.
Put option: The holder of a put option has the right to sell a share at a pre-
determined price on the exercise date of the option. See also call option.
Repo: A repurchase agreement, also known as a repo, RP, or sale and re-
purchase agreement, is the sale of securities together with an agreement
for the seller to buy back the securities at a later date. See share collateral
for a detailed explanation.
Share collateral: A lender would take a Dutch East India Company
(VOC) share as security for a loan. The dealer then used that loan to pay
for the share. Secured loans enabled dealers to take up VOC shares with
a limited amount of their own money. In general the loan did not cover
the full purchase price of the share; see haircut.
Share price: The price of VOC shares was expressed as a ratio of the cur-
rent value to the value of the share capital when the subscription register
was closed in August 1602. The August 1602 share price was set at 100.
A price of 125, for instance, meant that the value of VOC shares had risen
25 percent relative to their value in August 1602. See ex-dividend for the
effect of dividend payments on the share price.
Short selling: A trading technique in which a dealer sells borrowed
shares. See also naked short selling.
Spot price: Cash price.
Straddle: A combination of a call option and a put option.
Volatility: The instability of the share price. If the price fluctuates signifi-
cantly, it is said to have high volatility.
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