The sudden, huge rise in the prices of index put options some rose eightfold (Brady Commission 1988, p. VI-19), with implied volatilities, normally around 20 percent or less, soaring to 170 percent (Bodie and Merton 1995, p. 217, figure 6-1)-meant that enormous margin payments were owed to clearing firms by market makers who had sold options that had shot up in value, and by the firms to the Options Clearing Corporation. First Options, the leading clearing firm, absorbed huge losses from market makers who could not meet their obligations. Its failure would have been a calamity, but it had shortly before been bought by Continental Illinois, and the Federal Reserve permitted the bank to draw on its capital reserves to replenish First Options' funds.

Donald MacKenzie, An Engine, Not a Camera, loc. 919