The role of call options and put options in the market depends on investors' expectations of the future price trend of the underlying asset. The following are the main functions of call and put options:

1. The function of call options (call options):

Speculation: Investors who purchase call options expect that the price of the underlying asset will rise. A call option gives the buyer the right to purchase the underlying asset at a fixed price in the future, so when the market rises, investors can earn the difference by exercising the option.

Take stocks as an example. Suppose you buy a call option with a term of three months. The agreed price is 1,000 yuan, which is the exercise price. In this case, there are the following two possible scenarios:

Buyer’s perspective:

1. The stock price is lower than 1,000 yuan: Three months later, if the stock price is lower than 1,000 yuan Yuan, the buyer will give up the right to exercise, that is, he will not purchase the stock at a price of 1,000 Yuan. In this case, the buyer's loss is the option premium paid.

2. The stock price is higher than 1,000 yuan: If the stock price is higher than 1,000 yuan, such as 1,300 yuan, the buyer will choose to exercise the right to purchase the stock at a price of 1,000 yuan. The buyer's profit will depend on the difference between the market price of the stock and the execution price. The higher the stock price, the greater the profit for the buyer. Profit and loss will fluctuate as the stock price fluctuates.

The seller's perspective:

1. The stock price is less than 1,000 yuan: If the stock price is less than 1,000 yuan, the seller will retain the option premium without having to deliver the stock. In this case, the seller's profit is the option premium.

2. The stock price is higher than 1,000 yuan: If the stock price is higher than 1,000 yuan, the seller will be forced to deliver the stock to the buyer, and the seller's loss will be the part where the purchase value is higher than the execution price. The seller's loss will increase as the stock price rises because the stock must be sold at a lower strike price.

The profits and losses of the buyer and seller in call option transactions are relative, and the profit of one party is the loss of the other party.

Hedging: Investors can use call options as a means of hedging to reduce the risk of rising underlying assets. This helps lock in the purchase price and protect against adverse market movements.

Hedging by purchasing call options:

Purpose: Used to hedge the risk of rising asset prices.

How to operate: Suppose an investor holds a position in an underlying asset (such as a stock) and is worried about future price increases. At this time, investors can purchase a corresponding number of call options. If the price of the underlying asset increases, a call option will allow the investor to purchase the asset at a pre-agreed price, thus locking in a lower purchase price.

Effect: When the asset price rises, the profit from the call option can partially or completely offset the loss of the underlying asset. If the price doesn't rise, the investor only pays for the option.

2. The role of put options (put options):

Speculation: Investors who purchase put options expect that the price of the underlying asset will fall. A put option gives the right to buy an underlying asset at a fixed price in the future, so when the market falls, investors can earn the price difference by executing the option.

Take stocks as an example. Suppose you buy a put option with a term of three months and an exercise price of 1,000 yuan. That means you have the right to sell the stock at a price of 1,000 yuan after three months. In this case, there are the following two possible scenarios:

Buyer’s perspective:

1. The stock price is below 1,000 yuan: If the stock price is below 1,000 yuan, the buyer can choose Exercise the right to sell the stock at a price of 1,000 yuan. In this case, the buyer's profit will depend on the difference between the execution price and the market price of the stock. The lower the stock price, the greater the profit for the buyer.

2. The stock price is higher than 1,000 yuan: If the stock price is higher than 1,000 yuan, the buyer will give up the exercise right and will not sell the stock at the price of 1,000 yuan. In this case, the buyer's loss is the option premium paid.

Seller’s perspective:

1. The stock price is below 1,000 yuan: If the stock price is below 1,000 yuan, the seller will be forced to buy the stock because the buyer has the right to sell at 1,000 yuan. out. The seller's loss will be the excess of the purchase value above the strike price. The lower the stock price, the greater the seller's loss.

2. The stock price is higher than 1,000 yuan: If the stock price is higher than 1,000 yuan, the seller will retain the option premium and does not have to deliver the stock. In this case, the seller's profit is the option premium.

Hedging: Investors can use put options as a hedging tool to reduce the risk of a decline in the underlying asset. This helps lock in the selling price and protect against adverse market movements.

Hedging with put options:

Purpose: Used to hedge the risk of falling asset prices.

Operation method: If an investor holds an underlying asset and is worried about the price falling in the future, he can purchase a corresponding number of put options. Put options will allow investors to sell an asset at a pre-agreed price, thereby locking in a higher selling price.

Effect: In the event of a decline in asset prices, the profit from the put option can partially or completely offset the loss of the underlying asset.

If the price does not fall, the investor only pays for the option.

The hedging strategies of buying call options and selling put options are both designed to reduce the risk caused by asset price fluctuations. They provide a flexible tool that allows investors to hedge against adverse market movements without giving up potential profits.