Options (Options) are a kind of option. After the buyer of the option pays a certain amount of premium to the seller, he obtains this right, that is, he has the right to purchase the option at a certain price (exercise price) within a certain period of time. Sell ??or buy a certain amount of the underlying asset (strike price) The right to sell or buy a certain amount of the underlying asset (physical commodity, security or futures contract). When the option buyer exercises his rights, the seller must perform his obligations as stipulated in the option contract. On the contrary, the buyer can waive the exercise of the right, in which case the buyer only loses the premium and the seller earns the premium. In short, the option buyer has the right to execute the option but has no obligation to execute it; while the option seller only has the obligation to fulfill the option.
Options mainly have the following components: (1) Execution price (also known as strike price). The purchase and sale price of the underlying asset specified in advance when the option buyer exercises his right. (2) Royalties. The option price paid by the buyer of an option is the fee paid by the buyer to the option seller to obtain the option. (3) Performance bond. The option seller must deposit with the exchange financial security for performance. (4) Call options and put options. A call option refers to the right to buy a certain amount of the underlying object at the exercise price during the validity period of the option contract; a put option refers to the right to sell the underlying object. When an option buyer expects that the price of the underlying asset will exceed the strike price, he or she will buy a call option, and conversely, he or she will buy a put option.
According to different execution times, options can be divided into two main types: European options and American options. European options refer to options that are only allowed to be executed on the expiration date of the contract. They are used in most over-the-counter transactions. American options refer to options that can be executed on any day during the validity period after their establishment. They are mostly used on exchanges.
Examples:
(1) Call options: On January 1, the subject matter is copper futures, and its option execution price is US$1,850/ton. A buys the right and pays $5; B sells the right and earns $5. On February 1, the price of copper futures rose to US$1,905/ton, and the price of call options rose to US$55. A can adopt two strategies:
Exercise the right - A has the right to buy copper futures from B at a price of US$1,850/ton; B must satisfy A's request to exercise the option. , even if B does not have copper in hand, he can only buy it in the futures market at the market price of US$1,905/ton and sell it to A at the execution price of US$1,850/ton, and A can sell it in the futures market at the market price of US$1,905/ton. Out, profit of $50. B loses $50.
Selling the right - A can sell the call option at a price of $55, and A makes a profit of $50 (55-5).
If the copper price falls, that is, the copper futures market price is lower than the final price of US$1,850/ton, A will give up this right and only lose US$5 in premium, while B will make a net profit of US$5.
(2) Put options: On January 1, the execution price of copper futures is US$1,750/ton. A buys this right and pays US$5; B sells this right and earns US$5. On February 1, copper prices fell to $1,695/ton, and the price of put options rose to $55. At this time, A can adopt two strategies: exercise the right - A can buy copper from the market at a market price of US$1,695/ton and sell it to B at a price of US$1,750/ton. B must accept it and A will profit from it. 50 US dollars, B loses 50 US dollars.
Selling the right - A can sell the put option at $55. A makes a profit of $50.
If the price of copper futures rises, A will give up this right and lose $5, and B will gain a net gain of $5.
Through the above example, the following conclusions can be drawn: First, as the buyer of an option (whether it is a call option or a put option), he has only rights but no obligations, and his risk is limited (the maximum loss is royalties), but profits are theoretically unlimited. Second, as the option seller (whether it is a call option or a put option), he has only obligations but no rights. In theory, his risk is unlimited, but his returns are limited (the maximum return is the premium). Third, the buyer of the option does not need to pay a deposit, but the seller must pay a deposit as a financial guarantee to fulfill the obligation.
Options are an important hedging derivative instrument that emerged to meet the needs of international financial institutions and enterprises to control risks and lock in costs. The Nobel Prize in Economics in 1997 was awarded to the inventor of the option pricing formula (Black-Scholes formula), which also shows that the international economics community attaches great importance to option research.
The meaning of mortgage
In the early 1990s, with the rise of the real estate industry, the word "mortgage" gradually became known to people. The word "mortgage" was introduced from Hong Kong and is the Cantonese transliteration of the English "Mortgage". Some home buyers think that "mortgage" refers to a mortgage loan or mortgage loan. In fact, a mortgage is a legal relationship, which belongs to the Anglo-American system of equitable law and does not exist in our country's current legal system. Therefore, for ordinary home buyers, It is somewhat difficult to understand.
The mortgage we currently use generally refers to a mortgage loan for the purchase of commercial housing by individuals.
The legal relationship of mortgage as security is: in the project's pre-sale contract, the buyer pays part of the house price to the seller, and the buyer pays the remaining house price to the seller through a loan from a financial institution. Before the real estate certificate is completed, the seller transfers the buyer's option on the off-plan property to a financial institution through an agreement as a guarantee for obtaining a loan from the financial institution. After the real estate certificate is completed, the seller releases the guarantee and the buyer transfers the option to obtain the off-plan property to the bank as a guarantee for repaying the loan. The buyer will have priority in receiving compensation after paying off all loan principal and interest. The option can be redeemed and a real estate certificate obtained. If the buyer defaults during the loan term or cannot repay the loan, the bank has the right to dispose of the mortgaged building and has priority in receiving compensation.
In order to encourage home buyers to purchase the houses they build, developers request banks to provide real estate mortgage loans. The developers must sign a mortgage loan cooperation agreement with the bank. The bank, developer and home buyers should sign a mortgage loan contract and Letter of Guarantee.