Financial option is a kind of financial derivative product, which is based on option contract and allows the buyer to buy or sell a certain number of financial commodities or financial futures contracts at a specific price within an agreed period. Buyers need to pay a certain fee to get this right.

The key elements of financial options include:

Subject matter: the basic assets of financial options, which can be stocks, bonds, commodities, currencies, indexes and other financial commodities or financial futures contracts.

Exercise price: also known as exercise price or agreement price, it is the price at which the buyer can buy or sell the subject matter when the option expires.

Expiration date: the term of validity of the option contract, and the buyer must exercise the option before the expiration date.

Call option and put option: the buyer is the buyer of the option and the seller is the seller of the option. The buyer pays the option fee to the seller.

The value of financial options depends on the change of the underlying price, the difference between the exercise price and the underlying price, the remaining time of the maturity date, market volatility and other factors. Buyers can use financial options to speculate or hedge risks, while sellers bear corresponding risks and obligations.

The concept of warrants

Warrant is a kind of securities, which is issued by the issuer of the underlying securities or a third party, and gives the holder the right to buy or sell the underlying securities at an agreed price within a specific period or a specific maturity date. The holder can choose to exercise the right to buy or sell the underlying securities, or choose to collect the settlement price difference by cash settlement.

Warrants are usually related to some basic securities, such as stocks, indexes or other financial assets. Investors holding warrants can exercise their rights at an agreed price within a specific period of time according to the conditions stipulated in the warrants. If the warrant holder chooses to exercise the right, the issuer will sell or buy the underlying securities to him at the agreed price, or pay the settlement difference by cash settlement.

The price and value of warrants are influenced by many factors, including the price of the underlying securities, remaining maturity, volatility and market conditions. Investors can participate in the price fluctuation of the underlying securities by purchasing warrants to obtain investment income.

There are the following differences between warrants and options:

(1) The issuer is different. There is no issuer of options, and every market participant can become the seller of options on the premise of sufficient margin. Generally speaking, both buyers and sellers of options are ordinary investors. Warrants are usually issued by listed companies, investment banks (securities companies) and major shareholders of the underlying securities.

(2) The parties to a contract are different. The parties in option contracts are the buyers and sellers of options trading, that is, the obligee holding long options and the obligor holding short options, while the parties in the warrant contract are the issuers and holders of warrants.

(3) the characteristics of the contract. Options are standardized contracts traded on exchanges. Its exercise price, expiration date and other terms have been standardized, and the contract terms are uniformly determined by the exchange and cannot be flexibly adjusted with market changes. On the contrary, warrants are non-standardized contracts, the contract elements are determined by the issuer, and the exercise methods can be European, American, Bermuda and so on. Delivery can be in kind or in cash. Issuers can launch warrants with special structure in time according to various market conditions and some investment groups with clear views, so as to facilitate investors to choose warrants that meet their own views.

(4) Theoretically, the supply of options can be unlimited, while the supply of warrants is limited, which is determined by the issuer and limited by the issuer's will, financial ability and the number of underlying securities circulating in the market. The circulation of a single warrant is usually given an upper limit in the issuance documents, and the circulation can be increased under certain conditions.

(5) Investors can not only buy call or put options like warrants, but also sell them to earn royalties. In the warrant market, only issuers can sell warrants to collect royalties, and investors can only pay royalties to buy call warrants or put warrants.

(6) Performance guarantee. The option seller (obligor) needs to pay a deposit for fulfilling his obligations, which varies with the market value of the underlying securities; Warrant issuer guarantees with its assets or credit.

(7) The exercise price of options is determined by the exchange according to the trading rules, and the exercise price of warrants is determined by the issuer.