Options are also contracts. The terms in the contract have been standardized. Take wheat futures options as an example. For option buyers, the right to buy primary wheat futures usually represents the right to buy primary wheat futures contracts in the future. The right to sell primary wheat futures usually represents the right to sell primary wheat futures contracts in the future; The seller of the option is obliged to sell a certain number of wheat futures contracts to the buyer of the option at the exercise price at some future time according to the terms of the option contract. The seller of the put option has the obligation to buy a certain number of wheat futures contracts from the option buyer at the exercise price at some future time according to the terms of the option contract.
The price of an option is called a premium. Option fee refers to the fee paid by the option buyer to the option seller in order to obtain the rights conferred by the option contract. For option buyers, no matter where the price of wheat futures changes in the future, the biggest loss they may face is only royalties. This feature of options gives traders the ability to control investment risks. The option seller collects the option fee from the buyer in return for taking the market risk.
Basic terms 1, execution price
The execution price is the price stipulated in option contracts. No matter how high or deep the futures price rises in the future, the buyer has the right to buy or sell at the exercise price.
2. royalties
Premium is the price of the option, which is the price paid by the buyer to the seller. Option trading is a commission, which is determined by market bidding. The factors that affect the level of option premium include execution price, futures market price, maturity date, futures price volatility, risk-free interest rate and market supply and demand forces.
3. Maturity date
The expiration date is the last day of the option's validity. For European options, this is the only day that the buyer can exercise his rights; For American options, this is the last day that the buyer can exercise his rights. In the simulated trading, the expiration date of the options for strong wheat and cotton is the fifth trading day one month before the underlying futures month.
4. European and American options.
Option performance methods are European and American. The buyer of European option can't exercise the right before the expiration date, but only on the expiration date. The buyer of the American option can put forward the execution on the expiration date or any trading day before. It is easy to find that the buyer's "rights" of American options are relatively large. The seller's risk of American options is correspondingly greater. Therefore, under the same conditions, the price of American options is relatively high.
5. option contracts code
Option contract code: variety+month+call/put option+strike price. Call option and put option are represented by c and p respectively. C is the first letter of English call option for buying options, and P is the first letter of English put option for selling options. 1, historical volatility (HV)
Historical volatility is the standard deviation of annualized rate of return calculated according to the historical price data of the underlying futures, and it is the reflection of historical price fluctuation. The greater the volatility of futures prices, the greater the possibility that futures prices will break through the strike price and enter the real value state. Therefore, the higher the royalty. On the contrary, the smaller the fluctuation of futures prices, the less likely it is that futures prices will make exercise options profitable. Therefore, the lower the royalty.
2. Implied volatility (4)
Implicit volatility refers to the volatility contained in the premium in the market, which is calculated by inputting the transaction price of an option contract and several other parameters into the option pricing model through trial and error. It reflects the market's view on volatility. When the implied volatility rises, it means that investors expect the futures price volatility to expand, so the premium will also rise; On the contrary, royalties will fall.
3. Delta (Delta)
Delta is the unit to measure the change of futures price, and it is the range that causes the change of commission. If the call option ⊿ is 0.4, it means that every time the futures price changes 1 yuan, the option price will change by 0.4 yuan.
When futures prices rise or fall, the premium of call options and put options will change differently. For call options, when the futures price goes up (down), the premium goes up (down), and they always move in the same direction. Therefore, the ⊿ of the call option is positive. However, the change of put option premium is opposite to the futures price, so the ⊿ of put option is negative.
The absolute value of ⊿ is between 0 and 1. The absolute value of deep real option approaches 1, flat option approaches 0.5, and deep imaginary option approaches 0. The value of futures is 1.
It can be used to measure the risk of a website. This is an additive. For example, the investor's portfolio includes many different positions such as strong wheat futures, strong wheat call options and put options, and the overall value is -20. It shows that the risk of a portfolio is equivalent to 20 short futures positions. On the whole, this part will benefit from the decline of futures prices and face the risk of rising futures prices.
4. Gamma (Gamma γ)
γ is the unit that reflects the change of futures price, and it is the range of change. If the ⊿ of an option is 0.6 and the γ value is 0.05, it means that the futures price will rise by 1 yuan, and the ⊿ increase will be 0.05. ⊿ Will increase from 0.6 to 0.65.
5。 The γ value of flat option is the largest, while the γ value of deep real value or deep imaginary value option approaches 0. The greater the γ value, the faster the change speed of ⊿, and the higher the risk of the site. 1. Close or cancel the order immediately (IOC) Close or cancel the order immediately means that all or part of the entrusted order is closed, otherwise it will be cancelled.
2. If the transaction is completed, otherwise the order will be cancelled (Fok).
All orders are closed or cancelled, which means all orders are closed or cancelled immediately. Compared with IOC instruction, the difference is that FOK instruction does not allow partial transactions, but only allows all transactions. If the market cannot meet the quantity entered by traders, the FOK order will be cancelled. The IOC can close some parts and cancel the rest. If investors are eager to reach a deal, it is best to choose IOC instead of FOK instruction. Because the number of transactions that can be achieved in the market may not be in line with your wishes.
3. Combination instruction
A combination order is a trading order to buy and sell two contracts at the same time. Only one contract is bought and sold in a single order. There are some commonly used trading combinations in option trading, such as spread trading and cross-trading. The simulation trading system can directly issue portfolio instructions and conduct portfolio trading. The transaction of combined instructions is limited to IOC or FOK.