The first option is natural expiration: if the buyer chooses not to exercise the right when the option expires, then the option expires naturally and the position is automatically closed, and no longer holds any rights and obligations.
The second option is to close the position in advance: the buyer can choose to close the position in advance before the option expires, that is, sell the option contract at the market price. By closing the position in advance, the buyer can close the option position in advance, gain corresponding gains or bear corresponding losses.
In short, there are three ways to close an option contract: closing, exercising and abstaining.
As speculators, most people take liquidation to settle option contracts. As a buyer, selling and closing positions can not only get intrinsic value but also external value, while exercising will only get intrinsic value.
Of course, some people use exercise methods, such as hedging and spot dealers. However, deep real value options have to be settled by exercising because of liquidity problems.
When a call option is exercised, the option buyer obtains a long position of the underlying asset or a securities position corresponding to the exercise price.
When selling a call option to perform a contract, the option seller obtains a short position of the underlying asset corresponding to the exercise price or pays in cash (buying securities for the buyer).
When a put option is exercised, the option buyer obtains a short position or cash income (paid by the seller) corresponding to the underlying asset at the exercise price.
When selling a put option, the option seller obtains a long position of the underlying asset or a securities position corresponding to the exercise price.
Giving up the exercise right means not closing the position and waiting for the option contract to expire automatically. Under what circumstances will the buyer give up the right to exercise? Generally, if the residual value is not enough to offset the liquidation fee, that is, there is no income, the buyer will give up the right and let it go to zero.
How do investors who want to exercise options do it?
First of all, several important periods of option exercise
1, the last trading day, expiration date and exercise date of the contract.
In general, three times are the same day, that is, the fourth Wednesday of each contract expiration month (postponed in case of legal holidays).
2. Settlement date of the contract
The contract settlement date refers to the date when China Clearing Company transfers the underlying securities obtained after the exercise of the rights to investors, and the contract settlement date is the next trading day of the exercise date (T+ 1). Investors can only sell the underlying securities obtained by exercise on the third working day (T+2) after the exercise date.
Second, the detailed process of option exercise
1. Execute the process as a suitable party to purchase options.
Step 1: The call option holder decides whether to exercise the right according to his own judgment, and submits the right declaration instruction before the exercise day afternoon 15: 30.
In the second step, the option holder needs to prepare sufficient exercise funds. When submitting the exercise order, the obligee must prepare the fund of option contract quantity * exercise price * option contract multiplier. For example, SAIC bought 1300 in April, the exercise price was 13 yuan/share, and the multiplier of each option contract was 5000. Investors need to prepare 1*5000* 13=65000 yuan for each option contract exercise instruction. If the investor fails to prepare enough funds at the same time when submitting the exercise declaration instruction, the exercise declaration is invalid.
Step 3: On the second day of the exercise date, China Clearing Company will transfer the shares to the obligee. Investors can only sell shares on the third day of the exercise date at the earliest, and the exercise is completed.
2. Exercise process as the right holder of put option.
Step 1: The put option holder decides whether to exercise the right according to his own judgment, and submits the right declaration instruction before 15: 30 pm on the exercise date.
In the second step, investors need to prepare sufficient underlying securities. The exercise of put option is the behavior of investors to sell the underlying securities at the exercise price. When submitting exercise orders, investors must prepare securities with the number of exercise contracts * option contract multiplier. For example, SAIC sold 1500 in April, and the multiplier of each option contract was 5000. Every time an investor submits an option contract exercise instruction, he needs to prepare 5000 shares of SAIC, and the investor can get 5000* 15* 1=75000 yuan. Investors can buy the underlying securities on the exercise day to exercise. If the investor fails to prepare the full amount of the underlying securities when submitting the exercise declaration instruction, the exercise declaration is invalid.
Step 3: On the second day of the exercise date, China Clearing Company will allocate funds to investors. Investors can only withdraw funds on the third day of the exercise date at the earliest, and the exercise will be completed at the same time.
3. Exercise process as obligor of call option.
The first step is that the obligor who buys the option knows the transfer result on the evening of the exercise date.
In the second step, investors need to prepare a full amount of the underlying securities before the next day's closing (T+ 1 Sunday afternoon 15). Or for example, SAIC bought 1.300 yuan in April, and the exercise price was 1.3 yuan/share. The multiplier of each option contract is 5000 yuan, and the obligor who subscribes for each option will get 1 * 1.3 * 5000 = 65000 yuan, and 5000 shares in the account will be transferred to the obligee. Investors can buy stocks on the exercise day to exercise. If the investor does not prepare the full amount of the underlying securities, it will constitute a breach of contract. Unlike the put option holder preparing the underlying securities, the underlying securities that investors can buy before the close of the next day at the latest can be used for exercise preparation.
Step 3: After T+ 1 closes, when the obligor who subscribed for the option is transferred by China Clearing Company, China Clearing Company transfers the transfer amount of the underlying securities to the obligee. The exercise is complete.
4. Exercise process as the obligor of put option.
The first step is that the obligor of put option knows the result of exercise transfer after the exercise date.
In the second step, you need to prepare the full amount of the underlying funds before the closing of the next day (15 pm). If SAIC sells 1.500 yuan in April, the exercise price is 15 yuan/share. The multiplier of each option contract is 5000 yuan, and the obligor of each put option will prepare 1 * 15 * 5000 = 75000 yuan to exercise. At the same time, after the exercise, the debtor will get 5000 shares of SAIC. If investors fail to prepare enough funds, it will constitute a breach of contract.
Step 3: After T+ 1, China Clearing Company designates the obligor of put option to exercise its rights. China Clearing Company transfers the funds to the obligee, and the obligor obtains the corresponding amount of underlying securities, and the exercise is completed.
Three. Problems needing attention in exercising rights
1. Can I obtain the underlying securities by exercising?
After the option holder puts forward the exercise, according to the result of the exercise transfer, the debtor may default. At this time, the obligee may not be able to obtain the full amount of the underlying securities. The Shanghai Stock Exchange will punish the debtor who breaches the contract and pay a fine to the creditor who fails to obtain the securities as compensation.
2. Does the exercise of real options necessarily make money?
Investors may not make money by holding real options on the last trading day. Investors declare exercise orders on T day and can only sell them on T+2 day at the earliest. Investors need to judge the price fluctuation risk of this option in advance. If it is predicted that the price of T+2 underlying securities can be higher than the sum of exercise price and handling fee, investors should choose to exercise. On the contrary, investors can choose not to exercise their rights.
For example, in April, investors exercised their right to buy SAIC shares at the price of 1500. On the last trading day, SAIC's closing price was 15.2 yuan. If investors expect SAIC's share price to fall below 15 yuan on T+2, then investors can give up their exercise right and buy SAIC directly in the secondary market.