Features 1. Two-way transaction
Options provide investors with two-way trading options. If investors expect the underlying price to rise, they can buy call options; If the target price is expected to fall, you can buy put options. Whether the target price goes up or down, investors are likely to make a profit.
Feature 2: Lever function
The leverage of options provides investors with the possibility of realizing big profits at low cost and high cost.
The leverage of options is different from that of the margin system of derivatives such as futures. The leverage effect of options is because the percentage of price change of option contracts has a very large amplification effect relative to the percentage of price change of underlying assets. Of course, the leverage effect is a double-edged sword. While amplifying the gains, it will also amplify the losses and make investors suffer huge losses, which requires investors' special attention.
Characteristic three. Inequality of rights and obligations
The buyer of the option has rights but no obligations, while the seller of the option has obligations but no rights.
Specifically, the rights and obligations of selling call or put options are not equal. As the obligee, the buyer can't lose all the option fees at most. If the exercise right is unfavorable to the buyer, the buyer can't exercise it now. As a debtor, the seller is obliged to sell or buy the underlying assets when the buyer exercises his rights. At this time, in addition to the option fee, you may have to bear the loss, and the seller will lose as much as the buyer earns. The seller may charge a certain royalty for selling options, which may lead to great losses for the seller because of the sharp rise or fall of the target and the buyer's exercise.
Feature 4: Income and risk are not equal.
When the market price of the underlying assets changes in favor of the buyer, the buyer may gain huge profits and the seller will suffer huge losses; When the market price of the underlying assets changes against the buyer, the buyer can give up the right to exercise, and the buyer's maximum loss (that is, the seller's maximum income) is equal to the royalty. Therefore, in option trading, the biggest loss for the buyer is the commission, and the potential income is huge; The seller's biggest gain is royalties, and the potential loss is huge.
Feature 5. Unique nonlinear profit and loss structure
The nonlinear profit and loss state of option trading is essentially different from linear trading such as stocks and futures.
The profit and loss of option traders do not change linearly with the underlying asset price, and the maximum return at maturity is a broken line, not a straight line. This is the nonlinear profit and loss structure of options, which makes them have obvious advantages in risk management and portfolio investment.
The chart below shows the profit and loss chart of call options, which is a typical nonlinear profit and loss structure.
The chart below shows the profit and loss chart of buying futures contracts or stocks, which is a typical linear structure.