For us, the word OTC commodity options seems to be seldom understood. While understanding OTC commodity options, we should first understand OTC options. While understanding OTC options, we should also understand the following OTC options, which complement each other. On-market options are generally options contracts that can be publicly traded by investors who are publicly listed on the exchange, so what is the relevant content of off-market commodity options?
1. What is the relevant content of off-court commodity options?
Off-exchange options are relative to on-exchange options. To understand OTC options, we need to understand OTC options first, and understand OTC options through the differences between them.
The floor option refers to the standardized option contract that is publicly listed on the exchange and can be publicly traded by investors.
OTC options (generally referred to as OTC options) refer to non-standardized option contracts traded in non-centralized trading places, which is relative to OTC options.
Specifically, OTC options are traded in markets other than exchanges, which are mainly designed by financial institutions such as futures companies and securities companies according to the specific needs of customers. The final transaction is carried out by the futures company signing agreements with other institutions and customers.
Second, the difference between on-site options and off-site options.
The biggest difference between OTC and OTC options is standardization and non-standardization.
On-site option contracts exist in a standardized form, which can meet the needs of ordinary groups.
The form of OTC option contract is not standardized, and the biggest feature is that it can be customized, that is, the option products can be tailored according to the special needs of individuals.
Judging from overseas development experience, the OTC market is about 9- 10 times larger than the OTC market, because OTC options can better meet the diversified needs of investors.
At present, China's domestic commodity market has not yet listed the on-market options, and the off-market options market has begun to appear. For most industrial customers, in addition to using futures for hedging, OTC options have become an important risk management tool. Customers can maintain and increase the value of spot or futures assets by purchasing OTC options at a small cost.
OTC option is a popular risk management tool, which is very useful in different situations. The following lists several demand scenarios related to enterprise hedging.
1, in hand, worried about depreciation.
2. I plan to purchase goods and worry about the price increase.
3, want to avoid risks, but also want to keep the opportunity of profit.
4. I don't want to encounter the risk of margin increase when I make a mistake in judgment.
5. Futures hedging cannot meet individual needs.
OTC option is a risk management tool, and its biggest purpose is to provide enterprises with a way to avoid risks.
Looking back on the past futures hedging, in order to reduce the risk caused by the price fluctuation of raw materials or finished products, industrial customers usually use futures to hedge, that is, to establish positions in the opposite direction in the futures market and make up for the loss of spot positions with the profits of the futures market, so as to achieve the purpose of locking in costs or profits. The problem of futures hedging is to use futures hedging to avoid risks and at the same time lose huge profits brought by favorable changes in spot prices, which is the most contradictory place of futures hedging!
In addition, the use of futures hedging needs to pay margin, and when the market changes adversely, it needs to add margin continuously, resulting in high capital occupation and even short positions.
And options can solve these problems!
Over-the-counter option hedging refers to the advantage option hedging, which cooperates with spot (futures) positions to make up the possible losses of spot (futures) by using the income of established option positions, so as to lock in or reduce the price risk. Compared with futures hedging, hedging with OTC options has natural advantages, mainly in the following three aspects:
1, which can preserve and increase the value.
The principle of futures hedging is to use futures and spot prices to change in the same direction, but long and short positions are opposite, thus avoiding risks and locking in costs.
As the price changes, some people make a profit, while others lose money. If the spot position loses money due to unfavorable price changes, future positions's profit will make up for the loss of the spot position; On the other hand, when the spot position is profitable due to favorable price changes, its chances of getting more profits will be offset by future positions's losses.
It can be seen that while investors are avoiding risks, they are also losing opportunities to gain more benefits.
If you use options, you can preserve the value and retain the opportunity to increase the value.
This is mainly because the loss of call option is limited (the biggest loss is premium) and the profit is unlimited. It is called option hedging. On the one hand, if the spot (futures) is partially lost and the options are partially profitable, the hedging effect of options and futures is similar, and the risk of adverse price changes can be avoided. On the other hand, if the spot (futures) position is profitable and the option position is losing money, there is no upper limit for the profit part, but the loss part is limited (the maximum loss is limited to the paid royalties), thus retaining the value-added opportunities brought about by the favorable changes in spot prices.
It can be seen that this "asymmetric profit and loss" feature of options makes the hedging effect of options better than futures.
2, no margin, to avoid short positions.
In the process of spot hedging with futures, if future positions loses money, it needs to add trading margin. If the funds cannot be replenished in time, it will be forced to close the position and the hedging plan cannot be realized. When using options to hedge, the buyer only needs to pay a small amount of option fee at the beginning, and does not need to pay a deposit, and no matter how the subsequent price changes, there is no need to add a deposit.
It can be seen that after purchasing options, there will be no more expenses or losses, which avoids the problem that the hedging plan cannot be realized due to the shortage of funds, and the fund management is more convenient.
3, various ways, personalized customization
In the futures hedging strategy, in order to hedge the risk of price rise or fall, only futures can be bought or sold. When using options to hedge value, there are more strategic choices, such as buying call options or selling put options to avoid the risk of price rise, and buying put options or selling call options to avoid the risk of price decline.
In order to reduce costs, enterprises can also choose spread options, exotic options and other types. Different options and strategies have different income and risk characteristics, and investors can choose according to their needs.
In addition, OTC options can be customized, that is, futures companies can flexibly design according to the individual needs of enterprises, tailor appropriate risk management tools for enterprises, and meet the needs of enterprises for maintaining and increasing value with different costs and effects, which is difficult for traditional futures hedging.
OTC options are non-standardized options contracts traded in non-centralized trading places, and the trading conditions are more flexible. Regardless of the connection target, trading time or execution price, OTC options can provide "personal tailor" quality service for investment institutions according to their needs, and make use of the hedging mode of "OTC derivative futures" to enable investment institutions to obtain better returns.
At the same time, OTC options can help enterprises hedge more effectively. In the process of production and sales, every decision-making point is an important link in the business performance of enterprises, and the needs and risks of each link are different. The flexible customization of OTC options can provide customers with fast and professional risk management services and help enterprises effectively control risks and profits.
4. Ensure the order profit and avoid the rising risk of raw materials.
When an enterprise obtains an order contract, it is most worried that the increase in raw material prices will lead to a decline in profits and even a loss for the enterprise. In order to solve this dilemma, enterprises can buy call options that match the quantity of raw materials in the order when accepting the order. If the price of raw materials rises sharply, the profit of call options can make up for the losses caused by the rising price of raw materials; If the price of raw materials falls, they will give up the right to purchase goods at low prices in the market and lose the option fee paid at the beginning at most, but the profits of enterprises will increase because of the falling price of raw materials. Using call options to manage the purchasing risk of enterprises can determine the lower profit limit of each order, and the profit rate will increase with the decline of raw material prices.
5. Manage the sales price and buy insurance for the goods in stock.
The operation of enterprises is generally a long-term and continuous behavior, but the price of finished products will change greatly with the fluctuation of the market. For enterprises with long production cycle, although it is profitable to arrange production plans from the beginning, when producing goods, if the price of finished products falls, it will cause losses to enterprises, or when the market is good, goods cannot be produced overnight. Corresponding to these two situations, the lowest selling price of finished products can be locked by buying put options, thus ensuring the profits of enterprises. Buying a put option is equivalent to buying an insurance for commodity prices. If the market price goes down, you exercise your right; if the market price goes up, you give up your right and the goods are shipped at a higher price in the market.
6. Adjust the inventory of raw materials and activate the efficiency of capital use.
In order to maintain the normal operation of enterprises, enterprises must establish basic raw material inventory. If the enterprise thinks that the price of raw materials continues to rise, the traditional practice is to build a large amount of inventory with funds, which not only takes up a lot of operating cash, but also causes price loss in case of wrong prediction. If you buy commodity call options instead, you can give up the exercise and not bear the risk of falling prices. In addition to reducing the use of funds, if the market makes mistakes, you only need to pay a small amount of royalties.
7. Buy insurance for mortgage warehouse receipts and increase the loan ratio.
In order to allocate funds, enterprises can pledge warehouse receipts to banks and exchange them for cash, but banks are worried about the price risk of collateral and can only mortgage about 50% of the cash value at most. If the price of warehouse receipts is protected by buying put options, according to foreign practical experience, banks are more willing to control the risk of collateral through the insurance function of put options, thus increasing the loan ratio. In this way, enterprises can not only mortgage more cash to ease the tight capital flow, but also buy price insurance for warehouse receipts.
8, the use of inventory goods, create cash appreciation.
The enterprise's inventory is put in the warehouse, and there is no other income before the inventory is sold, except storage expenses and interest expenses. The warehouse receipt value-added service is aimed at this situation, providing enterprise customers with the function of activating warehouse receipt assets. In addition to bringing stable cash income, if the price of finished products rises, they can also be sold at the preset upper limit price. The principle of warehouse receipt value-added service is to convert future expected profit space into current cash income. Usually, when the enterprise expects the price trend to be flat, it can reduce the storage loss and interest expense through this value-added service.
9. Pre-order at a low price, and wait for commodity prices to fall to increase income.
Generally, enterprises located in the downstream of the industrial chain directly face the fierce competition market, and it is not easy to pass on the rising costs. Therefore, in the environment of falling raw material prices, they tend to build more raw material stocks to meet their production needs. Through the OTC derivatives market, enterprises can set the quantity, time and variety of raw materials in advance. Once the price of raw materials falls below the set execution price, they will buy raw materials as inventory according to the conditions set at the beginning of the period. If the price of raw materials does not fall when the option expires, they can charge the option fee to increase the cash inflow.
It can be seen that the use of OTC options can not only improve the operating performance of enterprises, but also effectively reduce the operating costs of enterprises and improve their competitiveness. It can also increase the anti-risk ability of enterprise procurement and sales, improve the management ability of enterprise profits, thus smoothing cash flow and increasing financial initiative.