Basic concept of option
I. Option Buyer and Option Seller
(1) option buyer
The party who buys option contracts is called the option buyer. Open positions in call options are called option bulls. In option trading, after paying a small fee (option fee), the option buyer obtains the rights conferred by the option contract, and buys or sells a certain number of related futures contracts from the option seller at a predetermined execution price within a specified time stipulated in the contract. Option buyers only have rights, not obligations.
(2) Option seller
The party selling option contracts is called an option seller. The open position of selling options is called option short. In option trading, after receiving the option premium from the option buyer, the option seller is obliged to buy or sell a certain number of relevant futures contracts from the option buyer at a predetermined execution price as long as the option buyer requests to exercise the option within the specified time stipulated in the option contract. Option sellers have only obligations, but no rights.
In option trading, the rights and obligations of buyers and sellers are not equal. After paying royalties, the buyer has the right to buy or sell, but has no obligation to buy or sell. After receiving the royalty, the seller is obliged to buy and sell according to the requirements of the buyer, but has no right not to buy or sell.
Second, the position of the option.
In futures trading, there are two basic parts: bulls and bears. In option trading, every option contract also has two sides. One party is an option buyer, or called an option bull, and the other party is an option seller, or called an option short. The profit and loss situation of option seller and option buyer is just the opposite.
Option call and put options have four basic parts:
Call the dragon
Sell strong bulls
Shorten the call time
Short selling right
Accordingly, there are four basic trading strategies of options: buy call and sell call; Buy put options and sell put options. Other trading strategies are derived from this.
Three. Option type
Financial Options and commodity options
According to the different attributes of the subject matter, options can be divided into financial options and commodity options. The subject matter of financial options is financial products such as interest rates, currencies, stocks and indexes, while the subject matter of commodity options includes agricultural products and energy.
(2) spot options and futures options
The target of spot option is spot assets. After the buyer proposes to implement it, both parties generally have to deliver the physical assets. For example, stock options, the target of which is stocks, when call options are put forward, buyers buy stocks and sellers sell stocks. The target of futures options is futures contracts. After the option is executed, the option positions of the buyers and sellers will be converted into corresponding future positions.
(3) bullish and bearish
According to the nature of the buyer's rights, options can be divided into call rights and put rights.
1, option. Call option, also known as call option, means that the option buyer has the right to buy a certain number of related futures contracts from the option seller at the exercise price within the specified time. Within the validity period specified in the option, the option seller is obliged to sell the relevant futures contract at the execution price specified in option contracts at the request of the option buyer.
2. Sell correctly. Put option, also known as put option, means that the option buyer has the right to sell a certain number of related futures contracts to the option seller at the exercise price within a specified time. Within the validity period specified in the option, the option seller is obliged to buy the relevant futures contract at the execution price specified in option contracts at the request of the option buyer.
Right period
Buy and sell rights
Buy bullish, sell bullish, buy bearish, sell bearish.
When exercising options, when the buyer decides to buy, when exercising options, when the buyer decides to sell.
Only rights and obligations, only rights and obligations.
Buy futures contracts at strike price to sell futures contracts at strike price to sell futures contracts at strike price to buy futures contracts at strike price
Rights and obligations of buyers and sellers of options
(d) American options and European options
According to execution time, options can be divided into European options and American options.
European option refers to the option that the buyer of the option contract can only decide whether to exercise the right on the expiration date of the contract.
American option refers to the option that the buyer of the option contract can decide whether to exercise the right on any trading day within the validity period of the option contract.
American options are more flexible than European options, giving buyers more choices, while sellers always face the risk of performance. So the premium of American options is relatively high.
The wheat option designed by Zheng Shang is an American commodity futures option.
(5) Real, flat and imaginary options
According to the relationship between the exercise price and the underlying market price, options can be divided into real options, flat options and virtual options.
1, a call option with a futures price higher than the strike price and a put option with a futures price lower than the strike price are real options.
For example, a call option with a wheat futures price of 1220 yuan/ton and an exercise price of 1200 yuan/ton is a real option; A put option with an exercise price of 1240 yuan/ton is a real option.
2. An option with a futures price equal to the strike price is called an equal option.
For example, the current wheat futures price is 1220 yuan/ton, and the call option and put option with the exercise price of 1220 yuan/ton are all equivalent options.
3. Call options with futures prices lower than the strike price and put options with futures prices higher than the strike price are hypothetical options.
For example, the call option with the current wheat futures price of 1220 yuan/ton and the exercise price of 1240 yuan/ton is a virtual option; Put options with exercise price of 1200 yuan/ton are hypothetical options.
The greater the difference between the strike price and the futures market price, the greater the real or imagined amount, which is called deep real option or deep imagined option. In the process of option trading, real options, flat options and virtual options change with the change of futures prices.
Relationship table between execution price and futures price
Buy and sell rights
Real option exercise price futures price
The exercise price of the equivalent option = the exercise price of the futures price = the futures price
Virtual option strike price > futures price strike price