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Option refers to a contract, which originated in the American and European markets in the late18th century. This kind of contract gives the holder the right to buy or sell assets at a fixed price on or before a certain date. The key points of option definition are as follows:
The right to choose is a right. An option contract includes at least a buyer and a seller. The holder enjoys rights, but does not assume corresponding obligations.
2. The object of the option. The subject matter of an option refers to the assets you choose to buy or sell. Including stocks, national debt, currency, stock index, commodity futures and so on. Options are derived from these subject matter, so they are called derivative financial instruments. It is worth noting that the option seller does not necessarily own the underlying assets. Options can be "short". Option buyers may not really want to buy the underlying asset. Therefore, when the option expires, both parties do not have to make physical delivery of the subject matter, but only need to make up the price according to the price difference.
3. Due date. The expiration date of the option agreed by both parties is called "expiration date", and if the option can only be executed on the expiration date, it is called European option; If an option can be exercised at any time on or before the expiration date, it is called an American option.
4. Execution of options. The act of buying and selling the underlying assets according to the option contract is called "execution". The fixed price agreed in the option contract for the option holder to buy and sell the underlying assets is called the "exercise price".
Option classification:
Due to the different trading methods, directions and targets of options, many options have been produced. Reasonable classification of options is more conducive to our understanding of option products.
Divide by rights
According to the rights of options, there are two kinds: call options and put options.
According to the types of options, it can be divided into European options and American options.
According to the exercise time, it is divided into three types: European option, American option and Bermuda option.
Option: Option trading refers to the right to buy and sell in a certain period of time in the future. It is the buyer's right to buy or sell a certain amount of subject matter from the seller at a pre-agreed price in a certain period or date in the future, but he has no obligation to buy or sell it. Options are divided into European options and American options according to the exercise method.
1. For European options, the buyer holder can only choose to exercise on the expiration date.
2. For American options, the buyer can choose to exercise the right during the trading period after the transaction and before the expiration date.
Call Options means that the buyer of the option has the right to buy a certain number of specific commodities from the option seller at a pre-agreed price within the validity period of the option contract, but has no obligation to buy them. The option seller is obliged to sell the specific commodities specified in option contracts at the price specified in advance at the request of the option buyer within the validity period specified in option contracts.