1. Price risk
In option trading, both buyers and sellers face the risk of price fluctuation of the underlying assets. For the buyer, the most worrying thing is that the option price falls; For the seller, the most worrying thing is the rise of option price. The seller's income is limited, but the risk is infinite, so it is necessary to pay attention to the possible losses caused by price fluctuation.
2. Liquidity risk
In option trading, options with deep real value and imaginary value may sometimes be unable to close their positions in time because of insufficient liquidity, especially for far-month contracts. This may affect the efficiency of transaction execution.
3. Maturity risk
All option contracts have an expiration date, and liquidation or exercise settlement must be carried out on the expiration date. It should be noted that flat options and imaginary options will return to zero when they expire, while real options need to ensure that there are enough funds or stocks (ETFs) for settlement.
4. The risk of the buyer
Price zeroing: the price zeroing after the expiration of equal rights and imaginary rights options may cause investors to lose all their rights and interests.
Narrow fluctuation: In a market with small price fluctuation, the buyer may face losses, especially flat and hypothetical options.
Time value decay: with the passage of time, the time value of options will decrease, which may lead to losses, especially flat options and imaginary options.
5. Risks of the Seller
Large fluctuation: What the seller is most worried about is the large fluctuation of the underlying asset price, which may lead to large fluctuation of the option price, resulting in floating loss, namely gamma risk.
Margin risk: when the price rises sharply, the margin occupied by the seller may increase sharply, which may lead to forced liquidation and increased risk.
Rising volatility: Rising volatility may lead to floating losses of sellers, especially when selling deep hypothetical options.
6. Risk of passage of time
The passage of time will lead to the attenuation of the time value of options. For the buyer, the longer the time, the greater the loss may be. For sellers, the shorter the time, the greater the possibility of obtaining royalties. It should be noted that time is fair to both buyers and sellers and will not be biased towards either side.
@ Optional sauce
What is the lowest price to open an option?
Options are more tolerant of funds for opening positions, and options of any value are available. The cheapest ten dollars can buy option contracts, and the most expensive ones cost several thousand dollars.
What value option contract to choose is ultimately based on the investor's own judgment on the contract value, and the contract that can bring value is purchased.
Option opening conditions:
1. Market trend: open positions only when the mid-line is expected to rise/fall, and the market change range needs to exceed 10%. Avoid participating in short-term fluctuations and ensure that the trend is relatively stable.
2. Technical form: Ensure that the technical form is favorable, and do not open positions against the trend. Identify market trends through technical analysis to avoid being contrary to major trends.
3. Maturity time: Choose the maturity time to ensure that there is enough time to cope with market fluctuations and avoid being limited by time.
4. Contract selection: Choose a fictitious contract, and its base market will rise/fall 10%. For example, if the target is 3000 points, consider subscribing for 3500 points and putting 2500 points.
5. Current Price Location: Only when the underlying assets are currently in the low-level area can positions be opened.
6. Profit-loss ratio: When the current price of the selected contract reaches a flat value, ensure that the profit-loss ratio reaches more than 8/ 10 times to ensure a relatively high potential profit.
7. Low volatility: Open positions in a low volatility environment to reduce market uncertainty caused by volatility.
Strict implementation of the above opening conditions can improve the success probability of trading and ensure that trading decisions are based on systematic and regular analysis, rather than random decisions. Attention should be paid to risk control to avoid opening positions under unqualified conditions.