For the seller of the option, he sells the option and undertakes to fulfill the obligation of option contracts, and receives a royalty as a reward.
Because the patent fee is borne by the buyer, it is the highest loss that the buyer will bear when the most unfavorable change occurs, so the patent fee is also called "insurance money". Because it is the price of buying or selling rights, it is also called "right price" or "option price".
Royalty = connotative value+time value
The amount of royalties depends on the whole option contract time, contract month and the selected exercise price. The premium of option must be equal to the sum of its connotation value and time value.
0 1 connotative value
Intrinsic value, also known as intrinsic value, refers to the total profit that can be obtained when the option contract is performed immediately, which is the real value part of the premium, the difference between the exercise price and the target price of buying options or the difference between the exercise price and the target price of selling options.
Intrinsic value = the actual value part of the option
The intrinsic value of the option is absolutely not less than zero. It reflects the relationship between the exercise price of the option contract and the market price of the related target contract.
trend of the times
Time value, also known as external value, refers to the amount of royalties that the buyer of an option is willing to pay for the purchase of the option when he hopes that the price change of the relevant subject matter may increase the value of the option over time.
It also reflects the option price that the seller of the option is willing to accept. Therefore, the fundamental factor that determines the time value is that the buyers and sellers of options compete with each other for quotations according to their different judgments on the future trend of option value increase and decrease.
03 the relationship between royalties and intrinsic value and time value
As mentioned above, royalties include intrinsic value and time value. For example, the sugar futures price is 50 10, and the call option with the exercise price of 5000 has a premium of 30. Because the intrinsic value is 10, the time value must be equal to 20.
Intrinsic value and time value have different changing rules, as shown in the figure.
Note: IV is below the diagonal, TV is between the arc and the diagonal, and the OTM to the left of the black dot is only TV.
Selection of real value, imaginary value and equivalent option
The choice of real, imaginary and equivalent options is very important for various trading strategies. Some policies themselves require the use of real, equivalent or imaginary values. Please experience the options trading strategy for details. The following only introduces some principles.
1. Real option
(1) Although the real option has a high premium, the more the real option is, the less the time value is. The smaller the time value, the smaller the future price changes will benefit the buyer.
take for example
The current market price is 5500, the call option premium with exercise price of 5400 is 105, and the call option premium with exercise price of 5500 is 10. This real option does have a high premium, but its time value is only 5, and its breakeven point is 5505. The time value of flat option is 10, and the break-even point is 55 10. With the passage of time, if the price changes in a favorable direction, it will be beneficial to real option. For example, this real option, as long as the futures price rises by 5 points before the expiration, there is no risk, while the flat option will rise by 10 points.
(2) The real call/put option is more likely to be eventually called than the imagined call/put option. The strike price of real call/put option is lower (higher) than that of hypothetical call/put option.
(3) The premium of real options is higher than the average and imaginary value. Selling a real call option can only be very bearish on the market outlook, because its exercise price is lower than the current market price of the target, and its breakeven point is usually not much higher than the current price of the target, and it is also lower than the general option.
(4) Selling real call/put options is a more radical strategy, because if the price goes up (down), the loss will increase quickly.
(5) The leverage of real options is not as great as imagined options. Speculators should not buy too much because they pay too much royalties. Real options, on the other hand, have more opportunities to make profits, and rarely expire without value.
2. Equivalent option
Flat options have no intrinsic value, only time value, and time value lies in each trader's judgment on the market outlook. If you think that the price fluctuation will not be great in the future, you can choose a flat plan.
take for example
Now that the futures price is 2200, you can buy a call option with an exercise price of 2200, and the premium may be 10. For the seller, if the maturity price is maintained near the exercise price, the maximum profit will be obtained; If the price fluctuates slightly, you will also get some profits. For call options, if the price falls, the seller will get all the royalties; For put options, if the price goes up, the seller will get all the royalties. The Delta of flat options is generally 0.5, that is, the futures price rises 1 point and the premium rises by 0.5 point.
3. Virtual options
(1) The hypothetical put option falls much more than the real put option to reach the break-even point.
take for example
At present, the market price of the subject matter is 2552, and the put option premium with the exercise price of 2550 is 1, so the breakeven point is 2549. If you buy the same put option with exercise price of 2550 when the subject matter price is 2448, the premium is 3 and the breakeven point is 2547.
It can be seen that the hypothetical put option futures price must fall by 3 points (2552-2549=3) to make a profit, while the real put option futures price only needs to fall by 1 point (2548-2447= 1) to make a profit.
Similarly, the break-even point of hypothetical call options is higher than the real value, that is, hypothetical call options have to rise much more than real call options to reach the break-even point. If you think the futures price will fluctuate greatly, you can choose to buy hypothetical options.
(2) The more imaginary value, the lower the royalty, and the lower your purchase cost. However, if the futures price does not rise above the strike price of the call option or fall below the strike price of the put option, your premium will be lost.
(3) Speculators mainly pay attention to the rate of return when buying virtual options.
take for example
If the maturity price of a variety is 2446 yuan/ton, then the put option with the exercise price of 2450 yuan/ton will have 4 yuan/ton income. If a speculator buys a put option (hypothetical option) when the price is 2554 yuan/ton before 10, then the premium is paid to 2 yuan/ton.
Then on the expiration date, the put option becomes a real option, and the premium rises to 3, and its closing yield =(3-2)÷2=50%, and the exercise yield =(2450-2446-2)÷2= 100%.
On the contrary, if a speculator buys the same put option when the futures price is 2550 yuan/ton, and the premium is 1 yuan/ton, then the closing yield =(3- 1)÷ 1=200%, and the exercise yield = (2450-2446-.
(4) For the seller, although the premium of hypothetical option is low and the profit is low, considering that the price cannot rise above the breakeven point (exercise price+premium) of call option and cannot fall below the breakeven point (exercise price-premium) of put option, selling hypothetical option can earn a premium.
(5) Virtual options are likely to be worthless when they expire, but the problem is that they are not always worthless when they expire.