An option is a contract that allows you to buy or sell an underlying asset in the future. You can buy or sell the asset you originally held at a fixed price according to the contract. In this process, buyers and sellers need to exist. In the option market, buyers and sellers are not equal.

The transaction between the buyer and the seller forms the basis of the option market. The buyer obtains rights by purchasing option contracts, and the seller assumes corresponding obligations.

1. option buyer: the buyer is the buyer of the option contract, also known as the holder. The buyer obtains the right to buy (call option) or sell (put option) the underlying assets at a specific price at a specific time in the future by paying a certain premium to purchase the option contract.

The buyer of call option: the buyer buys a call option, hoping to buy the underlying assets at the agreed exercise price on the expiration date. The buyer of the call option expects the underlying asset price to rise in order to obtain the difference profit.

Buyer of put option: the buyer buys a put option, hoping to sell the underlying asset at the agreed exercise price on the maturity date. Put option buyers expect the underlying asset price to fall, in order to obtain the profit difference.

As the holder of the option contract, the buyer has the right to choose whether to exercise the option. If the exercise is beneficial to the buyer, they can choose to exercise to obtain the corresponding rights and interests.

2. Option seller: The seller is the seller of the option contract, also known as the seller. By collecting the royalties paid by the buyer, the seller undertakes the obligation to sell (call option) or buy (put option) the underlying assets according to the agreed conditions in the future.

Seller of call option: The seller sells the call option and undertakes the obligation to sell the underlying assets at the agreed price when the buyer chooses to exercise the option. The seller of the call option hopes that the price of the underlying asset will not rise, so as to keep the collected royalties as profits.

Seller of put option: The seller sells the put option and undertakes the obligation to purchase the underlying assets at the agreed price when the buyer chooses to exercise the option. The seller of the put option hopes that the price of the underlying asset will not fall, so as to keep the collected royalties as profits.

As a party of option contracts, the seller must fulfill the obligations stipulated in the contract when the buyer chooses to exercise the option. No matter how the market price changes, the seller is responsible for the delivery according to the terms agreed in the contract.

Second, the basic elements of options

1. Basic assets: The basic assets of an option contract refer to the basic assets agreed in the contract, which can be stocks, stock indexes, commodities, monetary equivalent financial assets or derivatives. The subject matter determines the value and trading object of the option contract.

2. Transaction price: Transaction price is the price at which the buyer can buy or sell the subject matter on the due date, also called transaction price or agreed price. The exercise price is the pre-agreed price in option contracts, and the buyer can choose whether to exercise on the expiration date according to the market situation.

3. Maturity date: Maturity date is the maturity date of the option contract, also called the maturity time. The expiration date is the deadline for the buyer to exercise the option, and the seller must fulfill the delivery obligation of the contract before this. After the expiration date, the option contract will automatically expire.

4. Option types: Option contracts are divided into call options and put options. Call option gives the buyer the right to buy the subject matter on the maturity date, and put option gives the buyer the right to sell the subject matter on the maturity date.

5. Premium: Premium is the fee paid by the buyer to the seller when purchasing the option contract. The amount of premium is determined by the market supply and demand and the characteristics of the option contract, which is the price at which the buyer obtains the option right. Royalties are paid at the time of transaction and settled at the time of expiration, exercise or liquidation of the contract.

Third, the risk indicators of options

1.Delta (δ): Delta is an index to measure the sensitivity of the option price to the change of the target price. For call options, the value range of Delta is 0 ~ 1, indicating the change ratio of option price relative to target price; For put options, the value range of Delta is-1 to 0, indicating the change ratio of option price relative to target price. The closer the Delta is to 1 or-1, the more sensitive the option price is to the change of the underlying price.

2.γ(γ):γ is the change rate of Delta's sensitivity to the price change of the subject matter. Gamma measures the dynamic change of Delta, indicating the change of sensitivity of Delta to the price change of the subject matter. The higher the Gamma, the greater the change of Delta's sensitivity to the price change of the subject matter.

3.Vega (ν): Vega is an indicator to measure the sensitivity of option prices to volatility. Vega indicates the reaction degree of option price to the fluctuation of target price. The higher Vega is, the more sensitive the option price is to volatility.

4.θ(θ):θ is an index to measure the sensitivity of option price to time change. θ represents the degree of influence of daily time lapse on the option price, that is, the rate at which the option price decays with time. The higher θ, the greater the influence of time on option price.

5.Rho (ρ): Rho is an index to measure the sensitivity of option price to the change of risk-free interest rate. ρ indicates the reaction degree of option price to the change of risk-free interest rate. The higher ρ, the greater the sensitivity of option price to the change of risk-free interest rate.

These risk indicators are used to measure the sensitivity of option prices to different factors and help investors understand and manage the risks of option trading. The specific values of these indicators can be calculated by option pricing models (such as Black-Scholes model), and can also be obtained from trading platforms and financial data providers.

Fourth, the volatility of options.

The volatility of option is an index to measure the fluctuation degree of the underlying asset price, and its influence on the option price is very important. The higher the volatility, the greater the volatility of option prices.

There are two kinds of volatility in option trading: historical volatility and implied volatility.

1. Historical volatility: calculate the historical volatility according to the past volatility of the underlying asset price. Based on historical data, reflect the actual fluctuation of the underlying asset price in the past period of time. Historical volatility can be measured by calculating the standard deviation of the return rate of the underlying asset price. Common calculation methods include simple volatility and logarithmic yield volatility.

2. Implied volatility: Implied volatility is the volatility derived from the option market price. It is calculated by market participants through option pricing model (such as Black-Scholes model) according to option price and other market information. Implied volatility reflects the market's expectation of future underlying asset price volatility, and is the option trader's estimation of future volatility. The higher the implied volatility, the greater the market expectation of the underlying asset price fluctuation.

Volatility plays an important role in option pricing. According to the option pricing model (such as Black-Scholes model), volatility is one of the key factors to calculate the option price. Higher volatility will increase the price of options, because greater volatility makes options have a better chance of realizing profits. When investors trade options, they usually pay close attention to the change of volatility and take it as the basis for risk management and trading decision.