Option refers to the right to buy and sell in a certain period of time in the future. It is the right of the buyer to buy or sell a certain number of specific subject matter from the seller at a predetermined price (referring to the strike price) in a certain period (referring to American options) or a certain date in the future (referring to European options), but has no obligation to buy or sell. Option trading is actually the trading of such rights. The buyer has the right of execution and the right of non-execution, and can choose flexibly. Options are divided into OTC options and OTC options. OTC options trading is generally reached by both parties. Option is a financial instrument based on futures. In essence, the option is to price the rights and obligations in the financial field separately, so that the transferee of the right can exercise his rights on whether to trade or not within a specified time, and the obligor must perform it. In option trading, the party who buys the option is called the buyer, while the party who sells the contract is called the seller. The buyer is the transferee of the right, and the seller is the obligor who must fulfill the buyer's right. Specific pricing issues are comprehensively discussed in financial engineering. Options are divided into call options and put options. The English-Chinese Dictionary of Securities Investment by the Commercial Press explains options in English: options; Option contracts. Also known as option contracts. Option contract A trading contract in which financial derivatives are used as execution varieties. Refers to the right to buy and sell a certain number of trading varieties at a specific price within a specific time. The buyer or the contract holder has the right to pay the deposit option fee; The contract seller or obligee (obligee) collects the option fee, and when the buyer wishes to exercise his rights, he must fulfill his obligations. Option trading is an auxiliary means of investment behavior. When an investor is optimistic about the market outlook, he will hold a call option, and when he is bearish on the market outlook, he will hold a put option. Option trading is full of risks, and once the market develops in the opposite direction to the contract, it may bring huge losses to investors. In fact, most contracts have ended before their expiration. Options are mainly composed of the following factors: ① strike price (also called strike price, strike price). The buying and selling price of the subject matter specified in advance when the buyer of the option exercises his rights. Royalties. Option price paid by the option buyer, that is, the fee paid by the buyer to the option seller for obtaining the option. ③ Performance bond. Option sellers must deposit performance bonds, ④ call options and put options on the exchange. Call option refers to the right to buy a certain number of subject matter at the execution price within the validity period of the option contract; Put option refers to the right to sell the subject matter. When the option buyer expects the target price to exceed the strike price, he will buy a call option, and vice versa. Each option contract includes four special terms: the underlying asset, the exercise price, the quantity and the exercise period. Underlying assets Every option contract has an underlying asset, which can be any kind of financial product, such as common stock, stock index, futures contract, bonds, foreign exchange and so on. Usually, the option whose underlying asset is stock is called stock option, and so on. Therefore, options include stock options, stock index options, foreign exchange options, interest rate options and futures options. Usually listed on stock exchanges, options exchanges, futures exchanges, and of course there are also over-the-counter transactions. The strike price (strike price or exercise price) is the price used to buy and sell the underlying assets when exercising options. In most options traded, the underlying asset price is close to the exercise price of the option. The exercise price is clearly stipulated in the option contract, which is usually given by the exchange in the form of reduction or increase according to certain standards, so there are several different prices for the same option. Generally speaking, when an option is just traded, each option contract will give several different exercise prices at certain intervals, and then increase according to the changes of the underlying assets. As for how many exercise prices each option has, it depends on the price fluctuation of the underlying assets. When investors buy and sell options, the general principle of choosing the exercise price is: choose the exercise price with active trading near the underlying asset price. The quantity option contract clearly stipulates that the contract holder has the right to buy or sell the quantity of the underlying assets. For example, the number of shares traded in a standard option contract is 100, but there are exceptions in some exchanges, such as the option contract traded on the Hong Kong Stock Exchange, where the number of underlying shares is equal to the number of shares traded per lot. Exercise period (expiration date or expiration date) Every option contract has an effective exercise period, after which the option contract becomes invalid. Generally speaking, the exercise period of options ranges from one month to three months, six months to nine months, and the option contract of a single stock is valid for about nine months. The expiration date of OTC options is tailored to the needs of buyers and sellers. However, in the options exchange, any stock must be divided into a specific period of validity, which can be divided into the following categories: ① 1 month, April, July,1month; ② February, May, August and November; ③ March, June, September and December. They are called January cycle, February cycle and March cycle respectively. According to the different execution time, options can be mainly divided into two types, European options and American options. European option refers to the option that can only be exercised on the expiration date of the contract, which is adopted in most OTC transactions. American options refer to options that can be exercised on any day after trading, and are mostly adopted by floor exchanges. For example: (1) call option: 1, the subject matter is copper futures, and the exercise price of the option is 1850 USD/ton. A buys this right and pays $5; Sell this right and get 5 dollars. In February 1, copper futures price rose to 1905 USD/ton, and call option price rose to 55 USD. A can adopt two strategies: exercise-A has the right to buy copper futures from B at the price of 1.850 USD/ton; After A puts forward the requirement of this exercise option, B must meet it. Even if B doesn't have copper in his hand, he can only buy it in the futures market at the market price of 1.905 USD/ton and sell it to A at the exercise price of 1.850 USD/ton, while A can sell it in the futures money market at the market price of 1.905 USD/ton, making a profit of 50 USD/ton (65435. B will lose $50/ton (1850- 1905+5). Put right-A can sell a call option at a price of $55, and A earns $50/ton (55-5). If the copper price falls, that is, the copper futures market price is lower than the final price 1850 USD/ton, A will give up this right and only lose the royalty of 5 USD, while B will gain a net profit of 5 USD. (2) Put option: In June 1 day, the strike price of copper futures is 1750 USD/ton. A buys this right and pays $5; Sell this right and get 5 dollars. In February 1, copper price fell to 1 695 USD/ton, and put option price rose to 55 USD/ton. At this time, A can adopt two strategies: exercise11A can buy copper from the market at the middle price of 1695 USD/ton and sell it to B at the price of 1 750 USD/ton. B must accept it, and A will make a profit of 50 USD/ton (/kloc) A The profit is USD 50/ton (55-5). If the copper futures price rises, A will give up this right and lose $5/ton, while B will gain $5/ton. Through the above examples, we can draw the following conclusions: First, as the buyer of options (whether call options or put options), there are only rights but no obligations. His risk is limited (the biggest loss is royalties), but theoretically his profit is unlimited. Second, as a seller of options (whether call options or put options), he has only obligations and no rights. Theoretically, his risk is infinite, but his income is obviously limited (the biggest income is the premium). Third, the buyer of the option does not need to pay a deposit, while the seller must pay a deposit as a financial guarantee for fulfilling the obligation. Option is an important hedging derivative tool to meet the needs of international financial institutions and enterprises to control risks and lock in costs. 1997 The Nobel Prize in Economics was awarded to the inventor of the option pricing formula (Black-Scholes formula), which also shows that international economists attach importance to option research. The final return of the standard European option related to the special option path only depends on the original asset price on the maturity date. Path-dependent option is a special option, and its final income is related to the change of the original asset price within the validity period of the option. Path-related options can be divided into two categories according to the dependence of their final income on the original asset price path: one is that their final income is related to whether the original asset price reaches a certain or several agreed levels within the validity period, which is called weak path-related options; The final return of another option depends on the price information of the original asset during the whole option validity period, which is called strong path-related option. One of the most typical weak path-related options is the obstacle option. Strictly speaking, American option is also a weak path-related option. There are two kinds of strong path-related options: Asian option and look-back option. The return of Asian options on the maturity date depends on the average price of the original assets during the whole option validity period. Because of the different meanings of the average, it can be divided into arithmetic average Asian options and geometric average Asian options. The final income of the put option depends on the maximum (minimum) value of the original asset price within the validity period, and the holder can "look back" the whole price evolution process and choose its maximum (minimum) value as the final price. The basic element of option contract The so-called option contract refers to a standardized contract in which the option buyer pays a certain amount of royalties to the option seller, that is, the right to buy or sell a certain number of related commodity futures contracts at a pre-agreed transaction price within a specified period of time. The elements of option contract mainly include the following points: buyer, seller, royalty, final price, notice and expiration date. There are three situations in which the option can be executed: 1. Both buyers and sellers can perform the contract by hedging. 2. The buyer can also perform the contract by converting the option into a futures contract (obtaining the corresponding future positions at the execution price level stipulated in the option contract). 3. Any expired unused options will automatically become invalid. If the option is virtual, the option buyer will not exercise the option before the option expires. In this way, the option buyer loses the premium paid at most. As mentioned before, option premium is the price of buying or selling option contracts. For the option buyer, in exchange for giving the buyer some rights, he must pay royalties to the option seller; For the seller of options, he sells options and undertakes to fulfill the obligations of option contracts, for which he receives a royalty as a reward. Because the patent fee is borne by the buyer, it is the highest loss that the buyer needs to bear when the most unfavorable change occurs, so the patent fee is also called "insurance money". The principle of option trading is to buy call options at a certain price, and after paying a small premium, you can enjoy the right to buy related futures. Once the price really rises, you will exercise the call option to get the futures long position at a low price, and then sell the relevant futures contracts at a high price according to the rising price level, get the profit of the difference, and make up the paid royalties to make a profit. If the price does not rise but falls, you can give up or transfer the call option at a low price, and the biggest loss is the premium. The buyer of the call option buys the call option because it is determined that the price of the relevant futures market is likely to rise sharply through the analysis of the price changes of the relevant futures market, so he buys the call option and pays a certain premium. Once the market price really rises sharply, he will get more profits by buying futures at a low price, which is greater than the amount of royalties he paid for purchasing options, and finally make a profit. He can also sell option contracts at a higher premium in the market, thus hedging profits. If the call option buyer is not accurate in judging the price trend of the relevant futures market, on the one hand, if the market price only rises slightly, the buyer can perform or hedge, get a little profit and make up for the loss of royalties; On the other hand, if the market price falls and the buyer fails to perform the contract, the biggest loss is the amount of patent fees paid. The Relationship between Option Trading and Futures Trading There are differences and connections between Option Trading and Futures Trading. The relationship is as follows: first, both of them are transactions characterized by buying and selling forward standardized contracts; Secondly, in the price relationship, the futures market price has an influence on the final price and premium of the option trading contract. Generally speaking, the final price of option trading is based on the delivery price of forward transactions of similar commodities determined in futures contracts, and the difference between them is an important basis for determining the premium; Third, futures trading is the basis of option trading, and the content of trading is generally the right to buy or sell a certain number of futures contracts. The more developed futures trading is, the more basic options trading is. Therefore, the mature futures market and complete rules create conditions for the emergence and development of option trading. The emergence and development of option trading provide hedgers and speculators with more options for futures trading, thus expanding and enriching the trading content of the futures market; Fourth, futures trading can be short, and traders do not necessarily make physical delivery. Option trading can also be long and short, and the buyer does not have to actually exercise this right, but can also transfer this right as long as it is beneficial. The seller does not have to perform, but he can relieve his responsibility by buying the same option before the option buyer exercises his rights. Fifth, because the subject matter of the option is the futures contract, both the buyer and the seller will get the corresponding future positions when the option is executed. Option trading place: Option trading place does not need a special place. They can be traded on futures exchanges, special options exchanges and stock exchanges. At present, the largest options exchange in the world is the Chicago Board Options Exchange (CBOE). The largest options exchange in Europe is the European Futures and Options Exchange (Eurex), which was formerly known as Deutsche B? rse (DTB) and Swiss Options and Financial Futures Exchange (SOFFEX). In Asia, South Korea's options market has developed rapidly and the transaction scale is huge. At present, it is the country with the best option development in the world, with options trading in China, Hongkong in China and Taiwan Province Province in China. In China, several exchanges, including Zhengzhou Commodity Exchange, have made a preliminary study on the listing of options in Chinese mainland. [Edit this paragraph] It can open up investment channels for stock investors, expand the scope of investment choices, adapt to investors' diversified investment motives, trading motives and interests, and generally provide investors with the possibility of obtaining higher returns.