For example:
Suppose a company is about to publish its annual report. According to years of follow-up analysis, investors estimate that the stock price may fall. In this case, there are two main modes of operation:
Borrow bonds to sell stocks:
On the premise of having enough margin and being able to bear potential losses, investors can choose to sell stocks by short selling. This involves borrowing shares and selling them, hoping to buy them back to the actual owners at a lower price when the stock price falls, thus making a profit.
Buy put options:
Investors can also choose to spend less money to buy put options on stocks. In this way, investors only need to pay royalties without actually buying stocks. When the stock price falls, investors who buy put options will benefit from the exercise of their rights, and the potential loss is limited to the paid royalties.
What does buying and selling call options mean to investors?
Buy put options:
Have the right to sell the agreed quantity of the subject matter at the agreed price on the due date.
No obligation to sell, so the loss is limited.
Earn when the stock falls, and the profit earned is related to the extent of the stock price decline.
The biggest loss is the royalties paid, which occurs when the stock price rises.
Sell put options:
Undertake the obligation to purchase the agreed quantity target on the due date, if the buyer chooses to exercise the right.
Earn royalties paid by buyers as income.
It is expected that the stock will not plummet to maintain the royalty income.
The biggest potential loss is that the stock price has plummeted, which may be capped and the risk is relatively high.
The profit and loss of put option buyers and sellers are completely opposite. When the stock price falls, the buyer gains, and when the stock price rises, the seller gains. The loss of the buyer is limited, and the most is the paid patent fee; The potential loss of the seller may be greater.
Help people understand put options more clearly;
Investor Xiao Wang bought a put option with an exercise price of 42 yuan and a maturity of one month, while another investor Lao Zhang sold the same option on the same day. At the time of trading, the stock price is 4 1.5 yuan, the contract unit is 5,000, and the royalty is 0.8 yuan, so the trading price of each option is 0.8 * 5,000 = 4,000 yuan. Xiao Wang paid a total of 4000 yuan in royalties.
After one month, the option expires, and the stock price is 40 yuan, which is lower than the exercise price of 2 yuan.
In this scenario, if the opposite happens, that is, the stock price rises to 45 yuan, Xiao Wang will not choose to exercise, and the loss is only 4,000 yuan in royalties. Lao Zhang will get a profit of 4000 yuan.
It seems that option sellers have huge risks and limited returns, but in fact, the winning rate of option sellers is usually much higher than that of option buyers. Statistics show that the winning rate of option sellers can reach 77.53%. In option trading, the seller's income mainly comes from royalties, and the risk lies in possible market fluctuations in the future.