As early as ancient Greece and Rome, there was the right to use this concept implicitly by using options. /kloc-in the 0/7th century, Dutch tulip trading and option were widely used again, but with the shrinking of tulip market, the option market exploded.
In the 18 and 19 centuries, there have been relatively organized options trading in Europe, but the subject matter of the trading is still agricultural products. At the beginning of the 20th century, this kind of transaction was considered as a highly gambling option transaction. Until 1934, the Securities and Exchange Commission (SEC) enforced the securities law. Before this transaction, the choice is after the management right is included. At the same time, some brokers also organize associations (bearish and bullish brokers and dealers associations). In the operation of this association, we choose to use OTC quotation and trading network for trading.
Since 1973, the option market has grown quite rapidly; Not only are all kinds of trading futures options introduced with all kinds of trading objects, but the state has also established the right to choose in the trading market.
At the end of 1970s, the correct theory about foreign exchange was gradually developed. The reason why the theory developed the stock exchange right is that the interest rate problem between the two currencies was solved in the late 1970 s. Among all the choices of financial products, the "parameters" of foreign exchange options are the most complicated. Most options do not include interest rates and dividends, but only part of some stock options; However, it is not difficult to imagine the complexity of correctly selecting the parameters containing the exchange rates of two currencies.
With regard to the foreign exchange market, options and options can be divided into two types: the first is the option of futures trading in the forward foreign exchange market, which is an institution that conducts forex futures trading (currency futures) according to its futures options, but both come from the option. Its contract specifications, volatility, trading and settlement methods, calculation and exchange of deposits provide liquidation. Forex futures trading This option is limited to the actions of the Trading Commission. Second, spot foreign exchange options, choose spot foreign exchange transactions as correct as spot foreign exchange transactions. The number of buyers and sellers determines the content of the contract terms, and the price is their own, as long as the buyers and sellers reach an agreement on the content of the transaction. In general trade, spot foreign exchange options are negotiated by both parties without any intermediary, so they are called OTC (over the counter-"OTC").
Option, as its name implies, is a right that the obligee can choose whether to abide by it or not. The right to purchase, choose who the purchase is due or before it expires, whether through performance (sports) and generate income. Let's explain the meaning of this sentence with a simple example.
Today, suppose someone, after careful analysis, determines that Guangzhou's housing prices will have a large room for substantial increase in the next three years. No matter whether this person's goal is to set up a production bank or an investment bank, he has decided to seize this opportunity to make a profit. Therefore, many developers can sign housing sales contracts, pay the signing fee, down payment and project payment. The price put forward after the completion of the next home depends on the pre-sale contract. They entered the house after buying. Pre-sale contract is actually a very simple option contracts. When signing this contract, the Buyer and the Seller are finalizing Party A in advance.
The house for sale shall pay the house price (execution price) at a certain point in the future (or the due date of liquidation). The subject matter of the contract, one person on the ground as the property of a unit. If a person pays the deposit, signing fee, fee, etc. , is equal to a person's choice to pay the premium. (Note: Deadline, exercise price, subject matter, payment and other rights are important choices)
The biggest advantage of the option is that the option pays a premium to obtain the right, regardless of whether the obligation is met or not, but it does not bear the burden. For example, in the above example, if someone buys a specified price, he will buy his specified house right in the future. If it is completed and delivered in front of the house, the local real estate price does rise, and someone is naturally willing to abide by it and has agreed to cut interest rates and buy a house for himself. But if, unfortunately, before the house is built, a lot of real estate prices, a person can choose to give up the right to buy a house, and the builder can't ask a person to abide by it. This is because when people buy it, it is a "right" rather than an "obligation". Of course, if a person decides not to implement it and pays the original money (deposit, signing fee, project payment, etc.). ), it must give up its rights. Therefore, if a person signs a house sales contract or completes the decision-making process of compliance and non-compliance, the cost of premium should also be considered. After such a process, a person with limited risk (loss of royalties) has the opportunity to have unlimited profit space (price increase).
Therefore, in our daily life, we often see business activities, and we can easily find the choices in the pictures. In the future space, we will introduce more examples to guide you to choose the world deeply and slowly. Know how to choose, and then get more opportunities to make profits in financial markets such as foreign exchange.
Has the characteristics of small and wide.
In the last article, we took the buyer of the pre-sale house and the construction contract between developers as an example to illustrate the correct choice of investors.
In this example, after paying the premium in the contract signed by the owner, the owner has the right to buy the house at a predetermined price in the future, and the right to pay after the builder pays must meet the price specified by the owner in the future. Option A-A (buyer) is decided by the owner to sell the house; The option (seller) assumption of the builder is an obligation. Although there are considerable differences in the details and trading rules of option trading, in this case, the option nature of investment has been explained.
Then investment properties have the right to choose. What are the advantages of these properties? Simply put, using options as an investment tool has the following advantages.
First of all, the buyer has the right to choose what is right, but has no obligation. If the market trend that the buyer has the right to pay a premium to get opportunities is favorable to him under the psychological support of specific market expectations, there is unlimited profit space. And this opportunity, from the perspective of satisfying the bullish market outlook (call right), can also cooperate with the bearish market outlook (put right).
In contrast, after the seller chooses to receive payment from the buyer, the buyer should undertake the obligations required to be fulfilled in the future. At first glance, you can enjoy unlimited profit opportunities by choosing the right to pay a sum of money. The right to choose the seller has the right to receive welfare benefits, but it must bear unlimited liability. Who would doubt that a normal person would want to be a seller's choice? In fact, in a mature market, the number of buyers and sellers is properly balanced, and a very good market mechanism is maintained. As for the right to choose what niche belongs to high-level theme sellers, I will explain it in detail later.
Secondly, buying options can enjoy higher financial leverage (investment ratio). For example, today we want to buy a contract. If we buy a suitable/yen put option for $6,543.8+0,000, the insurance premium we have to pay may be as low as hundreds or thousands of dollars, and you can expect it to be as high as $6,543.8+0,000.
Of course, the premium depends on the choice of contract terms. But what we need to know now is that we can buy a big contract option at a relatively low premium. It goes without saying that option trading is small and wide.
Third, option trading is favored by long and short, which is suitable for various market situations. With the choice of management rights, we can not only do more and more, but also profit from it. Ability and risk preference For operators, they can even afford the right to choose various tailor-made operation strategies according to their own risks. Security in the long-term and short-term foreign exchange market, choosing contract management brings greater flexibility.
The above three points are just a few of the many functions of the operating system. We are here, but only at the big end. Maybe some concepts and terms are not friends, and you are familiar with investment currencies, but in this series, we will take you step by step from the easiest stage to become the winner of foreign exchange options trading, so please pay attention.
Hedge, like to choose, avoid investment risk life insurance from the perspective of insurance contract.
The right is the same, providing an operation avoidance mechanism for website loss. while
When the uncertainty increases, investors expect the market, but they don't want to fall into the hands of the website. You can buy an option contract to protect the downside risks of your investment while maintaining the future profit potential and space. This real life insurance contract is an absolutely true twin.
For example, in real life, in addition to the purpose of saving, we will also buy life insurance and accident insurance to ensure that when we face emergencies, we can claim for the physical injuries caused by them. In general, just because we buy life insurance and accident insurance doesn't mean that we expect these situations to happen to us in the foreseeable future. In fact, it is not normal to buy insurance in order to get claims. After all, a prerequisite for getting the word "accident" and getting more claims after the accident is only to make up for its shortcomings. Therefore, insurance coverage is an "uncertain" accident. Because if you can foresee the accident and how it happened, you can consider it. Knowing that the stock price will fall, the sale of stocks will be over, and the types of insurance will be exempted! ?
In fact, in the jargon of choice and insurance, we can see the similarity of their attributes. In English, the word insurance is "advanced" and the word option premium is also "premium". A few years ago, when some translators translated it into the right to choose a suitable "premium" for gold, it was a great irony that gold and insurance were similar in nature. From this similarity, we can also infer that individuals who own life insurance and accident insurance have the same right to choose combination insurance in function.
Conceptually, if you want to hedge portfolio operators, you must "buy" and choose whether I-right has the same right as buying or selling. In fact, a life insurance policy is the same as a "purchase" insurance contract, not a "sale" insurance contract. I-I, who was selected for hedging, wanted to hedge the right of trading long positions, and wanted to buy short positions to hedge his portfolio when the market conditions were unfavorable at the time of buying, and made the right choice of profitable trading, making up for some rights losses of the original investment. If the market has not changed, which is not conducive to its investment in the website, the hedger only needs to pay a premium I- (option).
When more and more people buy travel accident insurance to travel abroad, I believe that when he returns home safely, don't complain, because there is no accident on the road, let him claim that he didn't get it! Similarly, options provide a barrier to avoid market risks and pay for it, that is, the right to pay.
In this chapter, the concept of hedging is discussed in the unique options used. The details of hedging operations need to be carefully described after the correct choice and deeper understanding.
Is to lose your way.
Looking at choosing the right classification, we can think from many angles. First of all, we should choose the appropriate directional classification. Secondly, the choice is in the way of classification. Third, select the value on the right to classify. Fourth, on the right, select the condition of complexity to classify. Starting from this article, we will choose to provide readers with detailed and correct aspects one by one.
Every financial instrument must make the goods run in one direction. If the price rises in the future, operators can make a profit. Short goods, if the price falls in the future, operators can make a profit by shorting. However, the right choice is not to buy or sell to determine its direction. In other words, if I just say that I bought an outsider's option, then I can't know the theme of future price rise and fall, and whether I can earn my contribution or not. However, if I show that what I buy is buying, selling, or rights, it is enough to express the theme of price change that means what I stand for.
Options, you can almost be divided into "call options" and "put options". The right to choose in school is used by the people and is often associated with the right to buy and sell, because the word is puzzling and causes obstacles in learning. This study shows that choosing the original right of use and having the original right of use are unlikely to be confused. CALL, also in English, means "call" and "request", which means the right to request and the right to buy in the future. It is also pointed out that there are "throwing" and "giving up" in English, which means giving up rights and selling them in the future. Its literal meaning can be clearly distinguished.
The holder, the right to purchase at the pre-agreed exercise price (exercise price), the right to purchase at a specific date in the future, and the seller of the purchased subject matter (subject matter). So buying a call option can lock in the future purchase price of a specific commodity. If the target price before the expiration date is higher than the exercise price, the difference between the exercise price bought by the holder and the market price will be earned. If the target price is not higher than the expected exercise price, the holder can choose not to implement it, so that the purchase right will be invalid and the payment right will be lost. holder
If the seller sells his rights in the future, he has the right to sell the seller's subject matter at the pre-agreed execution price on a specific date. Therefore, buying a put option can lock in the future sales price of a specific commodity. If the subject matter of the price before the expiration date is lower than the exercise price, the holder of the put option has the right to sell the subject matter of the exercise price and buy the subject matter at the market price to earn the difference. If the price of the subject matter is not lower than the expected exercise price, the holder can sell the right to choose not to exercise, so that the put option expires and has lost the right to pay.
So we can see a simple truth from the essence of the right to buy and sell. In other words, when an investor is optimistic about the market outlook, the operation strategy he should adopt is to buy (hold) a call option; When the subject matter rises below the exercise price before the expiration, he has a profit. When investors are bearish on the market outlook, the operational strategy they should adopt is to buy (hold) put options; When the subject matter falls below the exercise price before the expiration date, he gains. This is the most basic choice of operation strategy, and it will also be the difference between the right to buy and sell.
Currency pair clearing
In the last article, we talked about the basic nature of buying and selling rights. In this chapter, the characteristics and practices of the foreign exchange market should be interpreted as trading rights.
In the stock option or futures option market, the targets of call option and put option are very clear. Stock options are the subject matter of specific stocks, and options are the subject matter of specific futures contracts. But in the foreign exchange market, we need to pay attention to the clarification of currency pair.
In foreign exchange transactions, every item is expressed by exchange rate, which is the relative strength of two currencies in change. For example, most people will talk about how to change the exchange rate of Japanese yen, but in professional grammar, it should be said that it is to change the exchange rate of "US dollar against Japanese yen". Otherwise, in the international market, the yen and the euro have always been traded against the yen, against the yen and the Australian dollar against the yen and the pound. If you don't understand these two currencies, it is easy to cause unnecessary mistakes and problems in the transaction process, which is unprofessional.
So in foreign exchange options trading, you have thought clearly about the subject matter, and you have made clear the currency pair. For example, if we think that the dollar has risen sharply against the yen and we want to use foreign exchange options as an operating tool, then all we need to do is buy dollars and sell yen, then we have the right to buy dollar/yen put options (called dollar/yen put options). If you only know how to vent the yen, the bank will ask "sell the yen correctly." Perhaps the trader's price will be based on USD/JPY intuition. However, if you really look at the euro against the yen, you can only ask for the price of "selling the yen, right" in quotation marks, and you may get an offer that has nothing to do with the error.
Therefore, to trade foreign exchange options in the most professional and effective way, you must remember that the exchange rate of currency pairs should be clearly informed to bidders.
There is a simple way to clarify the rules of these queries. First, make sure you are looking at the exchange rate between two currencies. Then, they must decide to go long (equivalent to shorting other currencies). Then decide whether to buy or sell the option to the right of the operation strategy (the detailed operation strategy will be described in the near future). Finally, quote the bank inquiry. If you choose the option of option policy, you can ask for more money to buy options/see options to sell money to call empty.
Let's give a few examples to give readers a chance to familiarize themselves with what they want to inquire about.
1, if a person thinks that the dollar will fall against the pound, then he may want to set up a scene of selling the pound and buying the dollar. At this point, he can buy 1 USD/GBP put option (USD call/GBP put option).
2. If a person thinks that the euro will rise against the pound and decides to buy more euros and short the pound, then he can buy a suitable euro/pound put option (called euro/pound put option).
In this chapter, in order not to talk too complicated suddenly, we sell the right to ignore the paradigm.
In short, in foreign exchange options trading, operators must pair up to find queries. It's like you are a new foreign exchange trader, and the operator must make direct quotation, the difference between indirect quotation, and the exchange rate of each currency and the traditional clear and important quotation. Please refer to the details of last week's column for the basic definition of trading rights.
Changes in the continental United States
In addition to the right of performance the day before, another important classification is used to choose whether it expires or not. We call for choosing the right European option (European option) only when it expires on a certain day; And it can expire on any day, and it is called American option (the expiration date of American option or the day before the option).
Why are these two option contracts called European and American? The reason for this is beyond doubt. In the early option contract, the simplest option contract stipulated that all compliance actions could only be carried out on the expiration date. However, with the increase of market complexity, more and more operators need to abide by the previous deadline, so American options have become popular.
Basically, it is stock options, index options, futures options, contract options and so on. Trading in the centralized market is an American option. The options contracts traded in OTC market, such as foreign exchange options, low interest rate (ceiling) and swap options (swap options), are mainly European options.
Therefore, unless otherwise stipulated, foreign banks will provide the right to choose who will undertake the inquiry in Europe, not the right choice in the United States. Therefore, in general, it should be noted that foreign exchange options usually only need to comply with the expiration date, and cannot be required to comply with the expiration date.
Maybe you don't know, there is no significant difference in the operation of European and American options, and it looks better than the other side of the phenomenon according to different situations.
According to financial theory, considering some special factors (such as cash dividend), American option may be a better choice than European option. while
For example, a company suddenly announced that it would pay a higher-than-expected cash dividend. If the company holds American options, it may need to abide by the shares immediately, and may choose to convert them into stocks and receive cash dividends. And whoever holds the company's European options can only stare blankly, but can't promote compliance conversion to get cash dividends. However, apart from this special factor and other conditions, we have not found a better choice for the United States and Europe.
Intuitively, we will think that since the investment choice is correct, the correct one is more flexible and should be more valuable. American options are more flexible than European options, which seems to conform to such an intuitive idea. Many people think that American options should be more valuable than Chinese mainland's. But in fact, after we choose how to calculate the interpretation value, you know, apart from the influence of cash dividends and other factors, the value of American options and European options should be equal.
Further breakdown, in fact, there is a third choice between the United States and Europe, that is, the Atlantic option or the Bermuda option. Literally, you can easily see that this right is in line with the choice between the United States and Europe (Bermuda is located in the Atlantic Ocean between the United States and Europe). For example, the option contract, after the expiration date of one year, but in the recent 1 week, can reach the standard in advance every season (it can reach the standard within the specified time limit, but there are other restrictions on the target date), which is the most typical Bermuda-style choice.
In order to meet the needs of a wide range of market participants, researchers in financial engineering have been developing various options. However, in terms of compliance constraints, the three types of clauses are still subject to constraints to a large extent. Actually, it's the same.