Option, literally, "term" means future, and "right" means right. Option refers to the right to buy or sell a certain quantity of a commodity at a certain price at a certain time in the future. Option is actually a right and a choice. Option holders can choose the right to buy or not to buy, sell or not to sell within the time specified in the option. He can exercise his right or give up his right, and the seller of the option has only the obligations stipulated by option contracts. Foreign exchange option is a kind of option. Compared with other kinds of options such as stock options and index options, foreign exchange options buy and sell foreign exchange, that is, the option buyer obtains a right after paying the corresponding option fee to the option seller, that is, the option buyer has the right to buy and sell the agreed currency at the exchange rate and amount agreed by both parties in advance on the agreed expiration date, and the buyer with this right also has the right not to execute the above-mentioned sales contract. There are two kinds of options: call options and put options. The buyer of option (right) must pay a certain fee to the seller of option (right) in order to obtain the above-mentioned right to buy or sell, which is called premium. Because the buyer of options (rights) has the right to decide whether to buy or sell in the future, the seller of options (rights) bears the risks that may be brought by future exchange rate fluctuations, and the option fee is to compensate for the losses that may be brought by exchange rate risks. This option fee is actually the price of the option (right). For example, someone bought a European call contract, the royalty was 65,438 USD+0,000,000 EUR/USD, the specified term was three months, and the execution price was 65,438 USD +0.65438 USD +0.500 USD. On the expiration date of the contract three months later, the exchange rate of Euro/USD is 1. 1800, so this person can ask the contract seller to sell his own value of Euro100,000 at1500, and then he can sell it at/kloc-0. If the euro/dollar exchange rate is 1. 1200 three months after buying the option contract, it is better to buy it directly in the foreign exchange market at this time, then the person can give up the right to execute the contract and lose at most 1000 USD. Option contracts is a standardized contract. The so-called standardized contract means that all the contract terms are agreed in advance, with universality and unity, except that the price of the option is formed through open bidding in the market. Option contract has three main elements: premium, strike price and contract expiration date. A premium, also called option premium, is the price of option. Option fee is the only variable in the option contract, which is formed by the open bidding of buyers and sellers in the international option market. It is the fee that the buyer of the option must pay to the seller in order to obtain the rights conferred by the option contract. For the buyer of the option, the premium is the biggest loss. For option buyers, selling options can earn royalty income without immediate delivery. B. exercise price exercise price refers to the pre-specified buying and selling price when the buyer of the option exercises his rights. After the exercise price is determined, within the time limit stipulated by option contracts, no matter how the price fluctuates, as long as the buyer of the option requests the exercise, the seller of the option must perform its obligations at this price. For example, when an option buyer buys a call option, the price rises and is higher than the strike price within the validity period of the option contract, and the option buyer has the right to buy a specific commodity at a lower strike price. The option seller must unconditionally perform the selling obligation at a lower exercise price. For foreign exchange options, the exercise price is the exchange rate specified in advance by the buyer of foreign exchange options when exercising. C. Contract expiration date The contract expiration date refers to the latest date that the option contract must be performed. European options stipulate that Japanese can only exercise options when the contract expires. American options stipulate that options can be exercised on any trading day (including the contract expiration date) before the contract expiration date. The validity period of the same kind of option contract is different, which is divided into different time periods such as week, quarter, year and continuous month. Compare foreign exchange options with foreign exchange firm trading. For foreign exchange firm trading, there is only one price for a certain variety at a time; But for foreign exchange options, at a certain point in time, a variety often has a lot of option prices because of different execution prices and different maturity dates. The advantage of foreign exchange options business is that it can lock in the future exchange rate and provide foreign exchange preservation. Customers have good flexibility and selectivity, and they can also get profit opportunities when the exchange rate changes in a favorable direction. For those import and export businesses whose contracts have not been finalized, it has a good value-preserving effect. The buyer's risk of option is limited, limited to option fee, and the possibility of income is infinite; The seller's profit is limited, limited to the option fee, and the risk is unlimited. For example, if a company holds US dollars, it needs to pay the import payment in euros one month later. In order to prevent exchange rate risk, the company can buy the European option of "buy euros and sell dollars for one month with the agreed exchange rate of 1.2000" from the bank. Then the company has the right to buy the agreed amount of euros from the bank at the price of 1 Euro = 1.2000 USD when the future options expire. If the spot market exchange rate when the option expires is 65,438+0 Euro = 65,438+0.65,438+0.900 USD, then the company may not exercise the option, because it is more favorable to buy euros at the spot market exchange rate at this time. Conversely, if the option expires at € 65,438+0 = $65,438+0.2200, the company may decide to exercise the option and ask the bank to sell euros to the company at the exchange rate of € 65,438+0 = $65,438+0.2000. It can be seen that the foreign exchange option business enables the company to flexibly avoid the risks caused by fluctuations in the foreign exchange market, and its expenses are limited to option fees.
2. The price option, that is, the option fee mentioned above, is the price of the option contract when buying and selling the option contract.
Option fee, also called option fee and option fee, is the price of option. Option fee is the only variable in the option contract, which is formed by the open bidding of buyers and sellers in the international option market. It is the fee that the buyer of the option must pay to the seller in order to obtain the rights conferred by the option contract. For the buyer of the option, the premium is the biggest loss. For option buyers, selling options can earn royalty income without immediate delivery.
3. exotic options is a more complicated derivative security than traditional options. If the exercise price is not a certain number, but an option with an average asset price over a period of time, or the price exceeds a certain limit within the validity period of the option, the option is invalid.
4. The agreed price is the exercise price stipulated in the option contracts.
Exercise price Exercise price refers to the pre-specified buying and selling price when the buyer of the option exercises his rights. After the exercise price is determined, within the time limit stipulated by option contracts, no matter how the price fluctuates, as long as the buyer of the option requests the exercise, the seller of the option must perform its obligations at this price. For example, when an option buyer buys a call option, the price rises and is higher than the strike price within the validity period of the option contract, and the option buyer has the right to buy a specific commodity at a lower strike price. The option seller must unconditionally perform the selling obligation at a lower exercise price.