When many investors come into contact with options for the first time, some people who popularize the knowledge of options will explain that options are a good investment tool, especially call options, which have incomparable advantages over futures. Call option not only has less investment, but also has no risk of additional margin, with limited loss and unlimited potential income. Some people who popularize the knowledge of options are the staff of futures companies, and may emphasize the characteristics of buying options, with limited risks and unlimited potential benefits. We don't deny the characteristics of options, but we should look at this characteristic rationally: what is the probability of this happening?

First, unlimited income is a relative concept, not an absolute concept. Let's take the soybean meal option as an example. An investor bought a soybean meal put option with an exercise price of 2,800 yuan/ton due in May at a price of 30 yuan/ton. From the perspective of risks and benefits, the biggest risk is the input royalty, 30 yuan/ton, and the biggest benefit is 2770 yuan/ton (the price of soybean meal has dropped to zero). Compared with the maximum loss of 30 yuan/ton, the potential profit of 2,770 yuan/ton is very large, which can be described as infinite, but it is still a limited figure in absolute terms. Second, how likely is this extreme situation to happen? Let's take the above case as an example. What is the possibility of soybean meal price falling to zero? We can boldly say that this possibility is zero, and the possibility of falling below 1000 yuan/ton is extremely small. So unlimited income is just an exaggerated word, which is not in line with the actual situation. Some people may ask, what about buying a call option? As far as the two commodity options listed in China are concerned, the prices of soybean meal futures and sugar futures are rising unilaterally, but there is absolutely no endless rise, and there will always be a price peak. So even if you buy a call option, the income is limited, and infinity is just a theoretical concept.

Does the limited risk of call options mean that investors of call options do not need risk management? The answer is no, the investment in buying options is relatively small, and you can bear it twice at a time without hurting your bones. Some investors are very patient, they can bear ten times or twenty times, but what about more than fifty times? Buying options is to be small and broad, thinking that the market will run in the direction you expect and get rich returns. But what should we do if expectations fail, or if the market is weaker than expected? Stop loss or wait? The right to choose is a right. Investors who buy options hope that the price of the subject matter will show a trend or fluctuate greatly in the future. As time goes by, the possibility of this uncertainty will gradually decrease, and the time value of options will decay faster. Especially the hypothetical option, the closer it is to the expiration date, the less likely it is to profit from liquidation or exercise. Even if the maturity is real, the real value needs to exceed the loss of time value to make a profit. After buying the option, the value of the option will fall, and investors will fall into the dilemma of choice. For example, an investor buys a one-month white sugar call option at the price of 50 yuan/ton. Two weeks later, if the option value drops by 35 yuan/ton, will he close his position with a loss of 35 yuan/ton, or will he continue to hold it in the hope that the underlying asset price will rise in the remaining two weeks? If you close your position in time, you will give up and admit that you have made a mistake in judgment, and the loss is certain. If we wait, we may turn losses into profits, or the losses may expand, and the price of the underlying assets has not risen enough, we will still lose money. If you continue to hold it for a week, although the price of the underlying asset may rise, as the maturity date approaches, the time value of the option will quickly disappear, offsetting the gains brought by the rising price of the underlying asset. Although it is close to profit, once the market reverses, the value of options will evaporate rapidly, eventually leading to losses. Therefore, we believe that risk management should be actively carried out when purchasing options, and reducing losses is the wisest choice when there is no hope of profit. Reducing losses is equivalent to increasing profits, which can prepare for the next operation.

The risk of call option is limited, but many people don't realize that the loss of a call option is limited, but the number of transactions with losses may be infinite. If the trading plan is not done well, buying call or put options may bring huge psychological pressure and losses to investors.

Myth 2: option leverage is higher and risk is greater.

Generally speaking, risk is directly proportional to income, and the higher the income, the higher the risk. Does the high potential income of option trading mean that the risk of option trading is also high? What is the reason for the high yield of option trading?

The reason for the high return of option trading is that the option has high leverage, and the change of its return and the price of the subject matter is not linear, but nonlinear. When the price of the subject matter rises (falls), the price of the call (put) option will change at an accelerated rate, and the change range will generally exceed the subject matter. As far as domestic commodity options is concerned, its subject matter is futures contracts, futures are margin transactions, and the premium ratio of options is low, so the leverage is high. Futures and physical transactions are about property rights, while options are about the right to buy and sell the subject matter, not necessarily property rights. This kind of transaction has great uncertainty and is a paradise for risk lovers to invest.

So does the option have a higher risk? The answer is no. For call options, the limited risk is an acknowledged fact. For option sellers, the potential risks are infinite, but the possibility of such risks happening indefinitely is extremely low. From the scope of use of options, options are more used for risk management, and many large enterprises or institutional investors use options for risk management. For example, a large trading company holds 6,543,800 tons of soybean meal spot, thinking that the price of soybean meal is likely to rise in the future, but it is afraid that there will be big bad news, which will damage the spot inventory value. It doesn't want to give up the gains brought by the rising price of soybean meal, and it doesn't want to bear the big losses brought by the sharp drop in price, so it spends a certain amount of royalties to buy put options and completely hedge the soybean meal inventory, which is equivalent to taking out an insurance on the spot. For this enterprise, if the soybean meal rises as expected, the income will be much higher than the commission, even if there is a big decline, the loss is limited.

Therefore, although options are highly leveraged, the risks that investors take depend on how they use them. The combination of options and other assets will not only improve the leverage level of the portfolio, but also effectively reduce the risks borne by investors, which is also the embodiment of the risk management function of option products.

Myth 3. Correct market judgment will definitely make a profit.

Many investors think that judging the market is the most important thing when trading options. As long as the price of the subject matter changes in the right direction, it will be profitable. We disagree with this view, because sometimes even if the judgment is correct, it is not necessarily a stable profit or even a loss.

As far as option price is concerned, there are many influencing factors, including not only the subject matter price, but also the expiration time, exercise price, volatility of the subject matter price, risk-free interest rate and other factors. The change of any factor will lead to the change of option price. Even if all other influencing factors have not changed, as long as time is declining, the price of options will continue to fall, which is a constant loss for investors who buy options. Even if the market judgment is correct, if the added intrinsic value is not higher than the lost time value, the price of the option will not rise. If the volatility of the subject matter price is also declining, investors who buy options will generally suffer losses, because the decline in the volatility of the subject matter price means that the possibility of large fluctuations in the subject matter price is reduced, the uncertainty in the future is reduced, and the option will accelerate its depreciation.

Therefore, in order to make a profit in option trading, market judgment is not as important as futures trading, and more attention should be paid to the influence of comprehensive factors. If the price of the subject matter is judged correctly, the loss is normal, because the influence of other factors exceeds the influence of the price change of the subject matter.

Myth 4: Deep hypothetical options have higher returns.

In the process of option trading, it is also very important to choose the exercise price. From the analysis of the relationship between the exercise price and the target price, the farther the exercise price deviates from the target price, the lower the option price. Therefore, some investors believe that the lower the option price, the higher the potential rate of return after buying.

It is recognized that the deep imaginary option has a high degree of imaginary value and the premium is relatively cheap. However, we can't ignore the fact that deep imagination option is difficult to become real option, that is to say, deep imagination option is difficult to become real option with connotation value. Generally speaking, there are three settlement methods for option trading, one is to exercise the right at maturity, the other is to close the position at maturity, and the third is to close the position in advance. According to the historical data of international option settlement, 65,438+00% of options are exercised when they expire, 30% of options are invalid when they expire, and nearly 60% of options are liquidated in advance. The option to close the position in advance also plays its "insurance" function, not "worthless". At the beginning of contact with options, investors usually think that options are invalid unless they are exercised at maturity, and often ignore that closing positions in advance is the most important means to end options trading.

The market is always changing rapidly, and option investors need to constantly adjust their trading strategies according to the actual situation of the market. Even people who take options as "insurance" should adjust the number of "insurance" according to the market, which is why nearly 60% of option contracts end in liquidation. These early liquidation options provide protection for the underlying assets during their existence, which fully embodies their own functions and is by no means "worthless". It is true that 30% of the expired options are still expiring, but this does not mean that these options are "worthless". Option is the price insurance of the subject matter. They avoid risks for investors and reserve profit margins. In the early days of option development, the US Congress questioned that a large number of option contracts expired and could not play a practical role. Experts in the option industry used a wonderful metaphor to dispel the concerns of Congress: investors buying options are like people buying fire insurance for their houses, and there is no fire during the insurance period, so insurance is not paid. Can we say that insurance is worthless? Like insurance, options provide a guarantee for investment activities.

Therefore, the price of deep-imaginary options is lower and the potential leverage is higher, but the possibility of realizing profit at maturity is lower, and the settlement method of options is more to hedge and close positions in advance. Therefore, when choosing an option contract, the appropriate imaginary value is enough, and it is not necessary to choose a deep imaginary option, otherwise it is easy to "draw water with a sieve".

Myth 5: Using technical analysis to formulate trading strategy

Whether it is the secondary stock market or the futures market, there is always a lack of technical analysis school, and there are such a group of investors in the option market. Can trading options with traditional technical analysis achieve better results as in futures or stocks?

It is not comprehensive to formulate options trading strategy only by traditional technical analysis. First, the subject matter of commodity options is a futures contract, which can be said to be a derivative of financial derivatives. Price changes generally have no rules to follow. The role of traditional technical analysis is indirect, that is, judging the price trend of the underlying futures through technical analysis, and then judging the price rise and fall of options through the trend of the underlying futures. The transmission effect is greatly reduced and the effect is not necessarily obvious. This also reminds investors not to rely too much on technical analysis when trading options. Secondly, there are many factors that affect the option price. Besides the price of the underlying commodity, there are also many factors, such as the exercise price, volatility, maturity time, risk-free interest rate, etc., which make the option price change complicated, the option K line is messy, and it is meaningless to rely on the technical indicators of the K line. Simply using the price of the subject matter as the influencing factor to predict the influence of the whole factor will greatly reduce the accuracy of the prediction.

So, is it useless to analyze the price trend of the subject matter for option trading? Not exactly. In the process of making options trading strategy, if investors use simple support level and resistance level, combine historical volatility and implied volatility for analysis, and also use reverse psychological analysis, then the trading effect may be better.

Misunderstanding, six-fold market judgment, light risk management

Option trading needs to predict the price trend of the subject matter, but is this the main preparation for option trading? Do you pay attention to market research or risk management when trading?

We believe that risk management and market judgment are equally important, and we need to pay attention to both sides, and neither side can be neglected.

For futures trading, whether it is speculation or arbitrage, if you want to make a profit, the premise is to make a correct judgment on the market. Of course, this is also the most difficult point for investors, which leads to the widely recognized view that "it is not easy to make money in futures". After the listing of options, it is still difficult for some investors to get rid of their enthusiasm for market forecasting. However, in addition to the target price, the option price is also affected by four factors: exercise price, volatility, expiration time and risk-free interest rate. If we only rely on the market to judge trading options, we ignore the impact of volatility and maturity on option prices. Option pricing theory shows that volatility and maturity have great influence on option price. This makes the trading results of some investors who emphasize market judgment fail to meet expectations, which leads to confusion because they do not pay attention to risk management in option trading.

Any transaction needs risk management, especially options. The illusion that the loss of buying options is limited often leads investors to ignore risk management, and the delayed income of selling options makes investors unwilling to do risk management. It is these psychology that make option traders frustrated repeatedly. For mature option investors, when to enter the market is not particularly important. The adjustment of positions in positions, that is, risk management, is related to their profits, which is determined by the nonlinear structure and flexibility of options. Once in trouble, traders can adjust their positions to adapt to new changes, thus quickly changing the profit and loss structure. Take buying a call option as an example. Investors buy flat call options and expect the price to rise, but once the base price falls, the transaction will suffer losses. At this time, if the position portfolio is converted into a set of vertical spread transactions, it will be of great benefit to improve the transaction performance by reducing the break-even point without increasing the cost. Unless investors are very confident in the future market, it is difficult to achieve good investment results in most cases by sticking to the original position. (Source: Futures Daily)

Further reading: How to buy insurance, which is good, and teach you how to avoid these "pits" of insurance.