An option is the right to buy or sell a certain number of specific assets at a certain price at a certain time in the future.

Option trading is a kind of right trading. In futures option trading, the option buyer obtains the right to buy or sell a certain number of futures contracts from the option seller at a predetermined price (exercise price) within the time stipulated in the contract after paying a fee (royalty). After receiving the option fee paid by the option buyer, the option seller must unconditionally perform the obligations stipulated by option contracts as long as the option buyer requests to exercise his rights. In futures trading, buyers and sellers have equal rights and obligations. In contrast, the rights and obligations of buyers and sellers in option trading are not equal. After paying the patent fee, the buyer has the right to execute and not to execute, but has no obligation; When the seller receives the royalty, no matter how unfavorable the market situation is, once the buyer proposes to implement it, he is obliged to perform the option contracts, but has no right.

Options are also contracts. The terms in the contract have been standardized. Take wheat futures options as an example. For option buyers, the right to buy primary wheat futures usually represents the right to buy primary wheat futures contracts in the future. The right to sell primary wheat futures usually represents the right to sell primary wheat futures contracts in the future; The seller of the option is obliged to sell a certain number of wheat futures contracts to the buyer of the option at the exercise price at some future time according to the terms of the option contract. The seller of the put option has the obligation to buy a certain number of wheat futures contracts from the option buyer at the exercise price at some future time according to the terms of the option contract.

The price of an option is called a premium. Option fee refers to the fee paid by the option buyer to the option seller in order to obtain the rights conferred by the option contract. For option buyers, no matter where the price of wheat futures changes in the future, the biggest loss they may face is only royalties. This feature of options gives traders the ability to control investment risks. The option seller collects the option fee from the buyer in return for taking the market risk.

Second, the characteristics of options

(A) a unique profit and loss structure

Compared with investment tools such as stocks and futures, the nonlinear profit and loss structure of options is different.

As shown in figure 1-3, for a futures long position with a cost of 1800 yuan/ton, the profit of the position will increase by one yuan every time the price rises, and the loss of the position will increase by one yuan every time the price falls. For short futures positions, the opposite is true.

Profit and loss 1800 futures price chart 1-3 futures position profit and loss chart is as shown in figure 1-4, which is the profit and loss chart of long call option with exercise price of 1800 yuan. Its maturity profit and loss chart is a broken line rather than a straight line, and there is an angle where the price is executed. If the futures price is lower than the option strike price, the call option is in a virtual state and has no value at maturity. The option buyer will lose all the premium 20 yuan, but no matter how deep the futures price falls, the loss of the option buyer will not increase; If the price of the expired futures is 1820 yuan, then the call option is in a breakeven state; If the futures price is higher than the exercise price of options, the nature of call options and futures bulls is the same at this time, and the relationship between the gains and losses of call options and the changes of futures prices begins to change in the same direction.

Profit and loss 1800 1820

Futures price chart 1-4 make multi-profit and loss chart.

It is the nonlinear profit and loss structure of options that makes options have obvious advantages in risk management and portfolio investment. Through different options, option combinations and other investment tools, investors can build portfolios with different risk-return conditions.

(B) the risk of options trading

In option trading, the rights and obligations of buyers and sellers are different, which makes them face different risk situations. For option traders, both buyers and sellers are faced with the risk of adverse changes in royalties. This is the same as futures, that is, within the scope of commission, buy low and sell high, and you can make a profit by closing your position. On the other hand, it is a loss. Different from futures, the risk bottom line of option bulls has been determined and paid, and its risk is controlled within the premium range. The risk of option short position is the same as that of future positions. Because the premium received by the option seller can provide corresponding guarantee, it can offset some losses of the option seller when the price changes adversely.

Although the risk of the option buyer is limited, its loss ratio may be 100%, and the limited losses add up to greater losses. Option sellers can get royalties. Once the price changes adversely or the volatility rises sharply, although the futures price cannot fall to zero or rise indefinitely, from the perspective of fund management, the loss at this time is equivalent to "infinity" for many traders. Therefore, investors must fully and objectively understand the risks of option trading before investing in options.

Third, the difference between options and futures.

(a) the rights and obligations of the buyer and the seller

In futures trading, buyers and sellers stipulate equal rights and obligations in the contract. In option trading, the buyer has the right to buy or sell futures contracts at the price stipulated in the contract, and the seller has the obligation to perform passively. Once the buyer puts forward the execution, the seller must solve his option status by performing the contract.

(2) Profit and loss structure of the buyer and seller

In futures trading, with the change of futures price, both buyers and sellers are faced with unlimited profits and losses. In option trading, the potential profit of the buyer is uncertain, but the loss is limited and the maximum risk is certain; On the contrary, the seller's income is limited, but the potential loss is uncertain.

(3) Deposit and royalties

In futures trading, both buyers and sellers have to pay the trading margin, but neither side has to pay the other side. In option trading, the buyer pays the royalty, but not the deposit. The seller receives royalties, but pays a deposit.

(4) the way of partial knot.

In futures trading, investors can close their positions or make physical delivery to settle futures trading. In option trading, there are three ways for investors to close their positions: closing positions, performing contracts or expiring.

(5) Contract quantity

In futures trading, futures contracts are only delivered in different months, and the quantity is fixed and limited. In option trading, there are not only differences in months, but also differences in exercise price, call right and put right. Moreover, with the fluctuation of futures prices, new option contracts with strike prices have to be linked, so the number of option contracts is more.

Options and futures have their own advantages and disadvantages. The advantage of option lies in its risk-limiting nature, but it requires investors to pay the cost of royalties, and only after the changes in the price of the subject matter make up for the royalties can it make a profit. The emergence of options, whether from the perspective of investment opportunities or risk management, provides more flexible choices for investors with different needs.

4. Why do you trade options?

(1) option is an effective risk management tool. Options are based on futures contracts and can be said to be derivatives of derivatives. Therefore, options can be used to protect the value of spot and futures transactions. By buying options, you can protect the value of spot or futures without the risk of extra margin. By selling options, you can reduce the cost of holding positions or increase the income of holding positions. The comprehensive application of different exercise prices and different maturity rights makes it possible to provide tailor-made hedging strategies for hedgers with different preferences.

(b) Options provide investors with more investment opportunities and investment strategies. In futures trading, only when the price changes directionally can the market have investment opportunities. If the price is in a consolidation period with less fluctuation, the market lacks investment opportunities. In option trading, whether the futures price is in a bull market, a bear market or a consolidation, it can provide investors with opportunities to make profits. Futures trading can only be based on orientation. The trading strategy of options can be based on the changing direction and fluctuation of futures prices. When investors focus on multiple fluctuations, they can buy trading portfolios such as stride and stride. On the contrary, if investors are bearish on volatility, they can do the opposite of the above strategy.

(3) lever. Options can provide investors with greater leverage. Especially short-term hypothetical options. Compared with the futures margin, the same number of contracts can be controlled with less use fees. Let's take flat options as an example and compare them with futures.

Suppose: the futures price of strong wheat is 1900 yuan/ton, and the margin ratio is 5%, that is, 95 yuan; The strike price of the strong wheat option is 1900 yuan/ton, the volatility is 15% and the annual interest rate is 1.98%. See table 1- 1 for a comparison between the theoretical value of call options with different maturities and futures margin. Table 1- 1 leverage comparison of options and futures

The ratio of maturity call option fee (yuan/ton) to futures margin.

1 month 34 30%

2 months 49 45%

3 months 6 1 60%

The leverage of options can help investors get more income with limited funds. If the market changes unfavorably, investors may lose more royalties. Therefore, investors should pay attention to the fact that leverage is a double-edged sword, regardless of futures or options.