The so-called individual stock option means that the buyer (obligee) of the option obtains a right by paying a certain fee (royalty) to the seller (obligor), that is, the right to buy or sell a specified number of stocks or ETFs from the option seller at the agreed time and price. Of course, the buyer (obligee) can also choose to give up exercising his rights. If the buyer decides to exercise his rights, the seller is obliged to cooperate. Individual stock option contract refers to the standardized contract formulated by the exchange, which stipulates that the buyer has the right to buy or sell the agreed underlying securities at a specific price at a certain time in the future. The buyer obtains this right at the cost of paying a certain amount of option fee (also called royalty), but does not undertake the obligation of buying and selling. After receiving a certain amount of option fee, the seller must unconditionally obey the buyer's choice within a certain period of time and fulfill the promise at the time of trading.

The difference between individual stock options and futures

Different rights and obligations. The rights and obligations given to the holders by futures are equal. The trading rule of individual stock options is that when the contract expires, the holder must buy or sell the subject matter at the agreed price (or make cash settlement). The buyer of individual stock option only has the right not to assume the obligation, and the seller only has the obligation not to enjoy the right.

Expected annualized expected return risks are different. The profit and loss risks borne by both parties in futures trading are equal. In option trading, the option buyer bears a limited risk (that is, the risk of losing royalties), and the profit may indeed be infinitely enlarged; Option sellers, on the other hand, enjoy limited expected annualized expected returns (limited by the royalties obtained), and their potential risks are great, so the ratio of the expected annualized expected returns of both parties is asymmetric.

The deposit system is different. Futures trading, stock option trading rules, whether long or short, stock option trading rules need a certain margin as collateral. In option trading, the option buyer is not bound by the margin system after paying the premium in full, and the margin of individual stock option trading rules only requires the option seller.

The leverage effect is different. The leverage effect of futures is mainly reflected in trading larger contracts with lower margin. The leverage effect of options is reflected in the leverage of option pricing itself.