Option trading is actually the trading of such rights. The buyer has the right of execution and the right of non-execution, and can choose flexibly. Options are divided into OTC options and OTC options. OTC options trading is generally reached by both parties.
Option is a financial instrument based on futures. In essence, the option is to price power and obligation separately in the financial field, so that the transferee of power can exercise power on whether to trade or not within a specified time, and the obligor must perform it. In option trading, the party who buys the option is called the buyer, while the party who sells the contract is called the seller. The buyer is the transferee of power, and the seller is the obligor who must perform the buyer's exercise of power. Specific pricing issues are comprehensively discussed in financial engineering.
Options mainly include the following factors: ① exercise price (also called exercise price). The buying and selling price of the subject matter specified in advance when the buyer of the option exercises his rights. Royalties. Option price paid by the option buyer, that is, the fee paid by the buyer to the option seller for obtaining the option. ③ Performance bond. Option sellers must deposit performance bonds, ④ call options and put options on the exchange. Call option refers to the right to buy a certain number of subject matter at the execution price within the validity period of the option contract; Put option refers to the right to sell the subject matter. When the option buyer expects the target price to exceed the strike price, he will buy a call option, and vice versa.
According to the different execution time, options can be mainly divided into two types, European options and American options. European option refers to the option that can only be exercised on the expiration date of the contract, which is adopted in most OTC transactions. American option refers to any option that can be executed within the validity period after trading, which is mostly adopted by floor exchanges.
(2) Put option: In June 1 day, the strike price of copper futures is 1750 USD/ton. A buys this right and pays $5; Sell this right and get 5 dollars. In February 1, copper price fell to 1 695 USD/ton, and put option price rose to 55 USD. At this point, A can adopt two strategies:
Exercise 1 1 1A can buy copper from the market at the middle price of 1.695 USD/ton, and sell it to B at the price of 1.750 USD/ton. B must accept it, and A will make a profit of 50 USD (1.
Put option -A can sell the put option for $55. A makes a profit of $50 (55-5).
If the copper futures price rises, A will give up this right and lose $5, while B will get $5.
Through the above examples, we can draw the following conclusions: First, as the buyer of options (whether call options or put options), there are only rights but no obligations. His risk is limited (the biggest loss is royalties), but theoretically his profit is unlimited. Second, as a seller of options (whether call options or put options), he has only obligations but no rights. Theoretically, his risks are infinite, but his income is obviously limited (the biggest income is royalties). Third, the buyer of the option does not need to pay a deposit, while the seller must pay a deposit as a financial guarantee for fulfilling the obligation.
Option is an important hedging derivative tool to meet the needs of international financial institutions and enterprises to control risks and lock in costs. 1997 The Nobel Prize in Economics was awarded to the inventor of the option pricing formula (Black-Scholes formula), which also shows that international economists attach importance to option research.
Basic elements of option contract
The so-called option contract means that the option buyer pays a certain amount of royalties to the option seller, that is, a standardized contract that obtains the right to buy or sell a certain number of related commodity futures contracts at the pre-agreed final price within the specified period. The elements of option contract mainly include the following points: buyer, seller, royalty, final price, notice and expiration date.
Option performance
Option performance has the following three situations.
1. Both buyers and sellers can perform the contract by hedging.
2. The buyer can also perform the contract by converting the option into a futures contract (obtaining the corresponding future positions at the execution price level stipulated in the option contract).
3. Any expired unused options will automatically become invalid. If the option is virtual, the option buyer will not exercise the option before the option expires. In this way, the option buyer loses the premium paid at most.
insurance expenses
As mentioned earlier, the option premium is the price of buying or selling the option contract. For the option buyer, in exchange for giving the buyer some rights, he must pay royalties to the option seller; For the seller of options, he sells options and undertakes to fulfill the obligations of option contracts, for which he receives a royalty as a reward. Because the patent fee is borne by the buyer, it is the highest loss that the buyer needs to bear when the most unfavorable change occurs, so the patent fee is also called "insurance money".
Option trading principle
When you buy a fixed-price call option and pay a small premium, you can enjoy the right to buy related futures. Once the price really rises, you will exercise the call option to get the futures long position at a low price, and then sell the relevant futures contracts at a high price according to the rising price level, get the profit of the difference, and make up the paid royalties to make a profit. If the price does not rise but falls, you can give up or transfer the call option at a low price, and the biggest loss is the premium. The buyer of the call option buys the call option because it is determined that the price of the relevant futures market is likely to rise sharply through the analysis of the price changes of the relevant futures market, so he buys the call option and pays a certain premium. Once the market price really rises sharply, he will get more profits by buying futures at a low price, which is greater than the amount of royalties he paid for purchasing options, and finally make a profit. He can also sell option contracts at a higher premium in the market, thus hedging profits. If the call option buyer is not accurate in judging the price trend of the relevant futures market, on the one hand, if the market price only rises slightly, the buyer can perform or hedge, get a little profit and make up for the loss of royalties; On the other hand, if the market price falls and the buyer fails to perform the contract, the biggest loss is the amount of patent fees paid.
The relationship between option trading and futures trading
There are differences and connections between option trading and futures trading. The relationship is as follows: first, both of them are transactions characterized by buying and selling forward standardized contracts; Secondly, in the price relationship, the futures market price has an influence on the final price and premium of the option trading contract. Generally speaking, the final price of option trading is based on the delivery price of forward transactions of similar commodities determined in futures contracts, and the difference between them is an important basis for determining the premium; Third, futures trading is the basis of option trading, and the content of trading is generally the right to buy or sell a certain number of futures contracts. The more developed futures trading is, the more basic options trading is. Therefore, the mature futures market and complete rules create conditions for the emergence and development of option trading. The emergence and development of option trading provide hedgers and speculators with more options for futures trading, thus expanding and enriching the trading content of the futures market; Fourth, futures trading can be short, and traders do not necessarily make physical delivery. Option trading can also be long and short, and the buyer does not have to actually exercise this right, but can also transfer this right as long as it is beneficial. The seller does not have to perform, but he can relieve his responsibility by buying the same option before the option buyer exercises his rights. Fifth, because the subject matter of the option is the futures contract, both the buyer and the seller will get the corresponding future positions when the option is executed.
Option trading places:
There is no special place for option trading, and it can be traded in futures exchanges, special option exchanges and stock exchanges. At present, the largest options exchange in the world is the Chicago Board Options Exchange (CBOE). The largest options exchange in Europe is the European Futures and Options Exchange (Eurex), which was formerly known as Deutsche B? rse (DTB) and Swiss Options and Financial Futures Exchange (SOFFEX). In Asia, South Korea's options market has developed rapidly and the transaction scale is huge. At present, it is the country with the best option development in the world, with options trading in China, Hongkong in China and Taiwan Province Province in China. In China, several exchanges, including Zhengzhou Commodity Exchange, have made a preliminary study on the listing of options in Chinese mainland.