Traders who short options have the following two characteristics: buyers of short options, people who short options estimate that there will be a bear market in the future, short options, in order to ensure that futures can be delivered at the current price at some time in the future, they would rather spend an option fee on short options, and short options in order to ensure that the future price will not fall to the point where they lose money.
Investors with put options (put warrants) can sell the corresponding shares to listed companies at the agreed price at the agreed time (European options) or at any time before the agreed time (American options). In other words, investors holding put options are equivalent to an exchange or an insurance company. After opening a position, he charged a premium, which is a premium. For short sellers of put options, it is to seek gains or avoid losses from the rise in the price of related subject matter. Income is limited to the scope of royalties.
Because the insurance company of the seller is the same, the income is limited, but the risk is unlimited. Then why are some people in the market willing to be sellers? The reason is just like an insurance company is willing to sell an insurance policy, because the actuarial team has a low risk probability.
Example: Speculators found that in the recent decline, the price of stock index futures dropped from 600 points to 550 points. Although there are still hidden worries in the market, speculators believe that the price will not fall below 500 points and may rebound soon. In order to profit from this view, speculators sell a put option with an exercise price (X) of 500 points and get a 50-point premium (P).
In other words, when the stock index is above 500 points, speculators can make a steady profit of 50 points. When the stock index falls to (500-50)450 points, it breaks even. If the stock index is below 450 points, there will be losses. The biggest loss is that the stock index falls to 0 (of course, the stock can't fall to 0 yuan), so the biggest loss is close to X-P=-450. X is the execution price, which is also called the final price and exercise price. P is royalty. When the stock index fluctuates at 500-0, profit and loss = commission-(execution price-delivery price).
As the obligor of the option, the risk of the option seller is infinite in theory. Once the stock price falls, it will face great risk of loss. At this time, it is necessary to sell hedging to hedge the risk to a certain extent, that is, to open a position in the futures market and sell a stock index futures contract, and then buy and close the position after it falls, which is equivalent to filling the stock index futures of investors who sell warrants with futures contracts that are sold at the opening position.