I. Four basic strategies
Do more stock options: expect stocks to rise, and hope to increase returns through the leverage effect of options. The break-even point is the exercise price+royalties, and the biggest loss is the royalties paid, so the maximum income potential is unlimited.
Short stock options: It is expected that the stock price may fall slightly or maintain the current level. The breakeven point is the exercise price+commission, and the maximum profit is commission, so the maximum loss potential is unlimited.
Do more stock put options: expect the stock price to fall sharply and don't want to take too high risks. The breakeven point is the exercise price-royalties, the maximum profit is the exercise price-royalties, and the maximum loss is the paid royalties.
Short stock put option: It is expected that the stock will rise slightly or maintain the current level in the short term, hoping to increase the income by selling options. The breakeven point is the exercise price-commission, the maximum profit is the commission, and the maximum loss is the exercise price-commission.
Second, risk avoidance strategy.
Covered stock call option portfolio: It is expected that the stock price will fluctuate slightly or rise slightly, and at the same time, it is hoped to obtain royalties from the stocks held. The construction method is to hold stocks and sell the corresponding call options at the same time. The biggest loss is the stock purchase cost minus the premium, and the biggest gain is the exercise price of the call option minus the paid stock price and premium.
Protective stock put option portfolio: owning stocks and generating floating profits, worrying about the risk of market decline, buying stock put options for protection. The biggest loss is the royalties paid plus the difference between the exercise price and the stock purchase price, and the biggest income potential is unlimited.
Double-limit strategy: two-part option strategy, including protective stock put option and covered stock call option, is constructed to protect the portfolio and reduce the cost.
Arbitrage strategy based on call option parity formula: Using call option parity formula, construct a portfolio including stocks and options to achieve risk-free arbitrage.
Third, the common options portfolio strategy
Bull market option trading strategy: suitable for bull market expectation.
Buy call options: investors expect stocks to rise.
Sell put options: expect a slight increase or stability.
Vertical spread arbitrage strategy: buying and selling call options or put options with different exercise prices at the same time.
Bear market option trading strategy: suitable for bear market expectation.
Buy put options: investors expect stocks to fall.
Sell call options: it is expected to decline slightly or stabilize.
Vertical spread arbitrage strategy: buying and selling call options or put options with different exercise prices at the same time.
Breakthrough and consolidation options trading strategy: suitable for different market conditions.
Breakthrough option strategy: use different combination strategies to realize income in the price breakthrough market.
Option strategy of consolidating the market: gain income in the price consolidation market through various option combinations.
I. Types of individual stock options
There are many kinds of stock options according to different standards. Here are some classifications for you.
1. According to the rights of the option buyer, it can be divided into call option and put option.
Call option means that the buyer (obligee) of the option has the right to buy a certain number of underlying assets from the seller (obligor) at the agreed time and price, and the buyer has the right to purchase.
Put option means that the buyer (obligee) of the option has the right to sell a certain number of underlying assets to the seller (obligor) of the option at the agreed time and price, and the buyer has the right to sell.
For example, Mr. Wang buys a stock call option with an exercise price of 15 yuan. At the expiration of the contract, Mr. Wang Can purchased the corresponding number of shares at the price of 15 yuan per share, regardless of the market price of the shares. Of course, if the market price of the stock falls below 15 yuan per share at the expiration of the contract, then Mr. Wang Can will give up the exercise and lose the paid royalties.
2. According to the time limit for the option buyer to exercise the option, it can be divided into European option and American option.
European option refers to the option that the option buyer can only exercise on the expiration date of the option.
American option refers to the option that the option buyer can exercise on the trading day or expiration date before the option expires.
American options and European options are divided according to the exercise time. Comparatively speaking, American options are more flexible than European options, giving buyers more choices.
3. According to the relationship between the exercise price and the market price of the underlying securities, it can be divided into real options, flat options and virtual options.
Real option, also known as in-price option, refers to the state that the exercise price of call option is lower than the market price of the underlying securities, or the exercise price of put option is higher than the market price of the underlying securities.
Flat option, also known as flat option, refers to the state that the exercise price of the option is equal to the market price of the underlying securities.
Virtual option, also known as out-of-price option, refers to the state that the exercise price of a buy option is higher than the market price of the underlying securities, or the exercise price of a sell option is lower than the market price of the underlying securities.
For example, for a stock call option with an exercise price of 15 yuan, when the market price of the stock is 20 yuan, the option is a real option; If the stock market price is 10 yuan, the option is a virtual option; If the stock price is 15 yuan, the option is a flat option.
Second, the value of individual stock options.
The premium of individual stock option refers to the market price of option contract. The obligee of the option pays a premium to the obligor of the option, thus obtaining the rights granted by option contracts. Royalty consists of intrinsic value (also called intrinsic value) and time value.
The intrinsic value of the option is determined by the relationship between the exercise price of the option contract and the market price of the option target, which means that the option buyer can buy and sell the proceeds of the underlying securities under better conditions than the existing market price. Intrinsic value can only be positive or zero. Only real options have intrinsic value, while flat options and virtual options have no intrinsic value. The intrinsic value of real call option is equal to the current underlying stock price minus the option exercise price, and the exercise price of real put option is equal to the option exercise price minus the underlying stock price.
Time value refers to the amount that the buyer of the option is willing to pay for the option when the price of the relevant contract object changes with the extension of time, which is the part where the option premium exceeds the intrinsic value. The longer the validity period of the option, the more likely the buyer of the option will make a profit; For the seller of options, the greater the risk he has to take, the more royalties he needs to sell options, and the buyer is willing to pay more royalties to get more profit opportunities. Therefore, generally speaking, the longer the remaining effective time of an option, the greater its time value.
Third, the influencing factors of stock option price changes
1, the current price of the subject matter of the contract
When other variables are the same, if the price of the underlying contract rises, the price of the call option rises and the price of the put option falls. When the basic contract price falls, the call option price falls and the put option price rises.
2. The exercise price of a single stock option
For call options, the higher the exercise price, the lower the option price; For put options, the higher the exercise price, the higher the option price.
3. Remaining maturity time of individual stock options
For options, time is equal to the opportunity to make a profit. When other variables are the same, the longer the remaining term, the higher the value of options to option buyers and the greater the risk to option sellers, so their prices should be higher.
4. Current risk-free interest rate
When other variables are the same, the higher the interest rate, the higher the price of call option and the lower the price of put option. The lower the interest rate, the lower the price of call option and the higher the price of put option. The influence of interest rate change on option price is positively related to the remaining time of option expiration.
5. Expected volatility of the subject matter of the contract
Volatility is an index to measure the severity of securities price changes. When other variables are the same, the stock option price with higher volatility of the contract target is higher.
6. dividend yield
If the exercise price of the underlying stock is not adjusted when paying dividends, then the dividend of the underlying stock will lead to the change of option price. Specifically, the increase of the underlying stock dividend will lead to the decline of the call option price and the increase of the put option price; The decrease of the underlying stock dividend will lead to the increase of the call option price and the decrease of the put option price. In addition, the longer the remaining maturity of options, or the greater the number and frequency of expected dividends, the greater the impact of dividends on their prices.
Fourth, the difference between stock options and futures contracts.
A futures contract refers to a standardized contract made by a futures exchange and agreed to deliver a certain quantity and quality of the subject matter at a specific time and place in the future.
The differences between a single stock option and a futures contract are as follows:
1, the rights and obligations of the parties are different:
The individual stock option contract is asymmetric, the buyer of the option only enjoys the rights but does not assume the obligations, and the seller only assumes the obligations but does not enjoy the rights; The rights and obligations of both parties to a futures contract are equal, that is, when the contract expires, the holder must buy or sell the subject matter at the agreed price (or make cash settlement).
2. Different income risks:
In option trading, investors' risks and returns are asymmetric. Specifically, the risk that the option buyer bears is limited (that is, the risk of losing the premium), the profit may be infinite, while the income enjoyed by the option seller is limited (limited by the premium obtained), and its potential risk may be infinite; The profit and loss risks assumed by both parties to a futures contract are symmetrical.
3. The deposit system is different:
In stock option trading, the option seller has to pay the deposit, and the option buyer does not have to pay the deposit; In futures trading, whether long or short, the holder needs to use a certain margin as collateral.
4. Balance between hedging and profitability:
When investors use stock options to hedge, they should lock in business risks and reserve room for further profit, that is, when the underlying stock price moves in an unfavorable direction, they can lock in risks in time and make profits when they move in a favorable direction; When investors use futures contracts to hedge, they avoid adverse risks and give up the possibility of income growth.
Five, the difference between individual stock options and warrants
Warrants are issued by the issuer of index securities or a third party other than them, and the agreed holder has the right to buy or sell the underlying securities from the issuer at an agreed price within a specific period or a specific maturity date, or to collect the securities with settled price difference by cash settlement.
The difference between a single stock option and a warrant is:
1, with different properties:
Personal stock option is a standardized contract designed by the exchange; Warrants are non-standardized contracts, and the contract elements are determined by the issuer. In addition to being independently created by listed companies and securities companies, warrants can also be issued together as a part of separable bonds.
2. Different publishers:
There is no issuer for individual stock options, and each market participant can become the seller of options on the premise of sufficient margin; The issuers of warrants are mainly listed companies, securities companies or major shareholders.
3. Different types of positions:
In stock option trading, investors can open positions to buy options or sell options; For warrants, investors can only buy them.
4. Different performance guarantees:
The seller and the opening party of option trading need to pay a deposit for fulfilling their obligations (the amount of the deposit changes with the market value of the underlying securities); In the warrant transaction, the issuer guarantees the performance with its assets or credit.
5. The effect after exercise is different:
The exercise of call option or put option is only the mutual transfer of assets between different investors, and does not affect the actual total tradable share capital of listed companies; For the warrants created by listed companies, when exercising the warrants, the issuing company must issue new shares according to the number of shares specified in the warrants, that is to say, every time the warrants are executed, the actual total share capital of the company will increase.