Investment is a journey full of opportunities, especially for continuous traders. Even in the current complex international situation, capital risk preference, liquidity decline, the market continues to shrink, there are still many investors through the clever use of various investment tools, actively fight in the market. Among them, options can be said to play an important role, not only in the two directions of bullish and bearish, but also in buying and selling, which can combine a variety of trading strategies according to different conditions. and then magnify the value of investment decisions.

Because of this, options have been favored by many investment bosses. Even if you haven't played with options, you must have heard how investment bosses use options to hedge risk and analyze individual stock trends by observing options. So what on earth is an option? How can I play with options? This issue of Futuo Niuniu class will begin with the introduction of options to tell you what options are. What are the elements and values of option contracts?

What is an option? The concept of options

Before introducing the concept of options, let's take a look at an example:

Tuhao Niu friend: recently, I bought a stock in the whole warehouse and bought it for 20 yuan, but I am worried about what if it falls? If only we could "buy insurance" for stocks.

Witty friend: it's easy. I'll make a deal with you.

Tuhao Niu friend: what kind of deal?

Witty friend: two months later, no matter what price the stock falls to, you can sell it to me at the price of 18 yuan per share. It's a puppy!

Tuhao Niu friend: this is good.

Witty friend: but it's not free. I want to charge a deposit of 200 yuan.

Tuhao Niu friend: no problem!

Two months later, two things may happen.

Case 1: when the stock fell to 10 yuan, Tuhao Niu friend exercised the right to sell the stock to the witty Niu friend at the price of 18 yuan per share according to the agreement. Tuhao Niu friend was very happy, which prevented the expansion of the loss, while the witty Niu friend cried and fainted in the toilet.

Case 2: when the stock rose to 100 yuan, Tuhao Niu friend gave up the right to exercise, that is, he let the witty Niu friend earn a margin, but Tuhao Niu friend sold all his shares in the secondary market, earning 80 yuan per share, which is even more happy.

In fact, the agreement reached between tuhao Niu friends and witty cattle friends is what we call option contracts. The term refers to the future, the right refers to the right, and the option is the right to choose the future.

The definition of option: an option that stipulates that the buyer has the right to buy or sell the subject matter at a specific price at a specific time after paying a certain amount to the seller, and the seller needs to perform the corresponding obligations.

In the above example, Tuhao Niuyou, as the buyer of the option, has the right to sell, either sell or not, but in order to obtain this right, a royalty must be paid to the witty Niu friend. As a seller of options, a witty friend has only the obligation to buy, not the right. But you can get royalty income.

See Futu avocado video: "understanding options"Https://live.futunn.com/course/1188

Second, what are the elements of the option contract?

From the definition of options, we can naturally conclude that the elements of option contracts are as follows:

• The object of the contractSingle stock or ETF

• Contract typeCall option / put option, in which the call option is the right of the buyer to buy the subject matter at some point in the future, while the put option is the right of the buyer to sell the subject matter at some point in the future. For example, in the above example, Tuhao Niuyou bought a put option.

• Exercise price:The buying and selling price of the underlying securities when the option buyer exercises the right

• Contract units:The number of contract targets corresponding to a single contract

• Maturity date:The last day on which the contract is valid

• Option price:Royalty.

See Futu avocado video: "contractual elements of options"Https://live.futunn.com/course/1188

III. The value of options

The value of options consists of two parts: intrinsic value + time value.

• Intrinsic valueThe income earned by the option holder when he immediately exercises the rights conferred by the option contract

• Time valueRefers to the remaining value of the option from the expiration date. Generally speaking, the longer the expiration date of the option, the greater the time value of the option.

To put it simply, for example, A shares are now priced at 100 yuan, and Tuhao Niuyou now spend 5 yuan to buy a call option, which stipulates that they have the right to buy an A share at 98 yuan three months later.

Then at this time, the intrinsic value of the call option of A stock is 100-98 million yuan, while the time value is 5-2 yuan.

See the Futuo avocado video: "understanding the value of options"Https://live.futunn.com/course/1188

What are the factors that affect the price of options?

Now that we understand the value composition of options, let's take a look at the factors that affect the price of options. In other words, what factors will affect the price of an option by affecting the intrinsic value and time value of the option?

• The price of the contract subject matterWhen other variables are the same, the price of the underlying contract goes up, the price of the call option goes up, while the price of the put option falls.

Let's take the A stock call option bought by the above-mentioned Tuhao Niuyou for 5 yuan as an example. When the stock A price rises to 105 yuan, the intrinsic value of the option is 105-987.It is obvious that the intrinsic value of this option increases, and the corresponding option price rises.

• Exercise price of the 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.

For the exercise price of the call option, we can also calculate that when the exercise price becomes 99 yuan, the intrinsic value of the option is 100-99 yuan, the intrinsic price becomes lower, and the price of the corresponding option decreases.

• Expiration date of the option:The longer the time from the expiration date, the higher the option price, and time equates to a profit opportunity.

The expiration date of the option will affect the time value of the option, because the longer the maturity date, the more likely it is. For example, for the above-mentioned call option, the price of stock A may rise to 200 yuan, so Tuhao Niuyou will make a lot of money.

• Risk-free rate:When other variables are the same, the higher the interest rate is, the higher the price of the call option is and the lower the price of the put option is.

The impact of interest rate changes on option prices is complex. Generally speaking, when the interest rate increases, the market price of the underlying assets of the option contract, such as stocks, will decrease, thus the intrinsic value of the call option will decrease and the intrinsic value of the put option will increase.

lVolatility:In the case of the same other variables, the higher the volatility of the underlying contract, the higher the price of individual stock options.

The greater the price volatility of the subject matter of the contract, the more likely the price of the option to rise to 200 yuan when the option expires, such as stock A, so the time value of the option is greater and the price of the option is higher.

See the Futu avocado video: "the meaning of the Greek alphabet of options"Https://live.futunn.com/course/1188

Summary

Through the above exposition of the concept of options, we can sum up. For example, Tuhao Niuyou bought a put option for the first time in order to prevent the stock from falling sharply and play the role of risk hedge. For the call option of stock A bought for the second time with 5 yuan, when the stock price rises to 200 yuan, the intrinsic value of the option becomes 200-98 million 102, which is 100 yuan higher than the previous 2 yuan, then the option price increases 100 yuan, that is to say, the share price has doubled, and the option price has increased 20 times, greatly enhancing the income of Tuhao Niuyou and magnifying the role of leverage.

It is precisely because of the two basic functions of risk hedging and leveraged returns, in practice, many institutional investors have become accustomed to using options as a hedging tool, as long as the buy options are hedged when the stock market is facing adjustment. instead of competing to sell stocks that lead to unnecessary fluctuations in the market.

For individual investors, options are an excellent tool to further develop the realization of knowledge. In today's era, there are always many bulls and bulls who have rich knowledge and the ability of value discovery or trend tracking, but the amount of capital is small, so their leverage can be fully found through options, and small funds can pry big profits. And through a variety of strategies and position management, quickly open the gap with other investors.

Of course, there are more ways and functions of options waiting for us to explore, as long as there is perseverance in-depth study, we will be able to discover the mystery. More content will be updated continuously. Please look forward to it.