What are options?

I believe that for many financial investors, the word "options" has been heard for a long time and is not unfamiliar.

However, there are also many investors who have just entered the financial market and do not yet know what options are.

Then the editor will give you some popular science about options.

An option is a contract that gives the holder the right to buy or sell an asset at a fixed price on or at any time before that date.

On February 9, 2015, SSE 50 ETF options were listed on the Shanghai Stock Exchange and were the first domestic on-exchange options.

This not only announces the arrival of the option era in China, but also means that our country already has a full set of mainstream financial derivatives.

Options also have the following four major points: 1. Options are a right.

Options contracts involve at least two parties: a buyer and a seller.

The holder enjoys rights but does not assume corresponding obligations.

2. The subject matter of the option.

The complete subject matter is the asset being purchased or sold.

It includes stocks, government bonds, currencies, stock indexes, commodity futures, and more.

Options are "derivatives" of these underlying assets, so they are called derivative financial instruments.

3. Expiration date.

The day on which the option expires as agreed upon by both parties is called the "expiration date". If the option can only be exercised on the expiration date, it is called a European option; if the option can be changed on the expiration date or at any time before the expiration date

If executed, it is called an American option.

4. Execution of options.

The act of buying or selling the underlying asset based on an options contract is called "execution."

The fixed price agreed in the option contract at which the option holder purchases or sells the underlying asset is called the "strike price".

Options trading refers to the right that can be bought and sold in a certain period of time in the future. It is the right that the buyer has after paying a certain amount of premium to the seller to buy or sell a certain amount of underlying objects to the seller at a pre-agreed price within a certain period of time in the future or on a specific date in the future.

The right, but not the obligation, to buy or sell.

Picture and text source: Baidu Caishun Options Seeing this, some people may be confused. What is premium? Option premium is the price of buying or selling option contracts.

For the option buyer, in exchange for the option giving the buyer certain rights, he must pay a premium to the option seller; for the option seller, he sells the option and assumes the obligation to perform the option contract, for which he

Receive a royalty as compensation.

The premium is borne by the buyer and is the maximum amount of loss that the buyer has to bear in the event of the most unfavorable changes. Therefore, the premium is also called "insurance money."

I believe that after seeing this, most people already understand the definitions of options and premiums.

The editor will give you an example here so that you can understand more clearly what options and premiums are.

Xiao Yi from City C has taken a fancy to a stock worth two million.

But considering Xiaoyi's current asset level, taking out the full amount of two million at once is something that needs to be seriously considered. Moreover, Xiaoyi is also worried about what to do if the stock falls in the future, but he is also afraid that the stock will rise in the future.

, and my savings are not enough.

So he reached a consensus with the owner of the stock and agreed that no matter whether the stock rose or fell in one year, Xiao Yi could buy the stock with two million.

Without any proof, they signed a contract, and Xiao Yi paid a contract fee of 20,000 yuan for this contract.

At this time, Xiaoyi and the stock holders were conducting an options transaction, and the contract fee of 20,000 yuan was the premium of the option.

Having written this, I believe everyone has some understanding of options.

Let me sort out some of the advantages of options for you.

1. Limited losses, unlimited profits.

As the right party, the buyer's maximum loss is only the premium.

2. You can make money with options whether they rise, fall or fluctuate.

3. Diversify strategies.

Option strategies can be determined based on your own positions, and the gameplay is changeable.

4. Achieve stable cash flow.

Finally, options are known as the crown jewel of derivatives, and the editor also believes that the future financial development trend will inevitably have its presence.