What Are Exchange Traded Options?
Options market, English: option market; options exchange. The market where options contracts are traded is also: options exchange. Options trading refers to the trading of the right to purchase specific commodities at an agreed price within a specific time. The most common options transactions are foreign exchange, index, and commodity option contracts. Option is an important concept in modern finance, and it has very important application value in practice. The options market is an important part of modern financial markets.
Options market
- Chinese name
- Options market
- Foreign name
- option market
- Solid
- Markets trading options contracts
- Often seen
- Forex, index, commodity option contracts
- Options market, English: option market; options exchange. The market where options contracts are traded is also: options exchange. Options trading refers to the trading of the right to purchase specific commodities at an agreed price within a specific time. The most common options transactions are foreign exchange, index, and commodity option contracts. Option is an important concept in modern finance, and it has very important application value in practice. The options market is an important part of modern financial markets.
- Options trading is a sale of rights. The buyer does not buy the real thing, but just buys a right that allows him to buy or sell a certain amount from the seller of the option at a predetermined price (commonly known as the agreed price) at any time within a certain period. A certain kind of securities, regardless of the price of the securities at this time. This "certain period", "agreement price" and the number and type of securities to be bought and sold are all specified in advance in the option contract. Buyers can exercise or resell this right during the life of the option contract. Beyond the stipulated period, the contract expires, and the buyer's options become void. Options are divided into call options (also called buy options) and put options (also called sell options). When a call option is purchased, the buyer can purchase a certain amount of securities from the seller of the option at an agreed price at any time during the option's validity period. When a put option is purchased, the buyer can sell to the seller at the agreed price at any time during the option's validity period. A specified amount of a security. Options trading contracts have uniform standards, with uniform provisions on transaction amounts, terms, and agreed prices. This has created convenient conditions for the development of the options market. The term is generally 9 months, the agreed price is close to or equal to the price of the securities being bought and sold, and the option fee is within 30% of the transaction amount. With the development of the financial market and the diversification of investment, the object of options trading has gradually developed from the initial stock to gold,
- Options trading began in the United States in the late eighteenth century and
- In addition to the options market described above, option investors can influence the spot foreign exchange market to achieve huge returns in the foreign exchange options market. The trading situation of the options market itself also has a strong predictive effect on the spot exchange rate trend. According to investors' views on the future exchange rate trend, options can be divided into call options and put options. For the most common out-of-the-money options, the call price of the call option is higher than the spot exchange rate, which means that investors believe that the future exchange rate will rise, and only when the exchange rate at the expiration date is higher than the option's agreed price, the option will May be executed. At a certain point in time, the trend of the foreign exchange option market for a certain period of a currency pair will form a general tendency. This is reflected in the difference between the premium paid for the same call option in Delta and the premium paid for the put option.
- For example, when the spot exchange rate is 1.2050, if options market investors think that the euro is more likely to rise after one month, then there are more investors who buy euro call options than investors who buy euro put options. The difference in demand results in the difference in option premiums. The index reflecting the difference in the options market is the risk reversal rate. The risk reversal indicator refers to the difference between the quoted value of an imaginary call option and a put option for the same option premium, which is quoted by the trader.
- Traders are not quoted at the premium of the option, but at their volatility. The greater the demand for an option contract, the greater its volatility and the higher the option premium. A positive risk reversal rate means that the volatility of a call contract with the same option premium is higher than the volatility of a put contract, which implies that more market participants believe that the exchange rate will rise than market participants think that the exchange rate will fall. If the risk reversal rate is negative, the situation is reversed. In this way, the risk reversal rate of the foreign exchange market can be used to judge market position conditions and provide market information for investment decisions.
- Options market analysis
- Volatility is the most important reference indicator in the foreign exchange options market. Volatility is the degree of stability of the indicator's asset price, and foreign exchange option volatility is the degree of stability of the spot exchange rate. Volatility is the only factor influencing option premium that cannot be directly observed. But it is the most important and complicated factor in option pricing. The greater the volatility, the more unstable the price movement and the more likely it is to rise or fall. For barrier options, there is a greater probability of breaking through the barrier before or before the expiration date (whether it is a call option or a put option). Usually volatility indicators have a history
- The transaction object is a right. A right to buy or sell securities, and this right has a strong time constraint.
- Whether to enforce rights is more flexible. Investors have the option to buy options and have the right to decide whether to execute the contract within the prescribed period based on market conditions. Pair execution
- When the underlying option market fluctuates greatly, some order placing activities often become very active, such as frequent cancellations
- The international futures market is very lively. Today, the price of oil is high, and the price of copper (information forum) will plummet tomorrow, and all this seems to have something to do with China. And China's economic development has also received more and more attention from abroad, and more and more foreign financial fields hope to reflect on China's economy.
- US over-the-counter options trading began on the Chicago Board of Trade (CBOT) in 1973
- Various difficulties encountered in the process of market development and the benefits brought by the introduction of the financial derivatives market. First, one of the biggest difficulties experienced was the lack of public understanding of options trading, and misunderstanding of derivatives markets by industry regulators and the news media. They consider options trading to be speculative similar to gambling. Whenever the stock market falls, they blame the existence of the derivatives market. For example, a newspaper once published an article that said that funds that should have been invested in the stock market all entered derivatives markets with speculative opportunities.
- Another difficulty is the irregular behavior of brokerage companies. I just mentioned that the competition to attract customers is very fierce, but some brokerage companies are busy fighting for customers while ignoring their responsibility to explain the market risks to customers. Moreover, in order not to be different from other peers in terms of risk, and to protect their customers, they often leave the risk management affairs to the exchange.
- The response that can be made is to educate market participants and help regulators and the media realize the significance of the options market.
- In 1973, a historic change occurred in the options market. The Chicago Board of Trade (CBOT) organized an options exchange with stocks as the underlying object-the Chicago Board of Options (CBOE). This is a landmark in the history of options development. Meaningful event. The formal establishment of the Options Exchange marks that the real options trading represented by stock option trading has entered a new stage of comprehensive development with complete unification, standardization and standardized management. The standardization of the contract allows traders who originally bought (sold) options to hedge their positions before the expiration date, which greatly increases the market's liquidity; more importantly, CBOE has added a clearing house to ensure the performance of the contract between the buyer and seller. In this way, traders do not need to worry about the seller's credit risk, so they attract a large number of options brokers and investors.
- With the development of the world economy and world futures markets, the United States, the United Kingdom, Japan, Canada, France, Singapore, the Netherlands, Germany, Switzerland, Australia, Finland and even Hong Kong, China have established option exchanges or exchange option trading markets. Options trading has also expanded from the initial stocks to nearly 100 varieties including commodities (agricultural and sideline products, financial products), financial securities, foreign exchange, and gold and silver. It can be said that option transactions exist for almost all forms of assets and liabilities.
- Options market