How to buy and sell
The choice is a derivative product that the average investor will be exposed to. It is relatively difficult to understand, but as long as you can understand the choice, other investment products will be for you. Nothing is difficult.
Here are a few highlights of this introduction to options:
- When will I need a trading option?
- What is the choice?
- What are the options?
- Call and Sell (Put), Buyer (Buy) and Seller (Sell)
- Will the choice be dangerous?
When will I need trading options (Options)?
One of the most frequently asked questions of many investment friends is: Do you think it will fall or fall?
But in fact, our observations of the market usually do not only rise and fall, but also contain different degrees of views.
Because we don't have the ability to predict, we only make judgments based on experience and statistics.
Each kind of opinion is a chance, and it does not mean that the future will really go this way.
If you only buy and short stocks and futures , you may only have actions when you have a big rise, a small rise, a big fall, or a small fall.
If you can accurately judge the situation that it is difficult to rise, hard to fall, and consolidate, is there any investment tool that can operate profitably ?
The choice is in any case, as long as you can predict the future, you can take advantage of the investment tools.
There are no operational spaces for stocks and futures in the following cases, but if you use the option, you may be able to make a profit:
Case 1. The probability of not rising or falling in the future is very high, and the stock price rises and falls between -5% and +5%.
Case 2. Maybe it will rise in the next month, but it will never rise more than 10%.
Case 3. There is a 90% chance of a rise in the future, but a 10% chance may be a big drop.
Case 4. The future may have a large increase, or a large decline, but it will not consolidate
In these cases, even if you can predict 100%, you can only use empty stocks or futures because you can only buy or sell, but if you choose, the correct operation may bring huge profits.
What is the choice?
Unlike buying stocks, stocks are simply bought and sold, and options are added to the time (expiration date) and agreed price (performance price).
An option contract consists of the following factors:
Subject The option contract corresponds to the subject, such as a stock or an index
Call/put
Call of call: Expiration can be bought with the strike price.
Sell: Put can be sold at the expiration price. It is recommended to use English as much as possible, because it is easy to mix in Chinese.
Performance price Transaction price of the contract at maturity expiry date Is the due date, divided into monthly or weekly options based on the period
Contract multiplier Different target, the amount corresponding to 1 point
For example: 1 point is equal to 200 yuan
Among them,
1 trading unit, called "one bite"
The purchase and sale of options is a future contract, so the use of " margin trading " deposits is often referred to as "equity" in the account.
Practical examples:
For example: buy a 1 month October refer to the 10000 point call month option, the current market price of 55 points
Target: Corresponding to the weighted index
call/put: buy call, think that it will rise far more than 10000 points when it expires. The
strike price: 10000 points.
Due date: the third Wednesday of October expires the contract multiplier: 1 point 200 yuan
(The choice is a finalized contract, so there will be a consistent expiration date and a contract multiplier, and different items will be different.)
55 price point, this call represents the buying contract, it takes 55 points x200 yuan / point = 11,000 yuan of premium
This premium is deducted from the deposit account and paid to the seller.
The seller (the party that sold the call option) can receive the premium paid by the buyer first , but the seller will need to pay more margin because the buyer’s profit is the seller’s loss.
In this example, the seller needs 22,000 yuan. The margin of the seller will need to make up more margin, and the minimum margin required by the seller will be stipulated in the exchange.
If the index falls to 10,500 points when the settlement is due, the value of this call is equivalent to 500 points. After deducting the cost of 55 points, the profit is 445 points, which is equivalent to the profit of +89000 yuan, and the profit is nearly +800%.
But if the index settlement falls at 9950, then the call is worth nothing, equal to 11,000 yuan, a loss of -100%.
From this case, we can see the four characteristics of the option:
1. High leverage, high risk, easy to make big losses
2. Can do more or short
3. The buyer has a limited loss, but there is no limit to profit, and the risk is limited. However, because of the need to pay royalties, the probability of loss is usually high.
4. The seller has unlimited losses, but the profit has a ceiling and bears all risks. The upper limit of the profit is the total amount of the premium, which usually has a high probability of profit.
Through the process of buying and selling, the option can pass on the risk of investment ups and downs,
which is its biggest feature.
What are the options?
The option is also called derivative financial product, because it is a contract to trade another financial product.
These corresponding financial products are called targets, and usually have the following categories:
- Stocks (such as TSMC)
- Indexes (such as weighted indices)
- Commodities (such as gold)
- Foreign exchange (such as the US dollar against the RMB exchange rate), etc.
In Taiwan, the most commonly traded are index commodities (the Taiwan index period, the small Taiwan index). The stock option is very developed in the United States.
However, because of the small trading volume in Taiwan, only some stocks with large market capitalization are relatively hot.
Call and Sell (Put), Buyer (Buy) and Seller (Sell)
These two groups of nouns are easy to confuse because they are bought and sold when translated into Chinese, but if you look at it in English, it is clear:
Call and sell (Put) represent "type of contract"
The buyer (buy) and the seller (Sell) represent "the parties to the contract"
Because Chinese is relatively circumventing, so generally we use English when we talk to our friends about choices.
There are four basic ways to buy and sell options:
Buy call (buy call): think that the future will rise (bullish)
Sell call: I think that the future will not rise (not going up, bearish)
Buy put (buy and sell): think that the future will fall (bearish)
Sell put (buy and sell): think that the future will fall (not to fall, bullish)
According to different fulfillment prices, various combinations will be extended, for example, a bullish 200 points but will not rise more than 500 points. This combination can be easily achieved with the option.
Is the buyer's loss limited and safe? Is it dangerous for the seller to lose money indefinitely? NO
There are buyers and sellers in the option contract.
The seller’s loss is infinitely risky. It seems to be dangerous. Is there anyone else to be a seller?
Of course, because any transaction will be sold because both buyers and sellers find it cost-effective.
Although the seller has no upper limit on risk, when the seller thinks that the possibility of future losses is greater, he will tend to accept more expensive rights to be willing to close the contract.
Similarly, the buyer seems to have no risk, but he will have to pay expensive royalties at the beginning. Cost, so ultimately it is not necessarily profitable.
The buyer is not safer, and the seller is not at risk,
depending on whether your judgment on the future is accurate.
Will the choice be dangerous?
In the past, Mr. Market just said to others: "I operate futures and options."
Usually others will say, "Is that dangerous?"
Is the choice dangerous? Indeed, the choices fluctuate greatly
It is quite normal for the option to go up and down 50% in many cases.
In the 2018/10/11 platform, it once fell 831 points a day. The whole market is close to 8%, and the intraday option has more than 3,000%. The weekly option has seen a +16,000% increase, while the call has almost fallen by 90%, and even fell 99% worth one day.
Is volatility a big risk? actually not
Lotto volatility is also very large, earning 500%, thousands of percent, but not 100% of the loss, the key is that you will not buy all the lottery to buy lottery, if the ratio of invested funds to total assets is small In fact, the risk is not big.
The biggest risk of investing is people. If you don't know what you are doing and what you are profiting from, you are taking a huge risk. - Mr. Market
In fact, the right to choose is a very important "safe haven" commodity.
For example, the asset manager who holds tens of billions of shares in the hands, but believes that there may be a risk of a small chance of falling in the short term.
At this time, if the stock is bought back, in order to avoid the impact of the market too much, it will take several days to sell slowly, and also pay high transaction costs.
But through the right of choice, it is possible to achieve the same effect with a small amount of money, and it is easy to buy and sell.
Any tool has its use, see how you use it
Driving a car is dangerous. What should I do if I hit it? It’s dangerous to take the plane. What should I do if I fall?
But if used properly, these tools can help you reach some distant destinations without using these tools. Going to a place may be impossible to walk or row.
There are no good or bad tools, but they need to be used correctly. The more tools you have, the more opportunities you have to solve.