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Option School

Views 84592022.07.01

01. What are options?

Have you ever asked the following questions?

I have just bought insurance for my new car. Can I also buy insurance for stocks?
Stock prices are stagnant, how can I improve my returns?
-you know what?It is more expensive to buy first-hand stocks. Is there any other way to reduce the initial investment cost?
The answer is actually very simple: options! What? Never heard of it? It doesn't matter, as long as you complete the part of the option ABC, you will know how to achieve the above purpose.

An option is a contract about decision-making power. The contract holder has the right to decide whether to execute a sale or purchase of the underlying asset (stock / index).

After paying the option money to the seller, the option buyer has the right to decide whether to buy or sell the relevant asset (stock / index) on agreed terms before the expiration of the contract.

After receiving the premium, the seller of the option loses the decision-making right and is in a passive position. If, before the expiration of the option, the buyer exercises the decision to buy or sell the relevant assets in accordance with the terms of the agreement, the seller must fulfill the relevant obligations.

Confused? Don't worry, think about it this way. Suppose a store plans to sell a new watch on November 9, 2012, and no one knows the price of the watch for the time being.

Today is October 8, 2012, and the store now sells a replacement coupon, which holders can buy the new watch for $100 by December 30, 2012. The price of each replacement coupon is $5.

You really want to buy this new watch, so you bought an exchange coupon.

When it goes on sale, if the store sells a new watch for $150, you will use a coupon to buy the watch for $100. The total cost of your watch is $(5 + 100) = $105, which is $45 cheaper than the full price.

But what if the store sells a new watch for less than $100, say, $90?

In this case, because you can buy the watch at a lower price, you will not use the coupon to buy it. However, as a result of the earlier purchase of $5 for coupons, this $5 will still be part of the total cost of buying the watch.

The total cost of buying a new watch is $(5 + 90) = $95, which is cheaper than buying a coupon [$(5 + 100) = $105].

As can be seen from this example, you have the option to decide whether to buy a new watch at a predetermined price. Although you may pay a little more money to buy a watch, you have already confirmed that youHow much money do you have to pay at most?To buy watches. This is very similar to the concept of options.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.