Sell ​​option. What are options? What is a put option

An option is a security that gives the right, but not the obligation, to purchase or sell an asset at a predetermined price during the validity period of the document. There is a difference between an option to sell and buy an asset. Despite the fact that they differ slightly from each other, the methods of their use are completely different.

What is a put option?

Such a document gives its owner the right to sell the underlying asset. The strike price is agreed upon in advance and does not change throughout the entire period of the contract, regardless of the state of the financial market.
The seller of the security is obliged to fulfill this right, i.e. acquire the agreed asset from the buyer, or compensate for the amount of profit that he could receive from the act of purchase and sale. In the options market, it is more common to call such securities put options.

The seller takes on a certain risk, because he may suffer large losses if the price of the asset changes not in his favor. Brokers take such a step only because of the premium that is paid at the time the transaction is concluded. The option premium is equivalent to the risk taken by the seller and averages from 6 to 9%. In some cases, the premium may be greatly increased, for example, if the strike price of the underlying asset does not correspond to the actual market situation.

Types of put options

Depending on the type of underlying asset, all options can be divided into exchange, currency and commodity.

Exchange put options

This name does not mean at all that documents are circulated only on global exchanges. In fact, the participants in the transaction may not even be involved in professional markets. The bottom line is that the subject of the agreement is various types of securities, most often shares of large companies.
At the moment, this type of agreement is the favorite way to earn money for many traders, because it is much easier to predict the behavior of stock prices than goods or currencies. After all, the work of most companies is completely visible to ordinary people, and the basic law of economics states that any action of a company can be reflected in the price of its shares.
In addition to making a profit, they are often used for hedging - reinsurance of funds invested in one financial transaction by another financial transaction.

Currency option

As the name implies, such a put option gives the right to purchase foreign currency. Sometimes they are called FX options, i.e. FOREX, because it is in this market that they are sold most often.
Since the favorite way of trading is to buy and resell currencies, currency put options are especially popular. They are most often used to hedge large balances. With the help of such an agreement, a trader can, in the event of a currency collapse, get back the funds he spent on its purchase.

Commodity put options

They are often confused with futures and forward transactions. They give their owner the right to sell goods, for example, minerals, valuable metals and stones, crops.
Traders purchase them again for hedging. Also, such securities are often purchased by commodity producers who act as the producer of the underlying asset. Most often, manufacturers of seasonal or low-expiration products are involved in this. In this way, they reinsure themselves not only against financial losses, but also against damage to goods: in some situations there is no question of making a profit, the main thing is to at least return the invested funds.

Application of put options

As you already understood, contracts can be used for two purposes: making a profit and hedging.

Receiving a profit

When purchasing a put option, a trader relies on fluctuations in the value of an asset, which can have a positive impact on his own financial position. A deal is concluded if the buyer is confident that the price of the asset will soon decrease.
This type of investment is very convenient because, in fact, there is no need to spend any money; in most cases, the trader and the seller enter into settled options, as a result of which one party simply pays the profit to the other if the outcome of the transaction is unfavorable. A put option is one of the few ways to make money by decreasing the value of an asset rather than increasing it.

Example:
The behavior of the financial market indicates an imminent decline in the value of shares of one large company. An experienced trader, deciding to take advantage of this, purchases a put option. The seller of a security undertakes to buy from the trader a designated number of shares at the currently valid price, say, 500 rubles per share. The maximum possible number of shares sold is 1000 pieces.
Since the seller of the security also monitors the market, he knows about the possibility of an imminent decline, so he sets a fairly high option price - 8% of the investment amount. It turns out that the buyer must pay 1000 rubles (option price) * 500 pieces * 8% = 40 thousand premium rubles.
The deal is concluded, and soon the shares really begin to fall in price. At the time the option is executed, their price is already 425 rubles, that is, it has fallen by as much as 15%. The trader buys shares of the company at this low price, fortunately, due to such a sharp decline there are many people who are happy to get rid of an unprofitable asset.
The trader then sells those shares to the option writer at an agreed upon price. His profit will be equal to 15% increase - 8% premium = 7% of the amount he spent on buying the stock at the old price, i.e. 35 thousand rubles.

Investment hedging

Hedging is an integral part of a competent strategy for playing on the stock exchange. Experienced players are increasingly less likely to invest large sums in currencies or stocks without additional reinsurance. In an ideal scenario, the investor should not use the acquired right at all. This means that his strategy turned out to be correct, and there was no need to use escape routes.
The option premium significantly reduces the possible profit if the outcome is favorable, but such a transaction reduces the chance of possible losses.

Hedging can also include the acquisition of commodity options by producers of these same goods.

Example:
A small manufacturer of a certain type of product is experiencing difficulties: due to the financial crisis, the demand for its products has fallen sharply and the chance of the next batch not being in demand is very high. For reinsurance, the company purchases an option to sell its products at a price slightly below the market price. Thus, she can lower the strike price due to the fact that the contract must be long-term (2 months), and because of this, the seller of the security has the right to increase the premium level: it will simply be unprofitable for the manufacturer to enter into such a contract. The indicated price covers the cost of production and even gives a small profit of 20% of it. The option price is equal to 8% of the cost.
The subsequent batch of goods actually turned out to be unclaimed and in order not to go bankrupt the company had to use the previously purchased document. It not only covered the cost of the goods, but also made it possible to receive, albeit small, a profit of 12% of the cost, i.e. 20% - 8% bonus. This income allowed the company to operate for several more months.

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Buy option- a stock market instrument that, together with futures contracts, belongs to the category of derivatives. The name is due to the fact that the value of these assets is calculated as a derivative of the price of the underlying instruments (securities).

Buy option: types, place in classification

Speculators (exchange players) acted as developers of option contracts. Their task was to create an instrument that would guarantee the purchase (sale) of a certain product at a fixed (agreed) price, and also provide income when the value of the instrument changes in the desired direction.

Each option is often based on different financial assets. In particular, these include currency, interest rates, stock market indices, stocks, and so on. The most popular options are those with stocks as the underlying instrument.

All options are divided into two categories:

- call options (English name - Call option)- instruments that provide the right to purchase an asset in a certain volume (quantity), within a specified period and at a price agreed upon by the parties. In this case, the party acting as the seller of the contract undertakes to implement the terms of the contract (that is, sell the goods) if the buyer requests it. the transfer of an asset can occur both on the expiration date (the date specified in the agreement) and before execution.

A market participant who buys a call option expects the underlying asset (index, stock, currency, etc.) to rise in the future. As a consequence, a call option can only be executed when the price specified in the agreement is lower than the value of the asset established on the market;

- put options (English name - Put option)- the second (opposite to the first) instrument. allows the buyer to sell. In this case, we are talking only about a right, not an obligation. The time when the transaction can be completed and the value of the asset are specified in the agreement of the parties. As in the previous case, only the seller has an obligation. The latter must fulfill the contract if there is a desire on the part of the buyer. The transaction can be executed directly on the expiration day or before it.

When executing a trade, the holder of a put option hopes that the price of the underlying asset will decrease. As a result, the Put option will only be executed when the price specified in the contract is higher than the actual market price.

Of the described instruments, call options are more popular. They can be of two types (according to design features):

- American – style option- American type contract. Its peculiarity is the freedom of maturity of the instrument. That is, the option can be exercised or redeemed before the date specified in the agreement, that is, almost at any time;

- European – style option- European type contract. Unlike the “American” version, in this type of instrument execution is possible only on the appointed date.

All call options can be divided according to the type of underlying asset. There are several options here:

- call option on currency. Here the main asset is the monetary unit. The most popular are euro, US (dollar), pound sterling and so on;

- call option on stock assets, namely for shares of certain companies. If you wish, you can work with a complex option - a call contract on the index;

- call option on goods. Such an instrument is a chance for a market participant to become a holder of a certain commodity - gold, oil, silver, and so on.

For an American option, the end date on which the contract must be exercised and the expiration date for a European option is the Friday before the 3rd Saturday of the month. For example, in the United States, with an option in hand, he can instruct his broker to present the contract for execution by 16.30 pm. The broker, in turn, has a time reserve until 10.59 the next day.

Buy option: characteristics, features

Due to its wide possibilities, ease of use and prospects for good earnings, the call option has become widespread among investors. There are always two parties involved in a transaction - the holder (buyer) of the option, as well as the seller of the instrument. The parties to the transaction have great differences in terms of exercising their rights. Thus, the seller of a call option must sell if the buyer requests it. The second party to the transaction (the buyer) only has the right to buy the asset (not the liability).

Due to the high risk of changes in the value of the underlying option asset, the seller takes a lot of risk. To compensate for the risks and interest the seller in completing the transaction, the buyer provides him with a bonus - a certain amount that will remain on hand in the event of a refusal by the receiving party.

When making a call option transaction, there are several points to consider:

The execution cost (strike price) is the amount that the buying party transfers when purchasing the underlying asset;

What are options in simple words?

Option- one of the most complex financial instruments traded on the stock exchange. An option is the name of a contract in which the subject of trade is not the asset itself, but the right of first refusal to sell or purchase it. Now the main thing is not to confuse options with.

An option is

An option (from the Latin “optio” - choice, opportunity) is a contract according to which one party has the opportunity to receive the underlying asset, and the second has the obligation to provide it, and vice versa.

The essence of an option is the ability to buy (Call) or sell (Put) an underlying asset at the prices you choose.

By doing this, you kind of buy the opportunity to perform an operation with an asset later at predetermined prices. This price will be the purchase price of the option, it is called strike. Each option has its own expiration date - you can’t put off the deal forever. The option expiration time is called expiration, at this point you either exercise the terms of the option, or the option remains unexercised. This feature is not free, to have it, you need to pay the so-called option premium. The premium itself is not a constant amount and depends on the strike price and the market price of the underlying asset, which is constantly changing, as is the option premium, respectively.

As mentioned above, options can be bought and sold, and profits are generated due to the price difference between the strike price and the underlying asset.

Video - What are options in simple words

Below we will take a closer look at the essence of how options work in practice.

The history of options dates back to 1630. In those days, there were futures and options for the purchase and sale of tulip bulbs. These fixed-term contracts made it possible to trade with people who did not have the means to purchase even one onion. The first options on shares of enterprises appeared in the first half of the 19th century and they were traded on. To UnitedStates options came already in the second half of the 20th century, and by the beginning of the 21st century the international options market took on the diverse appearance that we can observe today. Its platform is also considered to be extremely advanced in terms of trading options.

What are options today?

Considering options as an instrument traded on the derivatives market Moscow Exchange, it is necessary to analyze the very specifics of the operation of this asset. First of all, you need to understand that this is the same contract as a futures, but unlike it, an option is a right, but in no case no obligation.

There are two types of options: American And European. The difference is that American options allow you to request exercise at any time during its existence, while European options allow you to do this only on a specific date. On the Moscow Exchange all options are American, so we will consider this type.

A small abstract example will help you understand the essence of options:

Imagine that you met an attractive girl in the elevator this morning.

A chiseled figure, large sensual eyes and a charming smile. During the ensuing unobtrusive conversation, you find out that she really likes the restaurant, which is a couple of blocks from your house. Let's say that your conversation has grown into something more, and you have invited an amazing stranger to spend the evening at this restaurant. But she has a very busy schedule and she doesn’t know whether she’ll make it or not. After saying goodbye to her, you immediately call the restaurant and try to book a table for the evening. But the manager of the establishment tells you that they do not offer free reservations and the only option is to pay a certain amount in advance as a deposit. You agree and pay.

This is roughly what the situation with purchasing an option looks like.

You get the right to use some asset, for example, to go to a restaurant in the evening, but you don’t know whether you will go or not, because there is always a chance that the stranger will turn off the phone and never call back. Let's remember this example and start analyzing the mechanics of options.

In general terms, options involve buying the right to buy or sell a specific instrument from your counterparty, without him having the opportunity to refuse you.

How options work

Example. You think that Sberbank shares will rise, but you are not confident enough to simply buy these shares. You can buy an option to supply these shares for a specific period during which you predict growth.

• Your counterparty will be obliged to sell you Sberbank shares at the price that was fixed in the contract.

When concluding this transaction, you pay a security deposit ( pledge), as in , however, if you make a mistake and the Sberbank shares fall, there is no point in you buying these shares at a loss and you simply do not exercise your right, leaving collateral to the counterparty.

Thus, your risk is limited by collateral, and the risk of the seller of this option is limited increase in asset price.

That is why large market makers who are able to bear such risks most often act as sellers of options. In turn, both large players and small speculators act as buyers of options.

Video about what options are and how they work

Types of options transactions

In total we can conclude FOUR options transactions on the same asset. For simplicity and clarity, let’s take as the underlying asset futures on. In options there is a concept “ strike" This is the target price at which the option is expected to be exercised. The option itself is a derivative instrument and traders themselves issue the number of contracts they need, just like futures.

An interesting detail is that on the Moscow Exchange all options supply commodity futures, or stocks and indices. There is no delivery of shares in kind, as well as currency - only a settlement contract Si - for the dollar and Eu - for the euro.

• The first type of transaction is buy call option(Kol)
• Second type - sell option Call
• Third type - buy put option(Put)
• Fourth type - sell put option

Now it’s worth taking a closer look at these deals.

Option Call we buy, when we think that the index will grow in the future, but now it is cheap. Now it costs 500 points, and we expect a price of 1000. By buying an option, we get the opportunity to buy RTS at a price of 500, at the moment when its market value is equal to 1000.

Sell ​​call option should be done if we are sure that the index will not rise, and we assume that the counterparty who bought the option from us will not contact us for its execution and will leave us his collateral.

Transactions with the put option type occur in a mirror manner. We use this tool if we expect the RTS index to fall. Today it costs 1000, we buy a put option, with a strike of 1000. Thus, when the index costs 500, the counterparty will be obliged, upon our request, to buy this index from us at a price of 1000.

Selling a put option, we are still limited in profit only by the amount of collateral that will remain for us if the counterparty does not contact us for execution.

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The meaning of the option is that the trader is given the opportunity to make a transaction with the assets he owns not immediately, but after some time, when the price of these assets reaches the required level.

Options, what they are, definitions and concepts

An important feature is that the presence of an option only provides right to enter into a transaction on the required conditions, but does not guarantee the occurrence of such conditions in fact.

The price determined by the option is called strike. In this case, literally any financial instrument can be used as an asset: futures, shares, currency, etc.

An option cannot be valid indefinitely, since an expiration date is assigned to it, i.e., a date of withdrawal from circulation. Upon the expiration date, the option is either exercised under existing conditions or terminated.

Since an option is essentially a service on the financial market, it must be paid in a certain way. The option fee is called option premium and depends both on the terms of the agreement and on the current market situation.

The greater the gap between the stated strike and the actual price on the market, the greater the option premium will be.

Accordingly, the value of the option may change over time. It is the change in the value of an option that attracts attention to it, since speculative transactions with it can bring tangible benefits.

Main types of options

The division of options into individual types can be carried out according to many parameters, but the most important in trading practice is the division into two categories: by action and method of execution.

Because any trading involves only two options (buy or sell), then options by mode of action are divided into two types:

Call options (in English - call option) are a service that grants the option holder the right to make a future purchase of assets of interest at a pre-agreed price.

Options of the “put” type (English put option) give their owner the right to sell, within a specified time frame, the assets on his balance sheet and specified in the terms of the option at a given price.

The type of option you need depends on the strategy you are using. When the goal is to protect assets from falling, put options are purchased for this purpose. If trading is carried out on a bearish basis, then the positions of your assets can be maintained using call options.

By method of execution options are divided into three categories:

1. American options - the option holder has the right to enter into a transaction at any time before the expiration date.
2. European options – the terms of an option contract can only be exercised after a specified period of time.
3. Asian options that are executed at a price calculated as a weighted average of prices that appeared on the market from the moment the option was purchased until the date of the transaction.

In addition, there are two more types of options in exchange practice: long-term and exotic.

The first ones are intended for making long-term investments and are characterized by an extended validity period of more than a year. Exotic ones are characterized by the presence of special conditions of the option contract.

An example of exotic options are options that allow their holder to choose the execution method: either as a call or as a put option,

The difference between futures and options

Binary options

Among the variety of types of option contracts, binary options occupy a special place, which are extremely convenient for expanding your portfolio of assets.

Their peculiarity is that options are traded with only two options for the outcome of the transaction: either a loss or a win. It is precisely because of the presence only two transaction options Binary options are where they got their name.

To make a profit from binary options, a trader most often only needs to predict the general direction of the market movement. Qualitative and quantitative factors are not taken into account.

Some of the attractive features of binary options for a trader include the following:

• availability, because opening a special account for working with binary options takes literally a few minutes;
• high profitability, practically guaranteed by the ability to conclude contracts for the shortest terms, during which the market simply does not have time to turn around;
• no need to make significant investments. Many brokers offer binary options that cost even $10, which is absolutely not burdensome for traders of any level.

Options trading in the Russian Federation (FOTS market).

In the Russian Federation, the main platform for transactions with option contracts is the FORTS market. Like other exchanges of a similar profile, trading on FORTS is carried out using a specialized trading platform, which in this case is the QUIK system.

Options trading on the FORTS market can provide profitability at a very high level, since this trading platform has a number of advantages from a trader’s point of view:

• no need to have serious capital to enter the market;
• high level of reliability and information security;
• the presence of a large shoulder;
• small commission;
• the ability to diversify investments, use free borrowed funds and hedge risks.

Some restrictions only affect the specifics of closing an option. Thus, an option position can be closed forcibly if the exchange increases the volume of collateral.

However, in general, the FORTS market is quite convenient and profitable, since all restrictions on options trading are agreed upon in advance, predictable and not burdensome for the trader.

For a detailed study of options, you can watch the video recording of the webinar.

What types does it come in, and how is this tool used to make money by private investors and traders.

The concept of “option” can often be found in stock market reports or even ordinary economic news. In order to correctly interpret this news and understand the meaning they carry, every person, for his overall development, must know what an option is.

What is an option?

The very concept of “option” has been known for a long time; it appeared much earlier than those binary options that are so popular today in the field of exchange earnings. The term “option” comes from the Latin optio, which means “choice, desire, discretion.”

An option is a contract according to which one of the parties acquires the right to buy from the other party or sell to the other party a specified quantity of any exchange asset within a specified period (a specific time or period of time). A very important point: an option implies the right to buy/sell, and not an obligation!

The option contract necessarily includes the following points:

1. Name of the transaction asset;

2. Quantity (volume) of the transaction asset;

3. The time or period of time in which the transaction can be completed;

4. Transaction type (purchase or sale);

5. Transaction price – the contract execution price, it is also called the “strike price”.

The concept of “option contract” does not necessarily mean that it is some kind of printed agreement with seals and signatures of the parties (although this option is also possible). In practice, electronic forms of options are now used, which can be bought and sold only by pressing a button in the exchange terminal. Previously, options were issued in the form of securities; an example of such an option is shown in the picture at the beginning of the article.

The value (price) of the option or option premium determined based on the current market situation and forecasts. As a rule, it is expressed in quote points of the monetary asset on which the option is purchased (2 points, 5 points, 20 points, etc.), but can also be expressed in monetary value.

Now that we know what an option is, let's move on to a more detailed consideration of it.

Types of options.

There are only 2 main types of options, based on the direction of transactions that are planned to be carried out with their help:

1. Call Options– A contract giving the right to purchase goods.

2. Put Options– A contract giving the right to sell goods.

There are also different types of options based on their functionality:

1. European type option (European option)– gives the owner the opportunity to exercise his right to buy/sell an asset exclusively on a specific day – the last day of the option contract.

2. American type option (American option)– gives the owner the opportunity to exercise his right to purchase/sell an asset on any day during its validity period, including the last one.

3. Asian type option (Asian option)– gives the owner the opportunity to exercise his right to buy/sell an asset on any day during its validity period, but at the weighted average price for the entire period of validity of the option.

Application of options.

The use of options in stock trading is carried out to achieve the following goals:

1. Risk hedging. By purchasing an option, a trading participant insures himself against possible losses on a transaction that he plans to make in the future. The cost of the option is the payment for such insurance.

Let's look at an example: The current share price is $100. The investor plans to buy this stock in a month (when he has cash inflows), but is afraid that the price may rise. To hedge the risk of price growth, an investor buys a call option for $100 per share for a month, paying, for example, $2 for it. If after a month the stock price becomes, say, $110, he exercises his option and buys it anyway for $100. Taking into account the option premium, the purchase costs $102. At the same time, if he wants, he can immediately sell the share at the market price of $110 and earn $8. If after a month the stock price, say, falls and becomes $95, he does not exercise the option right and buys it at the market price for $95. Taking into account the option premium, the purchase costs $97.

Another example: An investor buys a share for $100 and wants to insure himself against a fall in its price over the course of a month. He buys a put option to sell this stock for the same $100, paying a premium of $2. Let's say a month later the stock price drops to $90. The investor then exercises the option and sells his security for $100 (minus the option premium, he actually receives $98). At the same time, he can immediately buy the same share for $90, earning $8. Even if the issuing company goes bankrupt and the stock price falls to zero, the investor can also exercise the option and sell it for $100. And if the price per share in a month, say, rises to $110, the investor will not lose anything, only earn a little less, taking into account the option premium.

2. Speculative earnings. By purchasing an option, a trading participant can sell it to another participant before expiration at a better price, since options are the same exchange assets as real goods, currencies, securities, etc.

Let's look at an example: The current stock price is $100, the option to buy at this price for a month costs $2. A speculative investor predicts that the price of this stock will rise. He buys a call option and waits. Let's say that after 15 days the stock price becomes $105. Then the investor sells his option to buy the stock in another 15 days at a price of $100 for $5. Thus, he earns $3, and the new owner of the option gets the right, after 15 remaining days, to buy the share for $100, paying a total of $105 for it, taking into account the cost of the option.

On stock exchanges and over-the-counter markets, such options transactions are carried out in the thousands every day. That is, options contracts are also a good tool for speculative earnings.

I hope that you understand what an option is, what types of options exist, and in what situations they are used. I think the examples given show this well.

In the future, I will continue to introduce you to the topic of options, in particular, I will consider the currently popular binary options, which, by the way, have significant differences from what an option is in its classical sense.

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