On September 19, 2022, the new varieties of options in the Shenzhen market-GEM ETF options (the target is ChiNext ETF, code 159915), and CSI 500 ETF options (the target is CSI 500ETF, code 159922) were listed for trading. In order to help investors systematically understand the features of option products, rationally participate in option transactions, and effectively improve risk management capabilities, the Shenzhen Stock Exchange and market institutions have launched a series of serial articles on the "Options Market Entry Manual". Today is the 6th issue, let us take a look at the main uses of options!
Why do options have an insurance function?
Investors can use options as an insurance tool to hedge market risks.
The insurance function of options is mainly divided into two types:
The first and most common one is that when investors buy or hold the underlying securities, they buy a corresponding number of put options to provide protection against the decline in the price of the underlying securities. When the price of the underlying securities falls, investors can still sell the underlying securities according to the agreed price, achieving the purpose of hedging risks and realizing the insurance function of options; when the price of the underlying securities rises, investors can still enjoy the rise of the underlying securities profit.
The second is that when investors sell the underlying securities in securities lending, in order to prevent losses caused by the rise in the price of the underlying securities, they can buy a corresponding number of call options at the same time to provide insurance for the rise in the price of the underlying securities.
Why options can improve investment efficiency?
Investors can buy options with a small premium, and have the opportunity to obtain the benefits brought about by changes in the underlying price, thereby improving investment efficiency.
For example, Xiao Zhang and Xiao Wang both believe that a certain ETF with a current price of 4 yuan/share will rise, Xiao Zhang directly buys the ETF, and Xiao Wang buys the ETF with a premium of 0.2 yuan/share at an exercise price of 4.5 yuan/share. shares of call options. If the ETF rises to 5 yuan per share when the contract expires, Xiao Zhang's return on investing in the ETF is 25%, while Xiao Wang's return on buying options is 150%. Using options, Xiao Wang obtained higher investment efficiency.
Analysis of Xiao Zhang and Xiao Wang's investment income:
Why can options enhance the returns of the underlying position of the option?
When investors hold the underlying options for a long time, if the probability that the price of the underlying options is expected to rise sharply in the future is limited, they can build a covered strategy to enhance the position income.
For example, investor Xiao Zhang bought the CSI 300 ETF (price 4.029 yuan) on a certain day, and planned to sell it at 4.2 yuan in the future. Investor Xiao Wang sold the CSI 300 ETF with an exercise price of 4.2 yuan For the Shenzhen stock options contract "CSI 300ETF Buy X Month 4200", the premium is 0.0188 yuan. When the contract expires, the ETF rises to 4.184 yuan, which has not reached the strike price. Xiao Zhang obtained the income from the rise of the ETF, and Xiao Wang also obtained the income from the option premium in addition to the income from the rise of the ETF.
Analysis of Xiao Zhang and Xiao Wang's investment income:
Investors can use the covered strategy to enhance position returns. When investors hold the underlying option, if the probability of the price of the underlying option is expected to rise sharply in the future, they can sell out-of-the-money call options with a higher strike price to collect premium income, that is, the covered strategy, and strengthen the spot position income. If the spot price does not rise when it expires, the option will generally not be exercised, and investors will earn premium income; if the spot price rises sharply on the expiration date, exceeding the exercise price, the call option sold will be exercised. Investors sell the underlying options they hold at a higher strike price, and they have already obtained the benefits brought about by the rise in spot prices.
Since the covered strategy uses the underlying spot held by investors as a guarantee, there is no need to pay additional cash deposits. Therefore, under normal circumstances, there is no need for daily mark-to-market, and there is no risk of forced liquidation.
Why can options reduce the underlying purchase cost?
When an investor wants to buy the underlying of the option at a certain price, he can sell the put option at the strike price. When the sold option is exercised, the investor can buy the target at the price, realizing "buying at a low price" and earning the premium at the same time. When the sold option is not exercised, the investor gets the premium and reduces the target purchase cost.
For example, a landlord is worried about the future decline in house prices and wants to sell the house for 5.5 million. The only viewer, Xiao Chen, hoped to buy the house with a budget of only 5 million yuan. At that time, Xiao Chen and the landlord had not reached an agreement. Xiao Chen signed an agreement with the landlord. Xiao Chen sold the landlord a right for 50,000 yuan. After 3 months, the price of the house fell below 5 million, and Xiao Chen was obliged to buy the house for 5 million. If after 3 months, the house price really drops below 5 million, and the landlord exercises his rights, Xiao Chen bought the house at the expected price of 5 million, and also received 50,000 yuan in royalties. If the house price is still more than 5 million yuan after 3 months, Xiao Chen has received 50,000 yuan in royalties, which can also be used to subsidize the cost of buying a house.
Why can options be used as a tool for trading underlying price fluctuations?
When investors invest in stocks and futures, they generally can only make profits by judging the direction of price rise and fall; while investing in options, they can also judge the volatility changes of the underlying price (such as big rises and big falls, small rises and small falls, no rises and no losses). fall) profit.
