2014년 9월 24일 수요일

[Simple explanations of] the basic concept of options contracts

※ 발췌 (excerpts): 
Options contract

An options contract is nothing but the right to buy or sell something at a specified price within a period of time. The features of the options contract for a buyer is that, [:] 
  • the buyer has the right to buy, but he may choose to buy or may even choose to cancel the contract. Hence the buyers maximum loss in only the initial amount that was paid to gain the rights. 
  • Unlike buyers, the options contracts for sellers is an obligation. If a seller enters into an agreement, he has to deliver the asset on the specified date and the price agreed upon. The the loss for a seller could be much worse.

The right to buy is called a "CALL" option while the right to sell is called a "PUT" option. Please note that [:] 
  • an option is only a right to do something. It is not an obligation to carry out the action. For a buyer it is only a right and not an obligation, but for a seller it is an obligation.
For example, you want to buy Gold. You form an options contract with a Gold merchant to buy 1000 grams of Gold at the rate of[,] say[,] Rs. 1000 per gram of gold on December 1st 2008. The total value of the contract would sum up to Rs. 1,000,000. As part of getting into the contract you make an initial payment of[,] say[,] 2% of the contract value to the merchant. You make a payment of Rs. 20,000 and the contract gets formed. Now you are the buyer and the merchant is the seller.

Now there could [be] two possible scenarios: 

1. Assuming on 1st December the price of gold is Rs. 1050 per gram, then to buy thousand grams of gold you would need Rs. 1,050,000 which is Rs. 50,000 more than your options contract. Hence if you exercise your right to buy, you stand to make a profit of Rs. 50,000. At the same time, the seller has an obligation since he has agreed on the contract and he has to sell the gold to you at a loss of Rs. 50,000 when compared to the market rate.

2. Assuming on 1st December the price of gold is Rs. 950 per gram, the to buy thousand grams of gold you would need Rs. 950,000 which is Rs. 50,000 less than your options contract. Hence if you exercise your right to buy, you stand to lose Rs. 50,000. You can buy the same quantity of gold in the market at a lesser price. Hence you can choose to let your contract expire and limit you losses to only Rs. 20,000. The seller on the other hand does not make any transaction but still stands to keep the Rs. 20,000 you paid him to form the contract.

This 1000 rupees per gram that you agreed upon with the merchant is called the "Strike" Price. The initial deposit of Rs. 20,000 you paid him is called the "Options premium".

Participants in an Options market:

1. Buyers of Calls
2. Sellers of Calls
3. Buyers of Puts
4. Sellers of Puts

People who buy options are called "Holders" and those who sell options are called "Writers".
  • Call Holders and Put Holders (The Buyers) are not obligated to buy or sell. They have the right to do so if they wish. 
  • Similarly Call Writers and Put Writers (The Sellers) are obligated to buy or sell. This means that they need to buy or sell if the Call holders deciders to exercise his right to buy.

자료 2: https://www.tradeking.com/education/options/basics-of-options

For each call contract you buy, you have the right (but not the obligation) to purchase 100 shares of a specific security at a specific price within a specific time frame. A good way to remember this is: You have the right to “call” stock away from somebody.

For each put contract you buy, you have the right (but not the obligation) to sell 100 shares of a specific security at a specific price within a specific time frame. A good way to remember this is: You have the right to “put” stock to somebody.


자료 3: http://www.answers.com/Q/Difference_between_put_option_and_call_option

The holder/purchaser/owner of a call option contract has the right to buy an asset (or call the asset away) from a writer/seller of a call option contract at the pre-determined contract or strike price. 
  • The holder/purchaser/owner of a call option contract expects the price of the underlying asset to rise during the term or duration of the call contract, for as the value of the underlying asset increases so does the value of the call option contract. 
  • Conversely, the write/seller of a call option contract expects the price of the underlying asset to remain stable or to decline. 
The holder/purchaser/owner of a put option contract has the right to sell an asset (or put the asset) to a writer/seller of a put option contract at the pre-determined contract or strike price.
  • The holder/purchaser/owner of a put option contract expects the price of the underlying asset to decline during the term or duration of the put contract, for as the value of the underlying asset declines the contract value increases. 
  • Conversely, the writer/seller of a put option contract expects the price of the underlying asset to remain stable or to rise.

CF. Chapter 3. Mechanics of the Options Markets (Montana.edu)


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