Editor's Note: This article is from OKEx Research, and Odaily is authorized to reprint it.
Editor's Note: This article is from OKEx Research, and Odaily is authorized to reprint it.
When chatting with some investors in the market recently, they always ask some interesting questions:
Investor A: I want high leverage to increase my income without taking the risk of liquidation. Is there such a trading strategy or product? (high leverage + no/low risk)
Investor B: Every time there is a profit or loss, I will struggle with whether I need to close the position. It is too difficult to set a stop profit and stop loss in digital asset contract trading. Is there an easy way to ensure a stop profit and stop loss? (Automatic stop profit and stop loss)
Investor C: Is there a trading strategy or product that can make money no matter the market rises or falls in the future? Even losses are limited? (two-way profit + low risk)
In the past, the above idea seemed impossible. However, with the introduction of option products in the encrypted derivatives market, these wishes can be realized: investor A can buy call or put options; investor B can use bull market or bear market spread option combination strategy; investor C can use straddle Option combination strategy.
It can be seen from the above that option products provide the market with more trading options and investment strategies. If the birth of the contract has completed the breakthrough of the encrypted derivatives market from 0 to 1, then the emergence of options has realized the leap of the encrypted derivatives market from 1 to 10 in breadth and depth. Now, let's briefly talk about the upstart in the encrypted derivatives market --- options.
In the encrypted derivatives market, we often encounter digital asset contracts. Compared with digital asset contracts, the design of option products is more complicated and pricing is more difficult. Generally speaking, options products can be divided into two basic types:
Among them, for the convenience of expression, we generally call a call option (call option) as a buying option, and a put option (put option) as a selling option. The specific price mentioned in the above definition is called the exercise price (exercise price) or the strike price (strike price), which is generally represented by the capital letter K, and the specific time is called the expiration date (expiration date) or maturity (maturity), which is represented by Indicated by capital letter T.
Whether it is a call option or a put option, it can be divided into European Option and American option. Among them, the American option means that the option holder can choose to exercise the right at any point before the expiration date; the European option must choose whether to exercise the right before the expiration date. Generally speaking, we use the uppercase letter C to indicate the right to buy European options, the uppercase letter P to indicate the right to sell European options, the lowercase letter c to indicate the right to buy American options, and the lowercase letter p to indicate the right to sell American options.
The above terms are the key elements in options. In order to better let readers understand the meaning of these, we use a story in the "Bible... Genesis" to illustrate. According to the "Bible" records, Jacob is the ancestor of the Israelites. He met Rachel, the youngest daughter of Haran's uncle Laban, by a well and fell in love with her. In order to marry Rachel, Jacob signed a contract with Laban: Jacob agreed to work for Laban for seven years, and he was allowed to marry Rachel. However, after Jacob worked for seven years, Laban said that there was no rule for the younger daughter to marry first, and asked Jacob to serve him for another seven years. In the end, Jacob worked for a total of 14 years before marrying Rachel. In fact, the marriage license contract signed by Jacob can be regarded as a simple option.
Now let's combine this story with options to analyze the important terms of options:
After mastering the basic concept of options, we need to understand what is an option position.
When many investors first come into contact with options, they will be confused by the complicated positions of options. Like the contract market, any option contract has two parties: one is the long side of the option (that is, the party that buys the option), and the other is the short side of the option (that is, the party that sells the option or writes the option). However, unlike the contract market, there are only two types of positions in the contract market: long positions (buy to open long) and short positions (sell to open short) in the contract; but there are four position forms in the option market:
(1) Long call option (buying call option)
(2) Short call option (sell call option)
(3) Long put options (buying and selling rights)
(4) Short put option (sell put option)
Many investors have a headache when they see these four positions, and they don't know how to distinguish them. In fact, it is most effective to understand the above positions in terms of option returns. Since the current options in the digital asset market are mainly European options, we use the yield curve of European options to reflect the above four positions. According to the symbol setting in the first section, we use K to represent the strike price of the option, S to represent the expiration price of the underlying asset, and f to represent the option premium.
In a call option (buying right), only when the expiration price S of the underlying asset is greater than K, the option holder will choose to exercise the option, otherwise he will not exercise the option; if he exercises the option, he will get the income of SKf; , then there will be a loss of f, that is, the income of a long call option (buy call option) is:
In a put option, only when the expiry price S of the underlying asset is less than K, the option holder will choose to exercise the option, otherwise not; if the option is exercised, the income of KSf will be obtained; The loss of f, that is, the gain of the long put option (buying right) is:
Combined into the following table (S is the underlying price, K is the strike price, and f is the option premium):
