Options
Today I try to explain options so that everyone understands and I will not tell the story. I'm talking about pure options, not warrants, many confuse this.
What are options?
Options are nothing more than a transaction that one sells or buys a contract at a fixed price by a certain date. This does not have to happen approx. 72% of all options expire. That is, for the sale of a call or put you get premium, this loses value over time this is called time value. If the option is not at the strike price, you can close the option profitably. 1 option is always a contract. Side note - option traders like to say that one should look at options like insurance. One receives a premium saves this further and in the case of loss one buys evenly the share, Future or commodity. I will limit myself to stocks and S&P500 Future.
What types of options are there?
There are American options that can always be executed until the expiration date.
The other type is the European option which can be executed only on the expiration date.
What does Put/Call mean?
Put means I sell the obligation to sell me the shares at the stated strike, no matter what price it has then. I.e. the put buyer can always sell me the shares at the strike price even if the share is a total loss.
The call seller sells the right to buy the shares to the buyer at the specified price.
I just said that options can expire worthless. Why does one sell or buy the right ? On the one hand it serves to minimize losses and on the other hand to limit profits. This is done with large investors like Goldman Sachs, JP Morgan etc. and also small investors do it. I would have to digress now but too far let's just say so: The sale of options brings in money that is risky.
What is a Krontakt?
1 contract = 100 stocks (EU, Usa, Canada, and many more)
= 50 S&P500 future
= 5000 bushels (wheat, soybeans, etc.)
These are just a few and I could name more. I have now also only the regulated Krontakte you can trade on any futures exchange enumerated there are still OTC (Over-The-Counter trade) but this is not advisable because of the liquidity.
What is the strike price?
The strike price is nothing else than the fixed price for the sale or purchase should the price of a put be above the strike price, the option is not executed. In the case of a call, if the price exceeds the strike price, the shares must be sold.
There are Greeks in options. Waaaaasss?
Wanted to throw in a little something unnamed and that is the Greeks. There are indicators that use Greek letters.
- Delta = is for the price movement in the time period. E.g. the probability that a -0.001 delta is exercised is so small that one gets here for no premium or too little premium.
- Theta = indicates how much an option loses in time value per day.
- Vega = indicates how the price changes with volatility
- Gamma = measures in principle the delta.
You only need the delta. A low delta indicates in principle how likely it is that this option will be executed. The lower the less likely but also the less premium.
Now a few examples
Put
I sell 1 contract share A at 50$ until the 3rd Friday of the next month (approx. 40 days maturity) at a premium of 0,50.
The price on the expiration day is 55$. Share A is not bought the option expires completely.50$ profit.
The price on the expiration date is 45$ I buy the share 100×45$-50$(premium)=-450$ loss.
Call
I sell 1 contract share B at 60$, same maturity and premium.
The price is at 63$ share would be sold at 6000$ and I have a premium profit of 50$.
The price is at 58$ share would not be written off and you have a premium of 50$.
I would say that is really the basic information you should have even if you are not an option holder. If there is more interest just comment. With questions of course also 😅. I would like to apologize trozdem for my poor explanations, according to my wife I can explain better in the drunken state🤣. Spelling errors are due to autocorrect and my poor talent in writing. Incidentally, there are also options on Bitcoin, etc. However, I do not know myself there maybe knows@oliverplass know more?
I make now still few hashtags and think about what I can explain in the next post.
#koksundnutten
#optionen#rendite
#disziplin
#nopainnogain#derivatives#financial freedom
