Banking. Options: general characteristics, properties and basic option strategies (the most important)

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Banking. Options: general characteristics, properties and basic option strategies (the most important)

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Topic 65. Options: general characteristics, properties and basic option strategies

An option contract is an agreement according to which one of its parties, called the owner (buyer), acquires the right to buy (sell) any asset at a set price before or on this date specified in the future from its other party, called the subscriber ( seller), or the right to refuse to execute the transaction with the payment for these rights to the subscriber of a certain amount of money, called a premium. An option that gives the right to buy an asset is called a call option or call option. An option that gives the right to sell an asset is called a put option, or put option. The asset underlying the option always has two prices: the current market price, or the spot price and the exercise price fixed in the option. The option has an expiration date. Options are divided into exchange and non-exchange options.

Stock options are concluded only on exchanges, are fully standardized, have a short-term character (3 months - a year). Non-exchange options: their market is formed by dealer banks. They are divided into long-term and short-term. The main types of long-term non-exchange options are options "caps" and "floras". The need for them is associated with the need to conclude options for a long period (3-5 years).

There are interest, currency and commodity caps and floors.

Stock Options. Typically, the exchange establishes a list of companies that may be the subject of option contracts. Stocks that are allowed to enter stock options are generally the most liquid. The standard construction of a share option: - the size of the option (1000 shares), - the price of the option, - the minimum change in price, - the minimum change in the value of the contract, - the period for which the option is concluded, - the exercise of the option (physical delivery of shares at the strike price of the option).

Interest Options - These are options based on changes in the price of various debt obligations.

Currency Options, which are based on the change in the rates of freely convertible currencies in relation to the national currency.

Options on futures contracts - These are options concluded on existing types of futures contracts.

Authors: Shevchuk D.A., Shevchuk V.A.

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