In this article we will talk about real exchange options - highly qualified instruments of the Russian exchange market (not to be confused with, which in Russia are essentially a scam). These options are traded in the derivatives section of the Moscow Exchange. This section is otherwise called the FORTS derivatives market.

So, what are options– these are unique instruments of their kind, in which there are no strict obligations for the option buyer! The BUYER of an option pays a certain price for the option, and in return receives a right, not an obligation, but a RIGHT, which he can use or not at his discretion. This right, which the option buyer receives, opens up enormous opportunities for him in the form of building various strategies (speculation, arbitrage, hedging), we will talk more about these strategies below.

But the option can also be sold... What are options for the SELLER? These are instruments for which certain obligations already arise, and the seller’s obligations arise only if the buyer decides to exercise his right, i.e. its obligations depend on the buyer's decision.

The question arises: what is the point of selling an option at all if the seller only has obligations? And the point is that the seller, at the time of selling the option, receives a certain guaranteed amount of money, which will definitely remain in his pocket regardless of whether the buyer exercises his right or not. This “certain amount” is called the option premium (or price), so when selling an option, the seller receives this very premium and, by and large, hopes that the buyer will not exercise his right. Those. The option premium will be the final earnings of the seller (aka the maximum possible income).

If the buyer decides to exercise his right, then financial results the seller will be negative. Therefore, the seller of an option always runs the risk that the negative result that will result from fulfilling the obligation will exceed the profit that he earned in the form of the option premium. Consequently, the risks for sellers of these instruments are always much greater than for buyers.

The buyer risks only the final premium paid, while he can earn absolutely any money, depending on how profitable it will be to implement the transaction for which he has received the right. This means that the buyer’s risks are always limited and closed, but the possible profit is not. The seller always has limited profits, but possible losses - no. Next, we will look at what options are in terms of its parameters, i.e. what parameters do these tools have?

Main parameters of options

1. Underlying asset

What are stock options or what are commodity options? The meaning of this parameter lies in the answers. At its core, an option is a futures contract with specific conditions, the main one of which is the actual subject of the transaction itself. Such a “subject” of the transaction can be absolutely any exchange instruments: stocks, bonds, oil, gold, futures, indices, etc. The underlying asset is precisely the instrument, the “subject of the transaction” that underlies the contract.

1. Strike

The strike is the price of the underlying asset at which the option will be exercised in the future. What is it for? The fact is that exchange options are strictly standardized, so it is impossible to make a transaction at any price on the day of execution. The exchange initially “splits” the price into parts, for which a transaction with the underlying asset is carried out on the expiration date. For example, an option on a futures contract on the RTS index is divided into parts every 2500 points, i.e. there are options with a strike price of 70,000p., then 72,500p., even further 75,000p. etc. If you bought a put option with a strike price of 75,000p., then on the execution day you get the right to sell futures on the RTS index at a price of 75,000p.

1. Option premium

1. Expiration date

The expiration date is the day on which the option contract is exercised or expires. Due to the fact that the exchange standardizes all terms of option contracts, this day is known in advance, i.e. By buying or selling an option, the trader knows in advance when the “X” day will come, or the day when mutual obligations between the buyer and seller will be taken into account.

1. Volatility

Option volatility is NOT the same as the volatility of a regular linear instrument (such as a stock or futures). Option volatility is another concept that reveals several facets of option trading, namely:

• shows the main measure of market risk;
• is a universal expression of the option premium;
• reflects the speed and magnitude of changes in the price of the underlying asset;
• is a consequence of supply and demand for a given option contract.

What are call and put options?

An option can give the right to either buy the underlying asset or sell it. This is absolutely different instruments, they are not mirrored, and even have different names: a purchase contract is called , a sell contract is called . These topics are fully covered using the appropriate links.

What are the main advantages of options?

So, what are options - these are instruments that give the BUYER some right to make a transaction with the underlying asset on the expiration date at the strike price, and the SELLER is obligated to exercise this right if the buyer decides to exercise the option (for this obligation the buyer at the time buying an option pays the seller an option premium). This means that the buyer’s risk is always limited by the amount of the premium paid, and the possible income can be very large. The seller has the opposite situation; his income is limited by the amount of the premium received, and the possible loss can be infinitely large.

It turns out that the main advantage of options (from the buyer’s point of view) is that there is a risk of fixing a loss at a certain price level, but there are no stop orders in their classic form. Why is it important? When a trader places a classic one, he may find himself in a situation in which stops can be “blown away” (in this case, the price is deliberately moved to the place where stop orders accumulate, knocking people out of positions). And after the stops are “broken”, the price returns to previous levels, but the trader is already left without a position and it is psychologically very difficult to open a deal again, because, firstly, the person is already frightened by the unpredictable behavior of the price, and secondly , the price has moved away from the levels at which the position was initially opened. The option a priori excludes the possibility of “knocking out” in stops.

The second significant advantage for the buyer is that when the market reaches a level at which the purchased option generates a loss, the trader is not required to record this same loss (if the expiration date has not yet arrived). By the expiration date, the price may return to the “profit zone,” resulting in the option expiring in the black. Those. no matter how much the price falls, until the option expires, no one and nothing can forcefully close this option. Thus, the option buyer is completely protected, i.e. he can either lose the option premium or earn - he has no other options.

What are seller options? What benefits does the person who sells this contract get? Read the separate article, everything is described in detail there.

Options Strategies

By and large, you can perform three types of operations with options:

1. Speculative– these include all kinds of strategies aimed at extracting speculative profit (, etc.);
2. Arbitration– these are transactions built on the basis of a synthetic formula, which opens up the possibility of making a profit from price imbalances on derivatives market instruments. Read more about here;
3. Hedge– operations the purpose of which is to insure price risks. Read more about here.

What are options?

Summarize. So, real stock options are traded on the Moscow Exchange in the FORTS section (futures and options RTS). - this is a scam that has nothing in common (except the name) with exchange options. An options contract has a certain set of parameters, each of which gives a clearer picture of the question of what options are. These instruments provide a lot of options for the buyer, while the seller has obligations in relation to the buyer's right.

Why are these tools so interesting? It’s simple, they make it possible to make absolutely any assumptions about the market... You don’t know how the market will behave, but you are sure that it will not go beyond certain limits - you can make money on this! You don’t know in which direction the movement will be, but you are definitely sure of its appearance - you can also make money on this, etc. I will say more, options allow you to construct positions in which a trader can make money not only during growth or decline, but also during a sideways market, i.e. in any market condition. That's why, what is an option s is, in fact, the pinnacle of trading.

An option is a derivative financial instrument. It gives the right to purchase or sell an underlying asset at a fixed price, the value of which is determined at the time the agreement is concluded. This instrument belongs to the group, which are very common and in demand today, but have a rather complex structure, which can cause certain difficulties for novice investors. We will try to clearly explain what an option is in simple words.

Basic properties of options

The main parameters of such agreements include:

• Type and characteristics of the subject of the agreement, that is, the real product being traded, currency quotes or stock indices, what they are and other important properties. The bottom line is that for some positions, price movements are much easier to predict, and accordingly, people work with them much more willingly;
• Strike– execution price. In this case, it means the price that the buyer of the instrument will pay if he decides to exercise his right to acquire it;
• Agreement price– a premium that is paid to the seller and which will remain with him in the event that the buyer decides to waive his right;
• Expiration date– the period during which the agreement is valid. Today, the standard 3 months is most often used. Although in some cases, primarily when speculating on stock indices, the expiration period can be reduced to several minutes.

Using Option Contracts

Option contract - instrument broad action. You can sell anything - from real goods to currencies and even stock indices. Everything in the conditions modern market can be bought and sold.

Investors most often use it to hedge risks arising when concluding transactions on stock market. Suppose that, according to analysts' forecasts, a sharp rise or fall in the price of a particular stock is expected in the near future, but the market during this period is characterized by extreme instability. Then, instead of concluding a standard purchase and sale transaction, it is more profitable to purchase an option contract. If the forecast comes true, the buyer will have the right to buy back the shares at the rate that was at the time the contract was concluded. Otherwise, he will be able to refuse to purchase them and thereby avoid significant losses, limiting his losses to the amount of the premium paid to the seller.

Judging by the example above, it may seem that such an instrument is beneficial only to its buyer. The seller takes on responsibilities, within the framework of which he will have to sell or buy his goods at an extremely unfavorable price. This observation is true, but only partly.

It is profitable to buy during periods of high market volatility, when significant fluctuations in rates and rates are expected, which are usually observed. But when a sideways trend develops, when there is relative stability in the market, selling can become a very advisable tactic.

Main types of options

“Since the seller of an American option risks much more than the seller of a European option, the premium for them is an order of magnitude higher. Despite this, the American type is more popular – it accounts for about 80% of all transactions concluded.”

The main classifying feature is the right granted. A call type transaction gives the acquirer the right to buy the underlying asset, while a put type transaction gives the acquirer the right to sell.

Transactions are also distinguished by market circulation - exchange and over-the-counter. Exchange markets are characterized by higher liquidity and reliable system warranty coverage. Despite this, the over-the-counter market is much more developed, which is explained by the flexibility and more democratic conditions of their circulation.

A special type is binary options

There is also a special type of options – binary or, as they are also called “digital”. Their main difference is that the object is not the asset itself, but the trader’s forecast regarding the behavior of its price. For a better understanding, we will explain the essence of such an option in simple words.

Suppose a trader believes that the value of a certain asset will increase in the next hour. He buys the corresponding binary option worth 10 rubles with a reward of 100 rubles if exercised. If the forecast turns out to be correct, and by the time of expiration the rate will indeed be higher than it was when the transaction was concluded, even if only by 1 point, the contract will be considered fulfilled and the trader will receive 100 rubles. That is, his profit will be 90 rubles.

If at the time of expiration the price of the underlying asset is lower than the starting one, then the contract will be considered not executed and the trader will not receive anything. In this case, his loss will be 10 rubles.

If in the case of classic version the possible loss of the buyer is fixed, and the profit is not limited, then when using a binary contract, both parameters represent a constant, pre-known value. The profit or loss received by the trader depends on whether he correctly predicted the price movement. In this case, it does not matter at all how much the price rises or falls.

To summarize, the answer to the question of what an option is can be given in one sentence. This is a financial instrument, an agreement under which one party, for a certain fee, undertakes the obligation to sell a certain asset at a fixed price, and the other participant receives the right to buy it, or to refuse the transaction if it is no longer profitable for him.

Buy option- a stock market instrument that, together with futures contracts, belongs to the category of derivatives. The name is due to the fact that the value of these assets is calculated as a derivative of the price of the underlying instruments (securities).

Buy option: types, place in classification

Speculators (exchange players) acted as developers of option contracts. Their task was to create an instrument that would guarantee the purchase (sale) of a certain product at a fixed (agreed) price, and also provide income when the value of the instrument changes in the desired direction.

Each option is often based on different financial assets. In particular, these include currency, interest rates, stock market indices, stocks, and so on. Options are the most popular basic tool for which the shares are traded.

All options are divided into two categories:

- call options ( English name- Call option)- instruments that provide the right to purchase an asset in a certain volume (quantity), within a specified period and at a price agreed upon by the parties. In this case, the party acting as the seller of the contract undertakes to implement the terms of the contract (that is, sell the goods) if the buyer requests it. the transfer of an asset can occur both on the expiration date (the date specified in the agreement) and before execution.

A market participant who buys a call option expects the underlying asset (index, stock, currency, etc.) to rise in the future. As a consequence, a call option can only be executed when the price specified in the agreement is lower than the value of the asset established on the market;

- put options (English name - Put option)- the second (opposite to the first) instrument. allows the buyer to sell. In this case, we are talking only about a right, not an obligation. The time when the transaction can be completed and the value of the asset are specified in the agreement of the parties. As in the previous case, only the seller has an obligation. The latter must fulfill the contract if there is a desire on the part of the buyer. The transaction can be executed directly on the expiration day or before it.

When executing a trade, the holder of a put option hopes that the price of the underlying asset will decrease. As a result, the Put option will only be executed when the price specified in the contract is higher than the actual market price.

Of the described instruments, call options are more popular. They can be of two types (according to design features):

- American – style option- American type contract. Its peculiarity is the freedom of maturity of the instrument. That is, the option can be exercised or redeemed before the date specified in the agreement, that is, almost at any time;

- European – style option- European type contract. Unlike the “American” version, in this type execution of the instrument is possible only on the appointed date.

All call options can be divided according to the type of underlying asset. There are several options here:

- call option on currency. Here the main asset is the monetary unit. The most popular are euro, US (dollar), pound sterling and so on;

- call option on stock assets, namely for shares of certain companies. If you wish, you can work with a complex option - a call contract on the index;

- call option for goods. Such an instrument is a chance for a market participant to become a holder of a certain commodity - gold, oil, silver, and so on.

For an American option, the end date on which the contract must be exercised and the expiration date for a European option is the Friday before the 3rd Saturday of the month. For example, in the United States, with an option in hand, he can instruct his broker to present the contract for execution by 16.30 pm. The broker, in turn, has a time reserve until 10.59 the next day.

Buy option: characteristics, features

Due to its wide possibilities, ease of use and prospects for good earnings, the call option received wide use among investors. There are always two parties involved in a transaction - the holder (buyer) of the option, as well as the seller of the instrument. The parties to the transaction have great differences in terms of exercising their rights. Thus, the seller of a call option must sell if the buyer requests it. The second party to the transaction (the buyer) only has the right to buy the asset (not the liability).

Due to the high risk of changes in the value of the underlying option asset, the seller takes a lot of risk. To compensate for the risks and interest the seller in completing the transaction, the buyer provides him with a bonus - a certain amount that will remain on hand in the event of a refusal by the receiving party.

When making a call option transaction, there are several points to consider:

The execution cost (strike price) is the amount that the buying party transfers when purchasing the underlying asset;

The meaning of the option is that the trader is given the opportunity to make a transaction with the assets he owns not immediately, but after some time, when the price of these assets reaches the required level.

Options, what they are, definitions and concepts

An important feature is that the presence of an option only provides the right to make a deal on desired conditions, but does not guarantee the occurrence of such conditions in fact.

The price determined by the option is called strike. In this case, literally any financial instrument can be used as an asset: futures, shares, currency, etc.

An option cannot be valid indefinitely, since an expiration date is assigned to it, i.e., a date of withdrawal from circulation. Upon the expiration date, the option is either exercised under existing conditions or terminated.

Since an option is essentially a service on the financial market, it must be paid in a certain way. The option fee is called option premium and depends both on the terms of the agreement and on the current market situation.

The greater the gap between the stated strike and the actual price on the market, the greater the option premium will be.

Accordingly, the value of the option may change over time. It is the change in the value of an option that attracts attention to it, since speculative transactions with it can bring tangible benefits.

Main types of options

The division of options into separate types can be carried out according to many parameters, however highest value in trading practice it is divided into two categories: by action and method of execution.

Because any trading involves only two options (buy or sell), then options by way of action are divided into two types:

Call options (in English version- call option), this is a service that provides the right to the option holder to purchase the assets of interest in the future at a pre-agreed price.

Put options give the owner the right to sell them at deadlines assets available on its balance sheet and specified in the terms of the option at a given price.

The type of option you need depends on the strategy you are using. When the goal is to protect assets from falling, put options are purchased for this purpose. If trading is carried out on a bearish basis, then the positions of your assets can be maintained using call options.

By method of execution options are divided into three categories:

1. American options - the option holder has the right to enter into a transaction at any time before the expiration date.
2. European options – the terms of an option contract can only be exercised after a specified period of time.
3. Asian options that are executed at a price calculated as a weighted average of prices that appeared on the market from the moment the option was purchased until the date of the transaction.

In addition, there are two more types of options in exchange practice: long-term and exotic.

The first ones are intended for making long-term investments and are characterized by an extended validity period of more than a year. Exotic ones are characterized by the presence of special conditions of the option contract.

An example of exotic options are options that allow their holder to choose the execution method: either as a call or as a put option,

The difference between futures and options

Binary options

Among the variety of types of option contracts special place occupy binary options, which are extremely convenient for expanding your asset portfolio.

Their peculiarity is that options are traded with only two options for the outcome of the transaction: either a loss or a win. Precisely because of the presence only two transaction options Binary options are where they got their name.

To make a profit from binary options, a trader most often only needs to predict general direction market movements. Qualitative and quantitative factors are not taken into account.

Some of the attractive features of binary options for a trader include the following:

• availability, because opening a special account for working with binary options takes literally a few minutes;
• high profitability, practically guaranteed by the ability to conclude contracts for the shortest terms, during which the market simply does not have time to turn around;
• no need to make significant investments. Many brokers offer binary options that cost even $10, which is absolutely not burdensome for traders of any level.

Options trading in the Russian Federation (FOTS market).

IN Russian Federation The main platform for making transactions with option contracts is the FORTS market. Like other exchanges of a similar profile, trading on FORTS is carried out using a specialized trading platform, which in this case is the QUIK system.

Options trading on the FORTS market can provide the profitability is quite high level , since this trading platform has a number of advantages from a trader’s point of view:

• no need to have serious capital to enter the market;
• high level of reliability and information security;
• the presence of a large shoulder;
• small commission;
• the ability to diversify investments, use free borrowed funds and hedge risks.

Some restrictions only affect the specifics of closing an option. Thus, an option position can be closed forcibly if the exchange increases the volume of collateral.

However, in general, the FORTS market is quite convenient and profitable, since all restrictions on options trading are agreed upon in advance, predictable and not burdensome for the trader.

For a detailed study of options, you can watch the video recording of the webinar.

An option is a contract that gives the right to buy or sell a specific asset at a predetermined price. In the article, read what options are in simple words, what types of options are and where they are used.

What is this article about?:

What is an option in simple terms?

An option is special kind contracts. In it, the seller agrees with the buyer to sell a certain asset at a pre-agreed price. The buyer has the right to buy the asset at this price. It is a right, not an obligation - he may not complete the transaction.

The price of the asset specified in the contract is called the strike price. It may differ from the market price that has developed for the asset. This price is called spot price.

Option price

For the opportunity to conclude such an agreement, the buyer pays the seller a certain amount - a premium. The option price is this premium. Ideally, the premium should be of such a size that the seller and buyer neither earn nor lose anything.

Traditionally, sellers are called grantors or writers, and buyers are called takers or holders.

The terms of the contract can be fulfilled on a certain set day, which is specified in the contract; such an option is considered European. If repayment can be made throughout the entire time until set day, it is called American. By the way, American-type securities are traded on Russian stock exchanges.

What should be specified in the option

Each contract must specify the following contract parameters:

• style - American or English
• the quantity of the underlying asset to be delivered at maturity;
• the date on which the contract expires;
• maturity date when the option is exercised;
• price parameters - premium, estimated price, price intervals, possibility of price changes;
• restrictions and other necessary information.

More on the topic:

How it will help: to motivate company executives to increase the value of the business in the long term, to avoid possible conflicts over remuneration.

How it will help: on real example understand what are the differences when using futures and options in order to minimize currency risk.

How it will help: learn how to insure your business against foreign exchange risks so that you can pay for deliveries at a predictable rate throughout the year.

Call option and put option

Traditionally, a distinction is made between “call option” and “put option”. Call option comes from the English Call option. It is also called a call option or call option. The seller sells the asset, and the buyer gets the opportunity to buy it.

A put option is an option to sell. In it, the buyer gets the opportunity to put up an asset for sale, and the seller undertakes to buy this asset.

The peculiarity of this derivative is that in it one party gets the opportunity to execute the transaction, and the second party is obliged to execute the transaction. For this, the other party is paid a premium.

There are three more terms that are used when working with options, they relate to profitability:

• In the money - “with money.” This means that the sale of the asset under the contract will bring profit.
• At the money - “with one’s own people.” The sale of the asset will bring neither profit nor loss.
• Out of the money - “without money.” Selling the asset will result in a loss.

Option example

Types of options

The classic option is called standard (English standard) or vanilla (English plain vanilla option).

Let us list other, most common types of options.

Exchange. These are standardized exchange contracts in which only the price changes, and all other parameters are regulated by the exchange.

OTC. The market for such options is more developed than for exchange-traded options. The fact is that over-the-counter contracts are more flexible in terms of additional conditions; they offer their holders more opportunities to hedge risks and obtain maximum profits.

Stock. In them, the underlying asset is a security. There is also an employee stock option, when company employees are given the right to buy out company shares at a price below the market price. There is also an option dividend, where an employee can choose to pay dividends either in cash or in company shares.

Commodity, in which the underlying assets are goods.

Financial options- these are those where the underlying asset is money.

Index options are quite common, in which the underlying asset is stock indices. For a futures contract, the underlying asset is the futures. An interest rate that is paid in advance at a specified amount.

Options on the Forex market. Despite the fact that Forex was created for interbank currency exchange, speculative trading has become widespread among non-professional traders. On the one hand, Forex provides the opportunity for margin trading with high leverage, and on the other hand, many intermediaries structure the work of their platforms in such a way that making money on this market becomes very problematic.

As this derivatives market developed and became more complex, options began to include additional conditions, which were necessary, for example, to hedge certain risks. Such innovations changed the classic options, new types appeared, and they were called exotic. These include the following option contracts:

Barrier. They work in the same way as the classic ones, but their execution depends on whether the price of the underlying asset overcomes a certain threshold or barrier. If not, then it is not executed.

Asian or "average". In this case, the execution price is calculated as the average spot price over a certain period of time. This solution allows you to protect against market manipulation and artificial changes in the price of the underlying asset at the time the option expires.

You may also be interested in these materials:

How it will help: reduce VAT charges by using an option contract instead of a regular supply contract.

How it will help: avoid paying VAT by concluding an agreement to sell an option on the right to lease

Binary options

Binary options deserve special attention. In terms of their popularity, they are among the top three scams, along with cryptocurrencies and Forex trading. The essence of a binary option is that the buyer of this derivative is given the opportunity to guess the direction of trade on the underlying asset. If the price is higher than the expected level, then the buyer makes a profit. If not, he loses money. However, behind the apparent simplicity there is a 50% chance of losing an investment, plus the costs of commissions, fines, subscription services and additional costs when withdrawing funds. Widely advertised this method trading, the prevalence, accessibility and ease of entry into trading for non-professional brokers have made “binaries” a trap. A novice investor who does not want to develop in the traditional stock market and is looking for high-risk instruments is usually easily captivated by the potential opportunity to earn a lot even with a small starting capital. As a result, he usually loses all the money, which ends up in the accounts of the owners of various trading platforms, traditionally specializing only in binary options, Forex and, more recently, cryptocurrency. It is worth noting that the international financial community generally has a negative attitude towards such platforms and methods of trading. For example, Belgium and Israel have already banned binary options trading; the USA, Canada and EU countries publish lists of companies that are fraudulent, warning citizens that these sites do not have a license to conduct such activities.

Application of options

These derivatives have two main uses. The first is speculative trading, the second is insurance or risk hedging.

With speculative trading, everything is clear - securities are traded on the exchange, they can be freely sold and bought, like any other exchange asset. Depending on the different strategies of earning, new names of derivatives appear. For example, a cylindrical option in which opposite contracts are created to buy and sell currencies with a difference in exchange rate.

Let's look at hedging. In fact, these contracts began to be used to insure producers against sudden changes in market conditions. How does an option work? Example - a manufacturer, buying an option, receives a guarantee of a price at which he can sell his products, buy raw materials or currency. Moreover, unlike futures, the new derivative is more convenient - after all, it gives the right, not the obligation, to complete a transaction. And if the market offers more favorable price on an asset, the buyer can refuse to execute it and make a market transaction.

In Russia, currently, for the use of options in the national economy, Article No. 429.2 of the Civil Code of the Russian Federation “Option to enter into a contract” and No. 429.3 “ Option agreement" In general, these articles correspond to global practice.