What is an option

Traditionally“option”The contract grants the holder a certain period of time(Or on the due date)The right to purchase or sell assets.

Note that the holder is not obligated to purchase or sell at the predetermined price, and if he is willing, he can only choose to do so. That's why they are called options, yo!

There are two options:

• Bullish
• Bearish
  

In this brief overview, we will soon introduce the mechanism of option purchase.

What is a call option?

The call option allows investors to buy the underlying asset at a predetermined price, which is called the "strike price".

If an investor expects the relevant assets to exceed the strike price before the contract expires, they will purchase a call option.

What is a put option?

On the other hand, purchasing put options gives buyers the right to sell assets at the strike price they choose. Therefore, if he believes that the market price of an asset will fall below the strike price before the contract expires, he will buy a put option.

The purchase price of an option is also known as "premium". When buying an option, the premium of the option is the risk you are most likely to bear and may also result in losses.

Therefore, the profit from option trading is the market's excess of the strike price minus the premium at the expiration of the contract.

For example, suppose you want to buy a piece of value10A land worth ten thousand dollars.

Do you think that one year from now, its value will rise again3Ten thousand dollars, but you don't want to spend on investments10Ten thousand US dollars.

The seller of the land is selling you an option contract, and one year from now, you will be10USD 10000(Transaction price)Purchase this piece of land.

The seller provides5000A contract in US dollars. Do you agree5000Pay the seller in US dollars and wait to see if the value increases.

Assuming that within one year, the land value increases to13Ten thousand US dollars. You decide to exercise your right to purchase land at an agreed price and pay the owner10The contract price is ten thousand US dollars, and now you have the land.

Your profit on this land is the current value,13Ten thousand US dollars, minus purchase price plus contract insurance premium:13USD 10000(10USD 10000+ 5000dollar)= 25,000USD.

Alternatively, assuming that within one year, the land value drops to8Ten thousand US dollars. You are not obligated to fulfill the contract, and you have clearly decided not to buy the land because it has depreciated.

Your only loss is the insurance premium paid to the option seller(5000dollar). As you can see, options are a great choice that can unleash your market ideas with very limited risk.