Warren Buffett is a legend in the investment field. Everyone knows that he is the founder of value investment, but few people know that when he makes investment, he is often accompanied by the use of a derivative tool, that is, options.

Buffett himself said: financial derivatives are weapons of mass destruction in financial markets, but he himself is a master in the use of options.

So what exactly is an option?

Option is called option in English, which literally means "option". Essentially, it is a contract that gives the option holder the right to buy or sell assets at an agreed price on or before a specific date.

There are two options. Buying assets at an agreed price is called a call option, and selling assets at an agreed price is called a put option.

Options mainly include the following elements:

First, royalties. Also known as option fee, it refers to the fee paid by the option holder to the option seller in order to enjoy the above rights. This is the key to understand the logic of option operation.

Second, the theme. The subject matter of an option refers to the assets corresponding to the option that can be purchased or sold. Including stocks, national debt, currency, stock index, commodity futures and so on.

Domestic options have covered all fields, including stock index options, ETF options, commodity options and futures options.

Third, exercise rights. The act of buying and selling the subject matter according to the option contract is called "exercise".

Fourth, the exercise price. A fixed price agreed in an option contract at which the option holder buys or sells the subject matter. Note that this and royalty are two different concepts.

Fifth, due date. The expiration date of the option agreed by both parties is called "expiration date". Note that this is not the same as buying and selling stocks. After you buy a stock, you can hold it for a long time, but the option holder must "exercise" or "sell" on or before the expiration date, otherwise the option will expire.

Careful friends may have noticed that option holders have three ways to deal with options:

The first is the exercise, that is to say, buying or selling the subject matter at the exercise price.

Second, sell. Some people don't want to buy and sell the subject matter, because it is too troublesome, so they will sell options to those who are willing to buy and sell the subject matter.

This sentence is awkward, but it is easy to understand. For example, you have an iron ore call option, but you think it is troublesome to exercise it, that is, you have to go to the commodity exchange to buy physical iron ore. You have no vehicle to transport it and no place to store it, so you want to sell this option, and people who specialize in physical iron ore business will not find it troublesome to buy and sell iron ore, so as long as the price is right and profitable, they will be willing to buy your option.

Third, it is invalid. After the expiration date, the option is a piece of waste paper.

Maybe you are still confused when you see this, just like listening to a course of quantum physics, but it doesn't matter. Let's give an example to illustrate this seemingly tall option.

Suppose that the current market price of a stock X is 10 yuan. Through fundamental and technical analysis, we think that this stock will rise to 15 yuan in three months, that is, in February next year, and we have our own funds 10000 yuan. How should I invest to make money?

Generally speaking, there are two methods.

The first one is to buy 1000 shares of X at 1 1 ten thousand yuan in October, and then sell them in February next year. If the price of X shares really rose to 15 yuan at that time, then our capital gains would be (15- 10) * 6544.

Another way is to buy call options. What needs to be explained here is that there is no open stock option in China at present, but it is very common in western countries. At present, we can also learn about OTC stock options by inquiring about domestic institutions.

Inquiry: option sauce

The benefits of options are mainly as follows:

First, when we have confidence in the future trend of a stock, we can buy the corresponding call or put options, so that once the actual trend of the stock is the same as we expected, we can get a higher return on investment than buying and selling stocks; When the actual trend of the stock is different from our expectation, our loss is limited, and the biggest loss is the option premium paid.

Second, when we are not sure about the future fluctuation trend of a stock, for example, we think that the probability of the stock going up in the next six months is 60% and the probability of falling is 40%. We can use the combination of stock purchase and put option to hedge and reduce the investment risk.

In addition, it should be pointed out that there are certain conditions for applying for options trading in China. One of the hard indicators is that when an individual investor applies for opening an account, the total market value of his securities and the available balance of his capital account are not less than 500,000 yuan, which is much stricter than applying for opening an account with shares. This is mainly because compared with stocks, options are still a relatively new investment method in China, which requires investors to have certain professional knowledge, so for Xiaobai, who has just set foot on the investment road.