This is different from futures contracts, which means that no matter what the price of soybean meal is two months later, you must buy it at the agreed price, that is, 3,000 yuan, even if it falls below 2,000 yuan. Option only gives the option contract holder the power. When the price of soybean meal falls sharply, we can choose to abstain and the contract is invalid. You have the right but no obligation. In other words, you can "cheat".
But if the price of soybean meal is much higher than 3000, you can exercise your right to buy it at the agreed price of 3000. Give yourself a choice, so the option is called option, and you can have a choice.
For industry participants, this power of both can play an important role.
Take soybean meal as an example. Upstream oil plants buy soybeans and sell soybean oil and soybean meal. When buying soybeans, soybean meal is a price. It is hard to say what the price of soybean meal is after production. At this point, oil plants can hold put options. That is, how long after the agreement, the right is to sell soybean meal at the agreed price. For example, a factory has the right to sell soybean meal of 2900 yuan a month later.
Image source: Baidu Caishun Option
Let's consider the difference between this and the futures contract sold a month later.
The first situation: the price of soybean meal rises.
Futures: No matter how much it rises, it must be delivered at the opening price. As a producer of soybean meal, we simply can't enjoy the extra income brought by the price increase of products. Moreover, the sharp rise in the price of soybean meal will cause the problem of deposit recovery. This may make enterprises unprepared on financing issues.
Option: If the price rises sharply, we can choose not to exercise the option. Sell your soybean meal at a high price in the market. Earn the benefits brought by the increase in product prices. And there is always no financing problem.
The second situation: the price of soybean meal falls.
Futures: When the price of soybean meal falls, our short position in soybean meal protects our profits, and we can still sell soybean meal at the price when we opened the warehouse.
Option: we have the right to sell at 2900, and we can still sell at 2900 after the price drops sharply.
In theory, it seems that the effect is similar, but in fact it is quite different. This involves the issue of deposit.
The main purpose of the exchange to collect margin is to prevent participants from defaulting, while the traders who buy options have only power but no obligation, and there is no default at all. Therefore, the buyer of the option does not need to pay a deposit. How much is the option contract? There is no deposit. Futures, no matter how long, have to pay a deposit.
We know that the cash flow of enterprise operation is very important, and the financial cost of financing in the production process is very important. Especially for the commodity industry, this is different from internet startups, not taking VC money, mainly bank credit or similar traditional financial channels. Special emphasis is placed on the certainty and cost sensitivity of financial planning.
Futures: Because the future price is uncertain, it needs to occupy a piece of enterprise funds as a deposit, and enterprises need more funds. What is even more worrying is that when the price fluctuates in an unfavorable direction, a large amount of margin needs to be added to the exchange. If there is a big fluctuation temporarily, financing does not mean that it can be melted immediately. If too much margin is prepared at the beginning, the financial cost will increase. This brings practical problems to the practice of enterprise hedging.
Option: The holder of put option only needs to pay the option fee, and no additional margin is needed for future price reverse fluctuation. Moreover, the option fee of equivalent goods is lower than the initial minimum margin of futures contracts, so the financial cost is low and the certainty is high.
Does this mean that options must be superior to futures?
No, if options are strictly superior to futures, there will be no futures market. Because the option gives the holder the right to have both, the price of the option is not low. If the counterparty of the option holder, the obligor of the option, or the "writer/knocker" of the option don't charge a considerable option fee, why should we accept such an "unequal treaty"?
When the price fluctuates violently, you can make a move as soon as possible. If you see that the momentum is not good, you will naturally take advantage of it greatly. The option fee will be very expensive then. It will be painful to buy options, but this does not mean that when options are expensive, options have no effect on industrial hedging.
Let's assume that there is a farm B that wants to buy soybean meal to raise pigs. The price of soybean meal fluctuates sharply and the option fee is very expensive. We can knock out (sell) a selling right of soybean meal, that is, the counterparty of the oil factory that just held the contract. Suppose that the price of 2700 is a very comfortable cost price for B. B selling options at the agreed price of 2700 means taking on some obligation and collecting option fees. If the price of soybean meal falls by more than 2700, the farm is obliged to eat it all at the price of 2700.
Case 1: The price of soybean meal fell below 2700.
Farm b is obliged to buy soybean meal at the price of 2700, no matter how cheap it was at that time. 2700 is a more comfortable psychological price, and you can earn a lot of extra option fees. The disadvantage is that you can't enjoy the benefits brought by the extra price drop.
Case 2: The price of soybean meal never fell below 2700.
Farm b does not charge option fees, and other conditions remain unchanged. However, if the price of soybean meal rises sharply, the high option fee income may not make up for the increased cost.
It should be noted that the knock-out party of the option may breach the contract due to its obligations and need to pay the deposit to the exchange.
Of course, this does not mean that the downstream must be a stepping stone to options. As a farm, when the option is cheap, you can buy the option of soybean meal. We assume that the agreed comfortable cost price is 2700.
Case 1: The price of soybean meal fell below 2700.
Farm b doesn't want to buy the right, but buys soybean meal at a low price in the market for production.
Case 2: The price of soybean meal is above 2700.
The farm bought soybean meal at a price of 2700 yuan to control the production cost.
In both cases, there is no need to pay a deposit like futures.
At present, only soybean meal and sugar are approved by the CSRC in commodity options, excluding other varieties in the industrial chain. We assume that if there are soybean options and soybean oil options, the risk management that oil plants can carry out is very flexible. We can control the cost by buying the right to buy soybeans, and then hold the right to sell soybean oil and soybean meal, so that we can lock in the power.
When the soybean price rises, soybean oil and soybean meal rise, you can ask for the right to buy (execute the soybean right) and produce at low cost, but you can't sell the downstream products (don't execute the right to sell soybean oil and soybean meal) and put them in the spot market at a high price.
On the other hand, when the price falls, we give up the right to buy raw materials at a lower market price and sell products at a higher price according to the agreement in the original sales right. Of course, this requires careful calculation. If the option cost is high, you need to change your strategy. Not only the buyers and sellers of options can combine flexibly, but also futures options can cooperate.
At present, soybeans and soybean oil only have futures, and only soybean meal has futures and options. How to control costs and expand profits by different combinations in different situations will become a subject that all industry participants must learn. If you don't advance, you will retreat. If you don't learn, you will be eaten by competitors who are good at learning. The market is ruthless.
For speculators, the introduction of options is of course a big plus, which is worth celebrating.
Just as futures speculators can do pure financial speculation without participating in spot trading, so can options. We buy long call options, because we don't need to pay margin, so the actual leverage effect can be higher than futures. Imagine that you can buy delay insurance without buying a plane ticket, and the rate of return is high.
In addition, speculators' headache of sweeping the bilateral market (sweeping long and short positions) can also be avoided. In the futures market, we often look in the right direction, but lose our positions. Obviously, it was proved to be absolutely correct after being long, but the price first went down to sweep away the stop loss, and then the V-shaped reversal broke through the sky. Although the direction is right, the market has nothing to do with you However, if speculators hold the right to buy, the price correction will be fierce and frequent, because the option buyer holds the power, and the worst thing is not the right, and there will never be the risk of liquidation.
Don't bother to guess whether this is a fake breakthrough or a real beginning, and don't worry about whether there is a trend after being hit in the face by the market again and again. No matter how many intermediate twists and turns, the speculative cost will not increase suddenly.
If the direction is wrong, you can choose to abstain, so you don't have to be forced to jump off the building by your counterparty. If you push too much, you will try your best to push down the price of the other hand. As a cow, if the financing ability is strong, you can barely eat all the goods for future consideration. When you are short, you will try your best to raise the price of your opponent. Agricultural products are grown in the fields, but you can have as many as you want. If you don't deliver the goods as a short seller, you are finished. However, as a speculator with the right to sell, there is no need to raise money everywhere or ask the spot dealer to give the goods when the price rises to the sky.
This is simply speculating on a contract, just as futures with different maturities can combine different positions. Options with different maturities, options with different exercise prices, call options and put options can combine various speculative strategies. You can also mix futures, upstream and downstream, and everything is famous.
Before entering the next detailed introduction, let's sort out the terms and concepts that have been involved.
In the example just cited, the contract stipulates that we have the right to buy soybean meal at the price of 3000 yuan after one month.
Options are based on soybean meal futures contracts.
The expiration date of the option is one month later.
The strike price of the option is 3000.
The power of option is call option; ; The corresponding put right is called put.
We can hold call options or put options. Of course, if we hold it, someone must be our counterparty (otherwise, we will find someone to exercise it). Our counterparty is the knocker of the call right and the knocker of the put right. Because the call option has power but no obligation, it is called the "power party" and the call option is called the "obligation party".
The power party does not need to pay the deposit, but the debtor has to pay the deposit because of the possibility of default. If the payment obligation is about to exceed the deposit, it will also be urged by the exchange to pay the deposit.
It cannot be exercised before it expires. We call it European option. American option is an option that can be exercised any day before the expiration date. There are other types that will not be introduced one by one.
At present, the SSE 50ETF options are European, while the soybean meal and sugar options are American. But usually American options don't always exercise in advance. Because exercising in advance is equivalent to giving up the "time value" of the option (we will discuss it later), but we should still pay attention to this kind of thing, when necessary.