[copper options] learn more about the operation of copper options and develop new channels for risk aversion investment-Shanghai Metals Market

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[copper options] learn more about the operation of copper options and develop new channels for risk aversion investment

Translation 05:25:42PM Sep 01, 2018 Source:SMM

SMM September 1: August 31, China Securities Regulatory Commission spokesman Chang Depeng said at a regular news conference, the Securities Regulatory Commission approved the last period of copper options trading, September 21 officially listed. This new option, which can provide both risk aversion for enterprises and investment methods for investors, has immediately aroused widespread concern in the market.

Account opening mode

Individual customer:

The balance of available funds in the margin account after the daily settlement of 5 trading days before the opening of options trading authority shall not be less than RMB 100000 yuan;

Basic knowledge of futures and options, passed the knowledge test approved by the exchange;

With a total of 10 trading days, 20 or more options simulation transaction records approved by the exchange;

Have the option simulation transaction exercise record approved by the exchange;

There are no laws, administrative regulations, rules or exchange business rules that prohibit or restrict the trading of futures and options; other conditions required by the exchange.

General unit customers:

The balance of available funds in the margin account after the daily settlement of the five trading days before the opening of options trading authority is not less than RMB 100000 yuan;

Relevant business personnel have basic knowledge of futures and options and pass the knowledge test approved by the exchange;

With a total of 10 trading days, 20 or more options simulation transaction records approved by the exchange;

Have the option simulation transaction exercise record approved by the exchange;

Have the relevant systems such as internal control and risk management to participate in option trading;

There are no laws, administrative regulations, rules or exchange business rules that prohibit or restrict the trading of futures and options; other conditions required by the exchange.

After opening an account, we are going to trade, and before we trade, we first need to understand the four different types of trading options. The so-called options are different from futures, which refers to the rights that can be bought and sold in a certain period of time in the future. Options can be divided into call options and put options. Investors can have four trading modes: call options, put options, and put options.

Four basic types of copper option trading

(data from Jiang Lu, researcher of CITIC Construction and Investment Futures Industrial products Department)

1. Call options

When investors or industrial customers expect the copper market to soar and market volatility is expanding, consider buying call options. When the copper futures contract price rises, the option buyer can exercise the right or close the position to get the gain of the futures price rise. In theory, when the market price rises, the potential profit of the buyer is unlimited, when the market price falls, the risk is limited, the biggest loss is the royalties paid. The break-even point at the expiration of the option is equal to the exercise price plus the royalty paid by the buyer when the option is called (regardless of transaction costs).

2. Buy put options

When investors or industrial customers expect the copper market to reverse and fall, or hold spot in order to avoid the devaluation of goods, you can consider buying put options. When copper futures prices fall, option buyers can exercise or close their positions to gain gains from falling prices. In theory, when the market price falls, the potential profit is huge, when the market price rises, the risk is limited, the biggest loss is the royalties paid. The break-even point at the expiration of the option is equal to the exercise price minus the royalty paid by the buyer when the option is called (regardless of transaction costs).

3. Sell call options

When investors expect copper prices to rise weakly in the future, or show consolidation, the probability of large fluctuations is small, you can consider selling call options to collect royalties. When a call option is sold, the seller has an obligation to perform when the buyer exercises the right. If the call option expires, the buyer waives the exercise and the seller receives the full royalty. For call option sellers, they are at risk when the market price rises, and may receive all the royalties collected from the buyer when the market price falls.

4. Sell put options

When investors expect the end of the copper futures price decline, is about to reverse the rise or consolidation, late volatility is not small, you can consider selling put options. In addition, the seller receives a certain amount of royalties, the buyer exercises the right, the seller has the obligation to perform. If the put option expires and the buyer waives the exercise, the seller shall receive the full royalty. For put sellers, put options are at risk when market prices fall, and are likely to receive full royalties when market prices rise. The break-even point at the expiration of an option is equal to the exercise price minus the royalty charged at the time of the put option.

Option trading case

Ex.: on January 1, the executive price of copper futures is US $1750 / ton. A buys this right and pays US $5; B sells this right for US $5. On Feb. 1, copper fell to $1695 a tonne and put options rose to $55. At this point, A can take two strategies:

Exercise 1: a can buy copper from the market at a price of $1695 / ton and sell it to B at a price of $1750 / tonne. B must accept that A makes a profit of $50 ($1750 to 1695 / 5), B loss of $50).

Exercise right 2: sell options. A you can sell put options at $55. A profit of $50 (55 to 5).

If the price of copper futures rises, A will waive this right and lose $5, while B will get a net gain of $5.

From the above examples, the following conclusions can be drawn:

1. As a buyer of options (whether call options or put options), there are only rights but no obligations. His risks are limited (the maximum loss is royalties), but in theory the profits are unlimited.

Second, as the seller of options (whether call options or put options) has only obligations but no rights, in theory his risk is unlimited, but the return is limited (the maximum return is the royalty).

Those who buy put futures have the right to sell the subject matter, while those who sell put futures have the obligation to buy the subject matter.

Case 2: call options-call options, lock in procurement costs

Applicable to: smelters, producers, traders, other enterprises in the upper and middle reaches of the industrial chain

Application: 1. Hope to buy replenishment at a lower price; 2. However, we do not want to replenish the database in the face of market price fluctuations, but do not purchase until we need to use it.

Hedge strategy: buying a call option is equivalent to locking the buy price in advance

Function principle: the price rises, the bullish period exercise right profit, may compensate the spot purchase cost increase; the price falls, the option only loses the right gold, the spot still has retained the low price purchase profit space.

On September 26th, the spot price of rebar is 2290 yuan / ton, RB1701 price is 2217. The enterprise is willing to replenish the warehouse at the current price, so it buys a call option that expires one month later at an exercise price of 2300 yuan per ton. If the royalty is 66, then:

Policy analysis

Maximum benefit: ∞

Exposure:-76 yuan / ton

Break-even point: 2234

Initial capital flow: the outflow of royalties is 66 yuan / ton

Finally lock in the procurement cost, no matter how the market price rises, can be purchased at a maximum of 2366 yuan per ton, while the price drop can enjoy lower price procurement.

Case 3: buy put options-buy put options and lock in the sales price

Applicable to: smelters, producers, traders, other enterprises in the upper and middle reaches of the industrial chain

Application: 1. The production and sales process takes a long time, and the enterprise is worried that the price of the product will fall after a period of time; 2. Enterprises have large inventory and are faced with the risk of inventory devaluation.

Hedge strategy: buy put options, which is equivalent to buying price fall insurance

Principle of action: the price falls sharply, the put option gains, can compensate the product or the stock value loss; the price rises, the option maximum loss royalty, the product and the inventory can still be sold at a high price

On September 26th, the spot price of rebar was 2360 yuan / ton. The enterprise expired one month after buying, and the exercise price was 2300 yuan / ton put option, then:

Policy resolution:

Maximum benefit: ∞

Exposure:-152 yuan / ton

Break-even point: 2458

Initial capital flow: the outflow of royalties is 92 yuan / ton

Finally locked in the sale price, no matter how the market price falls, can sell for 2208 yuan, and the market price rise can enjoy the accompanying sales revenue.

Case 1 comes from Baidu's knowledge of economic and financial sesame een123456

Cases 2 and 3 come from the case study of rebar futures options.

(SMM comprehensive finishing)

"Click to view details

Key Words:  Copper  options  trading  output 

[copper options] learn more about the operation of copper options and develop new channels for risk aversion investment

Translation 05:25:42PM Sep 01, 2018 Source:SMM

SMM September 1: August 31, China Securities Regulatory Commission spokesman Chang Depeng said at a regular news conference, the Securities Regulatory Commission approved the last period of copper options trading, September 21 officially listed. This new option, which can provide both risk aversion for enterprises and investment methods for investors, has immediately aroused widespread concern in the market.

Account opening mode

Individual customer:

The balance of available funds in the margin account after the daily settlement of 5 trading days before the opening of options trading authority shall not be less than RMB 100000 yuan;

Basic knowledge of futures and options, passed the knowledge test approved by the exchange;

With a total of 10 trading days, 20 or more options simulation transaction records approved by the exchange;

Have the option simulation transaction exercise record approved by the exchange;

There are no laws, administrative regulations, rules or exchange business rules that prohibit or restrict the trading of futures and options; other conditions required by the exchange.

General unit customers:

The balance of available funds in the margin account after the daily settlement of the five trading days before the opening of options trading authority is not less than RMB 100000 yuan;

Relevant business personnel have basic knowledge of futures and options and pass the knowledge test approved by the exchange;

With a total of 10 trading days, 20 or more options simulation transaction records approved by the exchange;

Have the option simulation transaction exercise record approved by the exchange;

Have the relevant systems such as internal control and risk management to participate in option trading;

There are no laws, administrative regulations, rules or exchange business rules that prohibit or restrict the trading of futures and options; other conditions required by the exchange.

After opening an account, we are going to trade, and before we trade, we first need to understand the four different types of trading options. The so-called options are different from futures, which refers to the rights that can be bought and sold in a certain period of time in the future. Options can be divided into call options and put options. Investors can have four trading modes: call options, put options, and put options.

Four basic types of copper option trading

(data from Jiang Lu, researcher of CITIC Construction and Investment Futures Industrial products Department)

1. Call options

When investors or industrial customers expect the copper market to soar and market volatility is expanding, consider buying call options. When the copper futures contract price rises, the option buyer can exercise the right or close the position to get the gain of the futures price rise. In theory, when the market price rises, the potential profit of the buyer is unlimited, when the market price falls, the risk is limited, the biggest loss is the royalties paid. The break-even point at the expiration of the option is equal to the exercise price plus the royalty paid by the buyer when the option is called (regardless of transaction costs).

2. Buy put options

When investors or industrial customers expect the copper market to reverse and fall, or hold spot in order to avoid the devaluation of goods, you can consider buying put options. When copper futures prices fall, option buyers can exercise or close their positions to gain gains from falling prices. In theory, when the market price falls, the potential profit is huge, when the market price rises, the risk is limited, the biggest loss is the royalties paid. The break-even point at the expiration of the option is equal to the exercise price minus the royalty paid by the buyer when the option is called (regardless of transaction costs).

3. Sell call options

When investors expect copper prices to rise weakly in the future, or show consolidation, the probability of large fluctuations is small, you can consider selling call options to collect royalties. When a call option is sold, the seller has an obligation to perform when the buyer exercises the right. If the call option expires, the buyer waives the exercise and the seller receives the full royalty. For call option sellers, they are at risk when the market price rises, and may receive all the royalties collected from the buyer when the market price falls.

4. Sell put options

When investors expect the end of the copper futures price decline, is about to reverse the rise or consolidation, late volatility is not small, you can consider selling put options. In addition, the seller receives a certain amount of royalties, the buyer exercises the right, the seller has the obligation to perform. If the put option expires and the buyer waives the exercise, the seller shall receive the full royalty. For put sellers, put options are at risk when market prices fall, and are likely to receive full royalties when market prices rise. The break-even point at the expiration of an option is equal to the exercise price minus the royalty charged at the time of the put option.

Option trading case

Ex.: on January 1, the executive price of copper futures is US $1750 / ton. A buys this right and pays US $5; B sells this right for US $5. On Feb. 1, copper fell to $1695 a tonne and put options rose to $55. At this point, A can take two strategies:

Exercise 1: a can buy copper from the market at a price of $1695 / ton and sell it to B at a price of $1750 / tonne. B must accept that A makes a profit of $50 ($1750 to 1695 / 5), B loss of $50).

Exercise right 2: sell options. A you can sell put options at $55. A profit of $50 (55 to 5).

If the price of copper futures rises, A will waive this right and lose $5, while B will get a net gain of $5.

From the above examples, the following conclusions can be drawn:

1. As a buyer of options (whether call options or put options), there are only rights but no obligations. His risks are limited (the maximum loss is royalties), but in theory the profits are unlimited.

Second, as the seller of options (whether call options or put options) has only obligations but no rights, in theory his risk is unlimited, but the return is limited (the maximum return is the royalty).

Those who buy put futures have the right to sell the subject matter, while those who sell put futures have the obligation to buy the subject matter.

Case 2: call options-call options, lock in procurement costs

Applicable to: smelters, producers, traders, other enterprises in the upper and middle reaches of the industrial chain

Application: 1. Hope to buy replenishment at a lower price; 2. However, we do not want to replenish the database in the face of market price fluctuations, but do not purchase until we need to use it.

Hedge strategy: buying a call option is equivalent to locking the buy price in advance

Function principle: the price rises, the bullish period exercise right profit, may compensate the spot purchase cost increase; the price falls, the option only loses the right gold, the spot still has retained the low price purchase profit space.

On September 26th, the spot price of rebar is 2290 yuan / ton, RB1701 price is 2217. The enterprise is willing to replenish the warehouse at the current price, so it buys a call option that expires one month later at an exercise price of 2300 yuan per ton. If the royalty is 66, then:

Policy analysis

Maximum benefit: ∞

Exposure:-76 yuan / ton

Break-even point: 2234

Initial capital flow: the outflow of royalties is 66 yuan / ton

Finally lock in the procurement cost, no matter how the market price rises, can be purchased at a maximum of 2366 yuan per ton, while the price drop can enjoy lower price procurement.

Case 3: buy put options-buy put options and lock in the sales price

Applicable to: smelters, producers, traders, other enterprises in the upper and middle reaches of the industrial chain

Application: 1. The production and sales process takes a long time, and the enterprise is worried that the price of the product will fall after a period of time; 2. Enterprises have large inventory and are faced with the risk of inventory devaluation.

Hedge strategy: buy put options, which is equivalent to buying price fall insurance

Principle of action: the price falls sharply, the put option gains, can compensate the product or the stock value loss; the price rises, the option maximum loss royalty, the product and the inventory can still be sold at a high price

On September 26th, the spot price of rebar was 2360 yuan / ton. The enterprise expired one month after buying, and the exercise price was 2300 yuan / ton put option, then:

Policy resolution:

Maximum benefit: ∞

Exposure:-152 yuan / ton

Break-even point: 2458

Initial capital flow: the outflow of royalties is 92 yuan / ton

Finally locked in the sale price, no matter how the market price falls, can sell for 2208 yuan, and the market price rise can enjoy the accompanying sales revenue.

Case 1 comes from Baidu's knowledge of economic and financial sesame een123456

Cases 2 and 3 come from the case study of rebar futures options.

(SMM comprehensive finishing)

"Click to view details

Key Words:  Copper  options  trading  output