In addition to being used as a hedging tool, what other functions do options have?

For most domestic investors, options are still an unfamiliar financial instrument. However, from a global perspective, options have long been one of the important risk management tools in the financial market, and they are an inseparable and important part of the financial market. Options and ** are also derivatives, and both have functions such as risk management, asset allocation, and discovery.

However, compared with other derivatives such as **, options have their unique functions and roles in risk management and risk measurement.

Options are easier for risk management.

Options can provide a similar function of "insurance". Both options and ** are commonly used risk management tools, but they differ in terms of the rights and obligations of both parties to the transaction. For **, rights and obligations are inseparable.

Regardless of whether the buyer or the seller, regardless of the current market, if the contract expires, it bears the obligation to deliver and perform at the expiration. Options, on the other hand, acquire rights (but not obligations) by paying a premium, and may obtain the underlying asset from the seller of the option or sell the underlying asset to the seller of the option on the expiration date (European-style options) or any trading day before the expiration date (American-style options) as agreed**, that is, the seller will be required to enforce the contract; The seller received the royalty and was obliged to enforce the contract at the buyer's request. To some extent, it can be understood in accordance with the formulation that "buying an option is similar to buying insurance, and the premium is equivalent to an insurance premium".

Options management is relatively straightforward. In options trading, the separation of rights and obligations between buyers and sellers makes it easier to apply options for risk management on the basis of spot holdings. When using ** to manage the risk, the purchase and sale of ** contracts, are required to pay margin, and with the **** changes daily adjustment for dynamic management, once the margin is insufficient, the hedger must make up the margin according to the regulations, otherwise it will be liquidated, resulting in hedging failure.

Therefore, traders need to keep an eye on contract positions and cash positions at all times, which are more complex and difficult to manage. The use of options for hedging is different, if the first option method (whether call or put) is used to hedge the risk, after the premium is paid at the beginning of the transaction, there is no need to pay margin during the holding of the option, and there is no need to worry about the follow-up margin management, which is relatively much easier to manage the option.

Options are an effective way to measure and manage volatility risk.

Financial investments are usually exposed to two risks: the risk of an absolute decline in the level of assets** (often referred to as "directional risk") and the risk of large fluctuations in assets (often referred to as "volatility risk"). When encountering a large fluctuation range of assets**, it will lead to heavy losses for investors.

For institutional investors, it is extremely important to manage not only directional risk, but also volatility risk, and to maintain the value of the portfolio stable. Volatility risk-adjusted returns have become the most important criterion for measuring asset management effectiveness, and the importance of controlling volatility risk is increasing.

In addition to being used as a hedging tool, options have the following functions:

Capital utilization: Options can be used for capital utilization because they have a leverage effect that allows investors to gain greater control of assets with less capital.

Trading Income: Options can be used as a trading income tool, because investors can make profits from fluctuations by buying options. For example, if an investor buys a call option and the underlying asset is ****, the investor can make a profit by placing the option at a higher price in the market.

Asset allocation: Options can be used as an asset allocation tool because they can be used for different types of assets, such as **, bonds, commodities, etc. This allows investors to diversify their portfolios across different asset classes through options to reduce risk across the portfolio.

Financial planning: Options can be used for financial planning because they allow investors to purchase or assets at a certain point in the future with a predetermined decision. This allows investors to plan their financial plans in the future in order to better respond to risks.

To sum up, in addition to being used as a hedging tool, options can also be used for capital utilization, trading returns, asset allocation and financial planning, etc., providing investors with more investment opportunities and risk control tools.

In addition to hedging, options have three other functions:

1.Risk transfer, which can be used as a hedging tool to help investors avoid the investment risks of existing assets.

2.Leverage function, leverage is an important reason why it attracts investors, why do you say this, just because investors only need to pay a small amount of option premium, to be able to share the benefits brought by the change of the underlying asset**.

3.Limited loss, although the long side of the option needs to pay the premium, but for investors, the biggest loss is the premium, and the profit margin is very large. If the underlying asset **** is larger, the longer the call option will make a greater profit.

Similarly, if the underlying asset **** is larger, the long side of the put option will make a greater profit.

The role of options is also to open up investment channels for investors, expand the range of investment options, and form a lower-risk combination with **, buy options to speculate, and sell options to earn premiums.

The advantage of options is that there are many functions: first, options relative to spot and **, it has a precision guidance function, what is called precision guidance, just like the more accurate I see the market, I use options to do the same thing, I can do more, such as in January 18 19 even yang, if there is a person at the end of last year, **, January will continue to appear yang, what will he do, he will buy options, The person who buys the option may have earned 1000 in 10 white candlesticks, and the person who buys the underlying may only earn 10.

Clause. First, compared with spot and **, options have a precise guidance function. Clause.

2. Options can enhance the return of holding shares. Third, options are an effective way to hedge risk.

Fourth, reduce the cost of holding the target. When holding a certain target for a long time, if the trend of ** is not active, you can sell the call option of ** by covering, and roll over the new option after the option expires, and continue to collect the premium, so as to continuously reduce the cost of holding the position.

An option is a financial derivative instrument that serves several other purposes in addition to being a hedging tool:

1.Hedging to protect this value: Options can provide investors with a risk management tool to lock in a specific trading risk by selling or selling options.

For example, when an investor holds a certain **, but is worried about **, he can choose a put option to lock in the risk of ******.

2.Reduce investment costs: Options can be used as a tool to reduce investment costs, and investors can reduce investment costs by buying cheap options instead of buying expensive ones.

For example, when an investor wants to buy a certain **, but feels that the current ** is higher, he can choose to buy a put option on that ** to reduce the purchase cost.

3.Obtaining income: Options can also be used as a tool to obtain income, and investors can obtain ****** returns by purchasing options.

For example, when an investor thinks that a certain **** will**, but does not want to take risks, he can choose to buy a call option of the ** in order to obtain the ****** gains.

4.Portfolio optimization: Options can also be used as a portfolio optimization tool, investors can optimize their portfolios and reduce investment risks by purchasing options.

For example, when an investor holds a ** portfolio, he can protect the portfolio by buying put options on the ** portfolio, thereby reducing investment risks.

In short, as a financial derivative instrument, options have a variety of functions, in addition to being used as a hedging tool, they can also be used for hedging, reducing investment costs, obtaining returns and portfolio optimization. When using options, investors need to make reasonable choices according to their own investment objectives, risk tolerance and characteristics of options, so as to reduce investment risks and improve investment returns.

In addition to being used as a hedging tool, options have many other functions, including the following:

Achieve leverage: Options allow investors to gain control of a large number of assets with a small amount of capital, and achieve leverage without slowing down. For example, buying a call option allows the investor to control more with a relatively low price.

Earn income: Investors who hold options can earn premium income by giving option contracts** to other investors. If the market moves in line with the investor's expectations, the investor holding the option can earn a higher return from the market when the option contract expires.

Tax planning: Options trading can be used as a tax planning tool to reduce the tax burden on investors. For example, an investor who holds an option can buy a call option before **** to reduce the tax burden on its future earnings.

Discovery: Changes in the Option's Die Pattern can reflect the market's expectation of changes in the underlying asset, so options can be used for discovery and market. Investors who hold options can understand the market's perception and expectations of the underlying asset by analyzing the changes in options**.

Trading flexibility: Options trading has a high degree of flexibility, and investors can choose different types of options contracts with different expiration dates to trade according to their own needs and market conditions.

Options can be used not only as a hedging tool, but also for leverage, earning, tax planning, discovery and trading flexibility.

Options have an additional hedging advantage over **:1. Less capital occupation;

2. High hedging efficiency;

3. The most important thing is that the hedging of options does not affect my potential income from the market to continue, and there is no cap on the bottom guarantee, and the risk and return can be unequal, and once the stock index ** is fully hedged, the upside and downside space are limited.

Extension of the insurance strategy - the neckline strategyThere are also budget-conscious investors who believe that the "premium" paid for hedging every month is a bit expensive, and there is a way to "bargain". In fact, we can achieve low-cost hedging with the "neckline strategy". The neckline strategy is to hold **, in the same month, ** at the same time at the parity or low strike price of the put contract, and at the same time sell the high strike price of the out-of-the-money call contract, because "** put" and "sell call" are both bearish movements, but the latter is to collect a premium, which can reduce the cost of the entire hedging strategy.

However, the low price may mean a certain "low quality", and the downside protection is fine, but because of the existence of sell subscription, it sacrifices the potential upside gains, and a certain margin is required to open a position. However, because the effect of reducing hedging costs is significant, once the market is judged to be a long-term or even slow downturn, it is better to continue to implement the neckline strategy.

Applicable investor groups and scenarios for option hedging:1. Unwilling to invest too much money in position hedging, and want to flexibly achieve hedging effect.

2. Entities with strict requirements for drawdown control, such as private equity and financing customers.

3. Investors who are unwilling or unable to reduce their positions in the face of potential risks, such as offline IPOs, ** pledges, etc.

4. After a round of ****, use ** put to lock in the take-profit line in advance.

Just look at the name and you'll understand it in seconds.

Options are equity and the like, not physical goods.

**It is a physical object, which can be turned into goods, and options do not have this function.

Suppose you buy one share, the current 100, in order to avoid the risk of stock price, buy a European-style put option with an exercise price of 90, the option price is 5 yuan, and ** and the put option form an asset portfolio. Suppose the stock price falls to 80 yuan on the expiration date of the option, and before the option is purchased, the entire asset portfolio is only **, so the loss is 20 yuan; After buying the put option, because the strike price is 90, the loss is 10 yuan, plus the option premium is 5 yuan, the entire asset portfolio loses 15 yuan. Hedging complete.

For more complex hedging such as delta hedging, gamma hedging, and vega hedging, please refer to the textbook.

Options are often used for risk hedging, and the principle of option hedging is to use the hedging properties of options to reduce the risk of a portfolio. The hedging nature of options means that by selling different types of options contracts at the same time, it is possible to achieve an effect similar to holding a position in certain circumstances.

The risk can be hedged** by purchasing a put option or a combination strategy. Here are a few common put hedging strategies:

1.Buy a put option: Investors can buy put options to protect their portfolios from losses in the market**.

If the market**, the put option will gain value, thus covering the loss of the portfolio. If the market**, the put option will lose value, but the portfolio's gains will also increase.

2.Option portfolio hedging: Investors can hedge their risk by combining put and call options.

For example, it is possible to buy a put option and a call option at the same time, or a put option and a call option to achieve the effect of hedging.

There are also costs and risks associated with strategies that use put options for risk hedging. Buying a put option requires a premium and if the market doesn't, the put option will lose value, and this cost will translate into a loss for the portfolio. At the same time, the volatility of the options market** may also have an impact on the production of options hedging strategies.