Outright Option
An outright option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date. Outright options are typically categorized into two types: call options and put options. A call option grants the holder the right to purchase the underlying asset at a predetermined price in the future, whereas a put option grants the holder the right to sell the underlying asset at a predetermined price in the future. Outright options are commonly used for hedging risks or for speculative purposes, and the holder pays a premium to acquire this right.
Definition: A direct option is a financial derivative that grants the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price at a specific time. Direct options are typically divided into two types: call options and put options. A call option gives the holder the right to purchase the underlying asset at a predetermined price at a future date, while a put option gives the holder the right to sell the underlying asset at a predetermined price at a future date. Direct options are commonly used for hedging risks or speculation, and the holder only needs to pay an option premium to obtain this right.
Origin: The concept of options can be traced back to ancient Greece, but the development of the modern options market began in the 1970s. In 1973, the Chicago Board Options Exchange (CBOE) was established, marking the beginning of standardized options trading. Since then, the options market has rapidly developed into an important financial derivative.
Categories and Characteristics: Direct options are mainly divided into two categories:
- Call Option: Grants the holder the right to purchase the underlying asset at a predetermined price at a future date. Suitable for investors who expect the price of the underlying asset to rise.
- Put Option: Grants the holder the right to sell the underlying asset at a predetermined price at a future date. Suitable for investors who expect the price of the underlying asset to fall.
- Right but not obligation: The holder can choose whether to exercise the option.
- Option premium: The holder must pay a premium to obtain the right.
- Leverage effect: Options trading can leverage a larger market position with a smaller amount of capital.
Specific Cases:
- Case 1: Suppose Investor A buys a call option that grants the right to purchase 100 shares of a company at $50 per share in three months. If the stock price rises to $60 after three months, Investor A can exercise the option, buy the shares at $50, and sell them at the market price of $60, thus making a profit.
- Case 2: Suppose Investor B buys a put option that grants the right to sell 100 shares of a company at $30 per share in two months. If the stock price falls to $20 after two months, Investor B can exercise the option, sell the shares at $30, thus avoiding a larger loss.
Common Questions:
- What is an option premium? The option premium is the fee paid by the holder to obtain the right granted by the option.
- What is the expiration date of an option? The expiration date is the last date on which the option holder can exercise their right.
- What is the strike price? The strike price is the predetermined price at which the underlying asset can be bought or sold as specified in the option contract.
