Different transaction settlement methods
- The settlement method of option trading is that the buyer exercises the right before the contract expiration date. If the buyer does not exercise the right, the contract will automatically terminate on the expiration date and the option fee will belong to the seller.
- In stock trading, investors do not need to settle before the transaction is completed;
Different transaction expiry dates
- The contract expiration date of option trading is the transaction expiration date.
- Stock trading has no trading expiry date unless the company is delisted
Different rights and obligations in transactions
- In option trading, the buyer has the right to exercise the option but has no obligations, while the seller only has the obligation to perform the option but has no rights;
- In stock trading, the seller, that is, the stock issuer, has the right to issue stocks and the obligation to disclose operating information on time. The buyer, that is, the shareholder, has the right to know and the right to audit, but must also fulfill the obligation to bear operating risks.
Frequently asked questions
Question 1: How do you say option in English?
Options in English are characterized by two-way trading, which is more flexible than stock trading and has the characteristic of unequal profits and losses. At the same time, it is safer than futures trading. There are also multiple strategies that can be used in combination, which makes investment and financial management no longer a single linear profit and loss, but full of more variables.
Question 2: How to play options?
Option trading mainly includes: valuation of option contracts and option trading strategies.
The valuation of option contracts can essentially be considered as a probabilistic prediction of future price changes of the underlying asset.
Also due to the two-way trading model, option trading has a variety of trading strategies, which are more flexible and more challenging for investors’ strategy formulation capabilities, mainly including four strategies: buying call options, buying put options, selling call options, and selling put options.
Question 3: What is a put option?
Put options are called put options in English. Put options mean that the option buyer has the right to sell a certain amount of the underlying asset at a proposed price during the validity period of the option contract. During the price formulation process, the buyer often believes that the value of the underlying asset will fall, and earns the difference between the proposed price and the actual price on the exercise date.
