1、Table of ContentsIntroduction 3Benefits of Exchange-Traded Options 5a73 Orderly, Efficient, and Liquid Marketsa73 Flexibilitya73 Leveragea73 Limited Risk for Buyera73 Guaranteed Contract PerformanceOptions Compared to Common Stocks 8What is an Option? 9a73 Underlying Securitya73 Strike Pricea73 Prem
2、iuma73 American, European and Capped Stylesa73 The Option Contracta73 Exercising the Optiona73 The Expiration ProcessLEAPS/Long-Term Options 14The Pricing of Options 15a73 Underlying Stock Pricea73 Time Remaining Until Expirationa73 Volatilitya73 Dividendsa73 Interest Ratesa73 Understanding Option P
3、remium TablesBasic Strategies 18Buying Calls 18a73 to participate in upward price movementsa73 as part of an investment plana73 to lock in a stock purchase pricea73 to hedge short stock salesBuying Puts 23a73 to participate in downward price movementsa73 to protect a long stock positiona73 to protec
4、t an unrealized profit in long stock Selling Calls 28a73 covered call writinga73 uncovered call writingSelling Puts 33a73 covered put writinga73 uncovered put writing1IntroductionOptions are financial instruments that can provideyou, the individual investor, with the flexibility youneed in almost an
5、y investment situation you mightencounter.Options give you options. Youre not just lim-ited to buying, selling or staying out of the market.With options, you can tailor your position to yourown situation and stock market outlook. Considerthe following potential benefits of options:a73 You can protec
6、t stock holdings from a declinein market pricea73 You can increase income against current stock holdingsa73 You can prepare to buy stock at a lower pricea73 You can position yourself for a big marketmove even when you dont know whichway prices will movea73 You can benefit from a stock prices rise or
7、 fallwithout incurring the cost of buying or sellingthe stock outrightA stock option is a contract which conveys to itsholder the right, but not the obligation, to buy orsell shares of the underlying security at a specifiedprice on or before a given date. After this givendate, the option ceases to e
8、xist. The seller of anoption is, in turn, obligated to sell (or buy) theshares to (or from) the buyer of the option at thespecified price upon the buyers request.Options are currently traded on the followingU.S. exchanges: The American Stock Exchange,L.L.C. (AMEX), the Chicago Board OptionsExchange,
9、 Inc. (CBOE), the InternationalSecurities Exchange L.L.C. (ISE), the PacificExchange, Inc. (PCX), and the Philadelphia StockExchange, Inc. (PHLX). Like trading in stocks,option trading is regulated by the Securities andExchange Commission (SEC).Conclusion 35Glossary 36Appendix: Expiration Cycle Tabl
10、es 41For More Information 43This publication discusses exchange-traded options issued byThe Options Clearing Corporation. No statement in thispublication is to be construed as a recommendation to pur-chase or sell a security, or to provide investment advice.Options involve risks and are not suitable
11、 for all investors.Prior to buying or selling an option, a person must receive acopy of Characteristics and Risks of Standardized Options.Copies of this document may be obtained from your brokeror from any of the exchanges on which options are traded. Aprospectus, which discusses the role of The Opt
12、ionsClearing Corporation, is also available without charge uponrequest addressed to The Options Clearing Corporation,440 S. LaSalle St., Suite 908, Chicago, IL 60605, or to anyexchange on which options are traded.June, 20002 3Benefits of Exchange-Traded OptionsOrderly, Efficient, and Liquid MarketsF
13、lexi-bilityLeverageLimited RiskGuaranteedContract Performance. These are the major benefitsof options traded on securities exchanges today.Although the history of options extends sev-eral centuries, it was not until 1973 that standard-ized, exchange-listed and government-regulatedoptions became avai
14、lable. In only a few years, theseoptions virtually displaced the limited trading inover-the-counter options and became an indispens-able tool for the securities industry.Orderly, Efficient and Liquid MarketsStandardized option contracts provide orderly, effi-cient, and liquid option markets. Except
15、under spe-cial circumstances, all stock option contracts are for100 shares of the underlying stock. The strike priceof an option is the specified share price at which theshares of stock will be bought or sold if the buyer ofan option, or the holder, exercises his option. Strikeprices are listed in i
16、ncrements of 212, 5, or 10points, depending on the market price of the under-lying security, and only strike prices a few levelsabove and below the current market price are trad-ed. Other than for long-term options, or LEAPS,which are discussed below, at any given time a par-ticular option can be bo
17、ught with one of four expi-ration dates (see tables in Appendix). As a result ofthis standardization, option prices can be obtainedquickly and easily at any time during trading hours.Additionally, closing option prices (premiums) forexchange-traded options are published daily inmany newspapers. Opti
18、on prices are set by buyersand sellers on the exchange floor where all trading isconducted in the open, competitive manner of anauction market.The purpose of this booklet is to provide anintroductory understanding of stock options andhow they can be used. Options are also traded onindexes (AMEX, CBO
19、E, PHLX, PCX), on U.S.Treasury rates (CBOE), and on foreign currencies(PHLX); information on these option products isnot included in this booklet but can be obtained bycontacting the appropriate exchange (see pages 43and 44 for addresses and phone numbers). Theseexchanges seek to provide competitive
20、, liquid, andorderly markets for the purchase and sale of stan-dardized options. All option contracts traded onU.S. securities exchanges are issued, guaranteed andcleared by The Options Clearing Corporation(OCC). OCC is a registered clearing corporationwith the SEC and has received a AAA rating from
21、Standard thus a $5 premiumrepresents a premium payment of $5 x 100, or $500,per option contract. Lets assume that one monthafter the option was purchased, the stock price hasrisen to $55. The gain on the stock investment is$500, or 10%. However, for the same $5 increase inthe stock price, the call o
22、ption premium mightincrease to $7, for a return of $200, or 40%. Althoughthe dollar amount gained on the stock investment isgreater than the option investment, the percentagereturn is much greater with options than with stock.Leverage also has downside implications. Ifthe stock does not rise as anti
23、cipated or falls duringthe life of the option, leverage will magnify theinvestments percentage loss. For instance, if in theabove example the stock had instead fallen to $40,the loss on the stock investment would be $1,000(or 20%). For this $10 decrease in stock price, thecall option premium might d
24、ecrease to $2 resultingin a loss of $300 (or 60%). You should take note,6 7unlike shares of common stock, the number of out-standing options (commonly referred to as “openinterest”) depends solely on the number of buyersand sellers interested in receiving and conferringthese rights.a73 Unlike stocks
25、 which have certificates evidencingtheir ownership, options are certificateless. Optionpositions are indicated on printed statements pre-pared by a buyers or sellers brokerage firm.Certificateless trading, an innovation of the optionmarkets, sharply reduces paperwork and delays.a73 Finally, while st
26、ock ownership provides the hold-er with a share of the company, certain voting rightsand rights to dividends (if any), option owners par-ticipate only in the potential benefit of the stocksprice movement.What Is an Option?A stock option is a contract which conveys to itsholder the right, but not the
27、 obligation, to buy orsell shares of the underlying security at a specifiedprice on or before a given date. This right is grantedby the seller of the option.There are two types of options, calls and puts.A call option gives its holder the right to buy anunderlying security, whereas a put option conv
28、eysthe right to sell an underlying security. For example,an American-style XYZ Corp. May 60 call entitlesthe buyer to purchase 100 shares of XYZ Cmon stock at $60 per share at any time prior tothe options expiration date in May. Likewise, anAmerican-style XYZ Corp. May 60 put entitles thebuyer to se
29、ll 100 shares of XYZ Corp. commonstock at $60 per share at any time prior to theoptions expiration date in May.Options Compared to Common StocksOptions share many similarities with commonstocks:a73 Both options and stocks are listed securities.Orders to buy and sell options are handled throughbroker
30、s in the same way as orders to buy and sellstocks. Listed option orders are executed on thetrading floors of national SEC-regulated exchangeswhere all trading is conducted in an open, competi-tive auction market.a73 Like stocks, options trade with buyers makingbids and sellers making offers. In stoc
31、ks, those bidsand offers are for shares of stock. In options, thebids and offers are for the right to buy or sell 100shares (per option contract) of the underlying stockat a given price per share for a given period of time.a73 Option investors, like stock investors, have theability to follow price m
32、ovements, trading volumeand other pertinent information day by day or evenminute by minute. The buyer or seller of an optioncan quickly learn the price at which his order hasbeen executed.Despite being quite similar, there are alsosome important differences between options andcommon stocks which sho
33、uld be noted:a73 Unlike common stock, an option has a limitedlife. Common stock can be held indefinitely in thehope that its value may increase, while every optionhas an expiration date. If an option is not closed outor exercised prior to its expiration date, it ceases toexist as a financial instrum
34、ent. For this reason, anoption is considered a “wasting asset.”a73 There is not a fixed number of options, as there iswith common stock shares available. An option issimply a contract involving a buyer willing to pay aprice to obtain certain rights and a seller willing togrant these rights in return
35、 for the price. Thus,8 9option has a strike price that is greater than the cur-rent market price of the underlying security, it is alsosaid to be in-the-money because the holder of this puthas the right to sell the stock at a price which isgreater than the price he would receive selling thestock in
36、the stock market. The converse of in-the-money is, not surprisingly, out-of-the-money. If thestrike price equals the current market price, theoption is said to be at-the-money.PremiumOption buyers pay a price for the right to buy or sellthe underlying security. This price is called theoption premium
37、. The premium is paid to the writer,or seller, of the option. In return, the writer of a calloption is obligated to deliver the underlying security(in return for the strike price per share) to a calloption buyer if the call is exercised. Likewise, thewriter of a put option is obligated to take deliv
38、ery ofthe underlying security (at a cost of the strike priceper share) from a put option buyer if the put is exer-cised. Whether or not an option is ever exercised,the writer keeps the premium. Premiums are quotedon a per share basis. Thus, a premium of 78 repre-sents a premium payment of $87.50 per
39、 option con-tract ($0.875 x 100 shares).American, European and Capped StylesThere are three styles of options: American,European and Capped. In the case of an Americanoption, the holder of an option has the right to exer-cise his option on or before the expiration date of theoption; otherwise, the o
40、ption will expire worthlessand cease to exist as a financial instrument. At thepresent time, all exchange-traded stock options areAmerican-style. A European option is an optionwhich can only be exercised during a specified periodof time prior to its expiration. A Capped option givesthe holder the ri
41、ght to exercise that option only dur-ing a specified period of time prior to its expiration,unless the option reaches the cap value prior to expi-ration, in which case the option is automaticallyUnderlying SecurityThe specific stock on which an option contract isbased is commonly referred to as the
42、underlyingsecurity. Options are categorized as derivative secu-rities because their value is derived in part from thevalue and characteristics of the underlying security.A stock option contracts unit of trade is the num-ber of shares of underlying stock which are repre-sented by that option. General
43、ly speaking, stockoptions have a unit of trade of 100 shares. Thismeans that one option contract represents the rightto buy or sell 100 shares of the underlying security.Strike PriceThe strike price, or exercise price, of an option is thespecified share price at which the shares of stock canbe bough
44、t or sold by the holder, or buyer, of theoption contract if he exercises his right against awriter, or seller, of the option. To exercise youroption is to exercise your right to buy (in the case ofa call) or sell (in the case of a put) the underlyingshares at the specified strike price of the option
45、.The strike price for an option is initially set ata price which is reasonably close to the current shareprice of the underlying security. Additional or sub-sequent strike prices are set at the following inter-vals: 212-points when the strike price to be set is$25 or less; 5-points when the strike p
46、rice to be setis over $25 through $200; and 10-points when thestrike price to be set is over $200. New strike pricesare introduced when the price of the underlyingsecurity rises to the highest, or falls to the lowest,strike price currently available. The strike price, afixed specification of an opti
47、on contract, should notbe confused with the premium, the price at whichthe contract trades, which fluctuates daily.If the strike price of a call option is less thanthe current market price of the underlying security,the call is said to be in-the-money because the holderof this call has the right to
48、buy the stock at a pricewhich is less than the price he would have to pay tobuy the stock in the stock market. Likewise, if a put10 11accepting exercise instructions from customers, andthose cut-off times may be different for differentclasses of options.Upon receipt of an exercise notice, OCC willth
49、en assign this exercise notice to one or moreClearing Members with short positions in the sameseries in accordance with its established procedures.The Clearing Member will, in turn, assign one ormore of its customers (either randomly or on a firstin first out basis) who hold short positions in thatseries. The assigned Clearing Member will then beobligated to sell (in the case of a call) or buy (in thecase of a put) the underlying shares of stock at thespecified strike price. OCC then arranges with astock clearing corporation designated by theClearing Member of t
