Dong Qiangqiang's Story of Leaving Germany

Chapter 208 208. Options Products
"You're talking about stocks, right?" Dong Qiangqiang knew that Duanmu didn't talk about it just now, so he must still have the desire to talk.

"Hey, it seems that you still understand me." Duan quickly drew a large space on the dining table, and took out a worn-out and heavy laptop from his schoolbag and put it on the table.

"I don't know anyone here, and most of the people I know are not interested in stocks. You are the only one who can talk." Duanmu looked a little disappointed, "I think stocks must be communicated with others more, behind closed doors. It’s easy to get carried away. While I wouldn’t listen to your advice, communicating with you also helps me improve my thinking and logic.”

Dong Qiangqiang also opened a bottle of iced Kimbeck, sat on the side of Duanmu, snapped his fingers, and said, "It's quiet at night, no one disturbs you, let's talk about it."

Duanmu turned on the computer while talking: "From yesterday to now, I have made two important discoveries. First, I found several useful technical indicators. Second, I have already traded a call option."

Hearing that Duanmu had completed a transaction, Dong Qiangqiang immediately became interested.When Duanmu mentioned options yesterday, he didn't have any money left, but now that he has won the lawsuit, a windfall income is about to come in, which gives him a bargaining chip to raise. "Then tell me first, what is the call option?"

"The option products in Germany do not have the same title as in English, but they are called Optionsschein (note: the first letter of the German noun must be capitalized), and the call option is not called call option, but Kaufoptionsschein. For example For example, the current stock price of stock A is 60 marks per share. If investors in the market, such as you or me, think that its stock price will rise within a certain period of time, then in addition to buying stocks, you can also buy this stock. Call options on stocks. Generally, option products will set some fixed face parameters, the most important of which are the basic price of the option, the validity period, and its corresponding ratio to the stock. Assume that the basic price of the option we selected is 50 marks per share. The validity period is 3 months, and the corresponding ratio of options and stocks is 1:1, so the selling price of this option is 11.2 marks per share, that is, you need to spend 11.2 marks to buy one call option. Theoretically speaking, each share The option price of 11.2 marks equals the intrinsic value of 10 marks per share plus the time value of 1.2 marks per share."

Dong Qiangqiang understood a little slowly: "Intrinsic value? Time value? What are these?"

"Intrinsic value can be understood as the current price of stock A minus its base price, that is, 60 marks minus 50 marks equals 10 marks. Time value can be understood as dividing the stock price by the base price equals 1.2 marks." Duanmu took a sip of his cold beer and waved his hand, "But you don't need to worry about these terms. Just remember that you bought the base price of 11.2 marks for 50 marks, valid for 3 months, corresponding to a call option with a ratio of 1:1 That’s fine, and the current price of the stock corresponding to this option is 60 marks. Got it? The sale price of most options will be clearly marked when you buy it, and you can’t make a mistake.”

Dong Qiangqiang nodded.

"Okay, after you buy the option, there will be three possible situations for the stock. The first one is to rise, the second one is to fall, and the third one is a small increase or a small decline or no change. Let's talk about the first situation first."

Dong Qiangqiang tore off a napkin, took a brush and jotted down key words.

"Assuming that after a few weeks, the price per share of stock A has risen by 25 marks to 85 marks per share, the increase is 25 marks divided by 60 marks or 41.7%, then the price of the call option at this time will reach 35 marks per share .”

Dong Qiangqiang tentatively asked while doing calculations on a napkin: "Is this the way to calculate the price? Take the current price of stock A of 85 marks per share minus the base price of this call option of 50 marks per share, and you will get 35 marks per share."

"That's right." Duanmu showed an approving expression, "You react really fast."

"Don't you need to consider the time value at 85 marks per share?" Dong Qiangqiang wondered.

"Generally speaking, time value is only considered when buying options. Of course, we are discussing the most basic call options, but there are actually many other options derived from basic options in the market, such as barrier options and so on."

"I understand. That is to say, as the option price rose from 11.2 marks per share to 35 marks per share," Dong Qiangqiang said quickly, "the price of this call option more than tripled, and the profit per share was 3 marks. , with a profit margin of 23.80%."

"If you have 60 marks in your hand, you can buy a share of A shares. After a few weeks, when it rises to 85 marks, you will make a profit of 25 marks. If we do not consider the tax deduction, your gross profit rate will be It reached 41.7%. But if you spend all the 60 marks and buy 5 call options, then your profit will be..." Duanmu paused intentionally.

"23.8 marks multiplied by 5 is 119 marks." Dong Qiangqiang took a breath, "almost doubled."

Duanmu took another sip of cold beer and looked at Dong Qiangqiang with a smile: "This is the charm of financial leverage."

"But you're talking about the best-case scenario, aren't you? If the stock price of stock A goes down, wouldn't leverage magnify your losses?"

"Assuming that the price per share of stock A drops by 20 marks a few weeks later to 40 marks per share, and the actual stock price is lower than the basic price of the call option by 50 marks, then the call option at this time has no intrinsic value. The price has also become 0. At this time, all the 11.2 marks you invested initially to buy the call option are all lost, and your loss has reached 50%. [-] marks is equivalent to the exercise price of the option in your hand .As for the amplification effect of leverage you mentioned, it should belong to financial futures, which is quite different from option products.”

"Is it possible to think that as long as the stock price falls below the base price of the option, the option price will be cleared?"

Duanmu nodded: "If this is the case on the exercise date, the option price must be zero."

"What about the third situation? What happens if it neither rises nor falls?"

"If a few weeks later, the price of stock A does not change much, say 61 marks or 59 marks per share. For the call option at this time, its price is basically around 11.2 marks per share. This price and investors The purchase price is almost the same, and the call option at this time has neither profit nor loss. However, when this happens very rarely, the stock price will still change somewhat after a few months."

"What if the stock price plummets?" Dong Qiangqiang asked.

"That's similar to the second situation we just said. If the stock price falls below the underlying price, the option has no price."

Dong Qiangqiang nodded thoughtfully: "Does that mean that put options are just the opposite of call options? The more stocks fall, the more money options will make?"

"Anyone who can understand by analogy is suitable for trading such high-IQ financial products." Duanmu praised.

"Just now you said that you found several important technical indicators?" Dong Qiangqiang was a little embarrassed by his praise, and changed the subject, "What is it?"

"Before, I was greatly influenced by my teacher, and I didn't pay much attention to the stock price. More importantly, I paid attention to the business news and financial data of a certain company, so as to judge the future development trend of the stock price, focusing on logical reasoning. .But now I think this is too narrow, so I tried to introduce some technical indicators to help me make a more accurate judgment on future stock prices.”

"Your teacher?" Dong Qiangqiang asked suspiciously, "Does Han University still have a professor who teaches people to trade stocks?"

"No, my teacher is not a professor at Han University," Duanmu smiled. "He is Jesse Livermore, known as the greatest stock speculator in modern times."

This is the first time Dong Qiangqiang heard of this name. He was 21 years old this year.

(Special thanks for this chapter: Shark Wolf’s recommendation ticket)

(End of this chapter)