People with free cash seek to invest them profitably. In this regard, Western financial markets are far ahead of domestic ones, as in our country for more than 70 years, interesting tools for generating profit, simply speaking, were absent. European, American, Asian markets by 70-80 The 20th century has somewhat exhausted the variety of the game in the securities segment, which led to the emergence of derivatives - derivatives.
Today, derivative securities, which include put and call options, are defined as securities for the price of something (goods, securities, indices, interest rates, etc.). Or, as uncertificated rights that appear to the holder in connection with a change in the price of an asset lying at the base of the derivative.
These instruments in the late 90s of the 20th century “inflated” the stock markets in various countries so much that it caused economic upheavals, stock market crashes and the instability of the 1997 banking system in the Asian financial market.
Consider in more detail what constitutes a put and call option. In the general case, an option is a contract that gives the right (non-binding) at a certain time to buy or sell the asset that underlies the contract. For the acquisition of such a right, you must pay a premium (i), which is a small part of the total cost. The price of a future purchase (sale) (p) is set in the contract and is not subject to change.
Contacts of this type are divided into put and call options (from the English “put” and “call”). The first option gives the right to sell the asset, and the second - to buy. If the price of an asset that was established at the time of execution of the contract does not suit the holders, then the contract is not fulfilled, because, we emphasize, the option confirms only the right and not the obligation. Thanks to such tools, investors can benefit from changes in the prices of goods, stocks, etc., without actually owning them, which is why derivatives have become so widespread.
The put (call) option may be American (exercised at any time before the end
of the contract) or European (exercised only on the date the contract is executed). An option differs from another derivative instrument, a futures, in that, in the case of fulfillment of the contract, the underlying asset is necessarily delivered.
The potential profit of those who buy the put option is calculated as the price indicated in the contract (p), minus the price of the asset on the market on the day of exercise (h) and premium (i). A positive transaction result is possible if only h <p. With the inverse ratio (p <h), the holder suffers a loss in the amount of premium (i).
For example, you buy a put option on stocks with a strike price of 60 rubles. in 3 months. Plus, pay a premium, say, 5 rubles. It is assumed that prices by that time will drop to 50 rubles. At the time of execution of the contract, you buy shares at this price, sell them by option and receive profit = 70 - 60 - 5 = 5 rubles per share.
Summing up, we can say that the option is really a tool that allows you to make a profit with minimal losses in the form of a premium.