cocopoker| How to calculate the return on options trading?

Options trading is a type of financial derivatives trading in which investors can gain income by buying and selling option contracts. options tradingcocopokerThe calculation of the income of the company involves multiple factors, including the type of option, exercise price, royalties, market volatility, etc. Below we will introduce in detail how to calculate the return of option trading.

Option type:

There are two types of options trading: call options and put options. A call option means that the buyer has the right to purchase the underlying asset at a fixed price at a certain future time, while a put option means that the buyer has the right to sell the underlying asset at a fixed price at a certain future time. Different types of options trading have different ways of calculating returns.

Exercise price:

The exercise price is the purchase or sale price of the underlying asset specified in the option contract. For a call option, if the market price of the underlying asset is higher than the exercise price, the buyer can choose to exercise to obtain income; for a put option, if the market price of the underlying asset is lower than the exercise price, the buyer can also choose to exercise to obtain income. The exercise price directly affects the return of option trading.

Royalties:

Premium is the fee paid by the buyer to purchase the option contract and is also the source of income for the seller. The size of the premium depends on the intrinsic value and time value of the option. Intrinsic value refers to the difference between the exercise price of the option and the current market price of the underlying asset, while time value refers to the possibility of changes in the price of the underlying asset before the option expires. Premiums are an important parameter in the calculation of options trading income.

Market volatility:

Market volatility refers to the extent of fluctuations in the underlying asset price, which reflects the market's expectations for future price changes. The higher the volatility, the greater the time value of the option, which increases the premium of the option. Therefore, market volatility can also affect the return of options trading.

Formula for calculating options trading income:

Let's take a look at the formula for calculating options trading returns. For call options, the formula for calculating the return is:

Call option yield calculation formula intrinsic value max(current price of underlying asset-exercise pricecocopoker, 0) Time value royalties-intrinsic value total income intrinsic value + time value-royalties

For put options, the formula for calculating the return is:

Put option yield calculation formula intrinsic value max(exercise price-current price of the underlying asset, 0) time value royalties-intrinsic value total income intrinsic value + time value-royalties

It should be noted that the return on option trading is not always positive. If the investor fails to exercise the option before it expires or the intrinsic value and time value of the option are not enough to cover the royalties, the investor will face a loss. Therefore, when investors engage in options trading, they need to fully understand the rules and risks of option trading, and make investment decisions based on their own risk tolerance and investment goals.

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