USING REAL OPTIONS TO ACCEPT INVESTMENT SOLUTIONS
As a result of studying this chapter, the student must:
• The theoretical nature, functions and basic principles of the organization of financial and investment management, their information support;
• the laws of the development of nature, society and thinking and be able to operate with this knowledge in professional activities;
• the fundamentals of managing real and financial investments, the formation of investment resources;
be able to
• Develop options for management decisions and justify their selection based on criteria for socio-economic efficiency;
• use regulatory legal documents in their activities;
• Analyze information and statistical materials on the assessment of the financial and investment activities of the organization, using modern methods and valuation indicators;
• use modern methods to assess the effectiveness of financial activities, investment projects and financial instruments in practice;
• the skills of a reasonable choice of the method of financing the activities of the organization, taking into account internal capabilities and environmental factors;
• the ability to assess the impact of investment decisions and financing decisions on the growth of the value (value) of the company;
• The ability to independently acquire (including through information technology) and use in practice new knowledge and skills, including new areas of knowledge not directly related to the field of activity.
The concept, the history of the occurrence and classification of options
The exact date of appearance of the first option is unknown, but it is generally accepted that the history of options began from those ancient
Times, when the Romans and the Phoenicians used similar contracts in the field of sea freight. These contracts were akin to today's cargo options that give the option holder the option to choose to replace one shipment with another.
Used options in the Netherlands in the early 1600's. - in the heyday of trade in tulips. In America, the first stock options appeared in 1872 together with the appearance of shares. These call and put options were invented by the American financier Russell Sage , and they were intended for trading in the OTC options market. The first option contracts were not standardized in terms of volumes and terms, and then there were no options pricing models, so the options market was inefficient at that time.
Call (call) - is right, but not an obligation to buy a certain underlying asset at a fixed price. Put (put) - is right, but not an obligation to sell a certain underlying asset at a fixed price. It will be advisable for you to buy the call option while expecting that the market will go up and buy the put option while waiting for the market to decline in the future. At the same time, it is advisable to sell the call option while waiting for the market to fall and sell Put's option while waiting for the market to grow in the future.
Until the Chicago Exchange of options was established on 26.04.1973, option trading was conducted in small quantities and was of an irregular nature. Volumes and periodicity of trading were low, as information about option trading was not available and was conducted with noticeable difficulties. Traders traded options on the phone through dealers who reduced the buyer and seller of this security to conclude personal transactions, which did not contribute to the development of the options market.
With the opening of the Chicago Stock Exchange, any individual or legal entity has the opportunity to trade with the Call or Put options. The Chicago Stock Exchange launched standardized option contracts, each of which was a separate share, comprising 16 shares of US companies.
The option, being a derivative security, has a number of advantages, among which we can distinguish:
- providing a significant leverage (leverage), ie. More revenue with the same amount of investment as compared with the underlying assets;
- Limited risk when buying;
- the flexibility of building investment strategies.
At the same time, this security is not devoid of certain drawbacks, the most significant of which is that options lose value (they are depreciating more quickly).
There is the following classification of options:
- Options Call and Options Put;
- European and American options;
- financial and real options.
The key difference between buyers and sellers of options is that buyers have the right to choose to buy (sell) or not, while option sellers are required to fulfill the buyer's requirements.
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