What is an Option Cycle?
Option cycle refers to the expiration dates that apply to the different classes of options.
For example:
大型股票AAPL, MSFT, TSLA通常每個星期五結算
Index SPY, QQQ 逢星期一、三、五結算
There are three option cycles that a listed option can be assigned to on the public markets:
- JAJO - January, April, July, and October
- FMAN - February, May, August, and November
- MJSD - March, June, September, and December
What Are Long-Term Equity Anticipation Securities (LEAPS)?
As with all options contracts, a LEAPS contract grants a buyer the right, but not the obligation, to purchase or sell (depending on if the option is a call or a put, respectively) the underlying asset at the predetermined price on or before its expiration date.
I.e. 一年至三年的超長合約
As with many short-term options contracts, investors pay a premium, for the ability to buy or sell above or below the option's strike price. The strike is the decided upon price for the underlying asset at which it converts at expiry.
Pros
- Long timeframe allows selling of the option
- Used to hedge a long-term holding or portfolio
- Available for equity indices
- Prices less sensitive to the movement of the underlying or to the passage of time.
Cons
- Costlier premiums (高保費)
- Long time frame ties up the investment dollars (扎住咗啲錢)
- Markets or companies movements may be adverse
- Prices more sensitive to changes in volatility and interest rates.
Premiums are the non-refundable cost associated with an options contract. The premiums for LEAPS are higher than those for standard options in the same stock because the further out expiration date gives the underlying asset more time to make a substantial move and for the investor to make a healthy profit.
Without LEAPS, investors who wanted a two-year option would have to buy a one-year option, let it expire, and simultaneously purchase a new one-year options contract.
Source: Investopedia
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