The Development Of China Options Market

I. Basic Theory of Options TradeOptions refers to a right to buy or sell in the future, which allow the buyer to buy or sell a certain account of specific underlying asset at a set price on (Britain Options) or before (American Options) a given date after paying to the sellers, but without any obligation to buy or sell.A. Call options. To buy a call options is described as an options that gives the buyer the right to buy an underlying asset at a set price on or before the expiration date. To sell a call options is described as an options that gives the seller the obligation to sell an underlying asset at a set price on or before the expiration date.B. Put options. To buy a put options is described as an options that gives the buyer the right to sell a underlying asset at a set price on or before the expiration date. To sell a put options is described as an options that gives the seller the obligation to buy a underlying asset at a set price on or before the expiration date.C. Straddle and Spreads. When the market anticipation of the changes on price is not big, the strategy to sell a straddle or spreads should be adopted, and when the market anticipation of the changes on price is big but the direction of increase or decrease could not be determined, the strategy to buy a straddle or spreads should be adopted.Options trade will develop the depth and scope of china financial market, make the producer and dealer more powerful on risk transfer and hedging, develop the Documents Agriculture and solve the Problems of Agriculture, Countryside and Peasant.II. Development State of China Options MarketSince 1990',some financial tools with options' features on a certain degree had been developed in succession in China, which include warrants, convertible securities and private financial productions.《Temporary Act on Management of Derivatives Trade of Financial institution》 had been issued. The 《Temporary Act》 divides the derivatives trade of financial institutions into two types: One is the financial institutions that makes derivatives trade for avoiding risk of own-asset and debt or making profit and the other is the financial institutions that provides service of derivative trade to their clients (includes financial institution), and forbids any corporation undertaking the business of derivatives trade except bank, trust investment corporation, finance company, finance lease company, mobile-finance company risen domestically and branch of foreign bank in China.The primary features of options market of China are that synchronous development with future market, achievement had been made on options research, the options system is consummating gradually and the influence of options market extend mucha lot.There are some problems in our options trade, which include the scarcity of seller and the professionals, and the limitation of market scope. III. The Choices of The Development of Options MarketSystematically, the strategies could be choosed are as follows:1. To establish the system of market maker. The system of market-maker refers to the system that the market maker offers price in options trade, according to which the investors send orders and make deal with the market maker.(1) The affect of market maker system. First, being good to strengthen the liquidity of options market. Demonstrative research shows a negative relativity between trade quantity of the market maker and the market, and also shows a positive relativity on spread. Second, being good to improve the stability of price. The participation in options pricing made by market maker could ameliorate investor's anticipation and stabilize the market. (2) Admittance of market maker. First, to execute the system, in which there are both designated primary market maker and normal market maker. Second, to establish a special agency to checkup the market maker. (3) To strengthen the intendance and management on market maker. The key point of the intendance and management on market maker is to avoid the cahoots between market makers, and then, is the performance situation of the market-maker' duty.2.Conduct the system of conversion from options to spot. (l)The methods of conversion between options and spot. The conversion between options and spot refers to deal with an agreement made by the buyer and seller holding options with same expiration date, according to which the buyer and seller can convert an options position into a spot position. (2)The benefit of conversion from options to spot, which includes reducing risk, achieving double-win, making invest conveniently, and hedging easily.3.comformation of options trade mode. To develop the function of avoiding risk and stabilizing price of options market, a mixed trade mode should be adopted at the very beginning of options market, which refers to the American options should be adopted for a active specific underlying asset, and the Britain options should be adopted for a inactive specific...