What are Options and how can Fintalent help you hire the best Options Consultant?
Options are financial derivatives whose value is derived from the underlying asset. They are contracts between two parties that oblige one party to buy or sell the underlying asset, at a specific price, on or before a specific date. Both parties benefit from these agreements because they are paying for an asset which is usually less risky than the market as a whole.
An option is an agreement between buyer and seller, which gives one party the right, but not obligation, to buy or sell an underlying security at a specific price (strike price) by a specific date (expiration date or maturity). An option’s value can be measured by how much it should be worth if exercised. Any other exchange-traded product – such as stock index futures – can be viewed as having certain characteristics of options. Therefore, the theory of options pricing is valuable for valuing other types of contracts; see Financial theory.
Fintalent, the hiring and collaboration platform for tier-1 M&A and Strategy professionals offers hiring managers the opportunity to engage Options Consultants from across the world. Fintalent’s invite-only and selection process ensures it only has the best and most experienced Options Consultants in its fold. With a straight forward hiring and recruitment process, hiring managers are sure to find Fintalent to be an indispensable part of their manpower engagement process.
The seller of an option is called the writer. The buyer of the option is also called the holder. The two major parties in an option contract are thus “option writers” and “option buyers”. The buyer has the right to buy (call) or sell (put), while the seller has no choice; he must sell or buy if his contract gets exercised. Fintalent, the hiring and collaboration platform for tier-1 Strategy and M&A Professional has some of the best Options Consultants as well as financial analysts on its platform. The array of screened professionals available for hire on the platform allows hiring managers to have access to some of the best Options Consultants with varied experience across different industries around the globe.
Options can be purchased on any exchange where you can trade stocks, bonds, commodities, indices and more. Options trading involves taking positions in assets with different levels of risk tolerance in order to compensate for residual risk within each investment’s potential return if certain conditions are met.
An option is a contract that allows you to enter into a contract with an investor to buy or sell an underlying asset within a pre-determined date for a price agreed upon today. It allows you to speculate on the future prices of the underlying asset, but many people are wary of investing in options because they’re generally more complex than other financial instruments.
Options are one of the most effective ways to manage risk, which is why options are used by high net worth individuals. Options open up several investment opportunities that offer great returns even when volatility is high. Options can be used as part of your risk management plans where they can help reduce volatility without sacrificing income potential.
Advantages of Options
- Long-term income potential. Long-term capital growth due to underlying asset appreciation. Depending on the asset, you will receive different levels of stock market returns. The higher the likelihood of an increase in value, the more time and effort it takes to accumulate a large amount of equity for investing. Options give investors access to investments that produce consistent and predictable long-term capital gains. This gives investors a better alternative to other forms of investments that seek to provide them with greater gains over a short period of time, such as stocks and commodities.
- Access income in a time when incomes are Low. Access capital in a time when capital is extremely limited. Many financial institutions have restricted access to capital and securities, resulting in limited return potential. Options give investors access to assets that can provide high returns when placed into the hands of the right person with the right strategies.
- Income potential from an asset that is not correlated to world markets [e.g., high exposure from natural resources, real estate etc.] [which has great forecast potential for an investor] There are 2 main types of options: call and put. A call option gives you the right but not the obligation to buy an underlying asset at a fixed price within a fixed date or period.
- Minimizes the loss. Depending on the type of contract you have with an investor, you are able to limit your exposure by investing in options that are less liquid, or more liquid. Options are also able to minimize the amount of exposure an investor has to bear in terms of equity exposure because there is usually a minimal risk exposure for options contracts.
- High-risk/high-reward opportunities
- Alternative investments that offer higher potential returns than other types of investments.
- Higher yields from capital appreciation
- Increase potential for income. Many investors who invest in options will see a greater amount of return from dividends and other income sources.
What are the various forms of Options?
Two basic forms of options – calls and puts – are stocks whose prices behave like call options and like put options. Stock indexes can be viewed as bundles of call or put options on individual stocks.
In exchange-traded options, the buyer usually pays a premium for the right to buy when the underlying is available and exercises it when its price is reached. Premiums are a function of how much a buyer values the right to buy in the future at a fixed price instead of buying it now. The longer an option has to be in-the-money before it expires, the more expensive the premium becomes. This is known as “time value will out” or “time value decay”. In most cases, however, options that have been in-the-money for a long time don’t pay much more than their strike prices – this makes it unlikely that investors will be able to predict time value from pricing patterns alone. In addition, the value of a call option often decreases as it approaches expiration.
In exchange-traded options, the buyer pays a premium to the seller for having the right to sell when the underlying is available and exercising it when its price is reached. Premiums are a function of how much a seller values the right to sell in the future at a fixed price instead of selling it now. The longer an option has to be out-of-the-money before it expires, the less expensive its premium becomes. This is known as “time value on” or “time value decay”.
Options are also traded over-the-counter (OTC) where “cash and carry” contracts are common. In these contracts the seller of the option does not pay any money until the buyer exercises his right to buy or sell, and the buyer is not obligated to purchase or sell until he wants to. However, since options can be easily replicated by other financial instruments it is common for large scale investors to avoid OTC markets.
It should be noted that an option contract may have other terms than those listed above. For example, put options are often strike below current market price which means that put holders are guaranteed a minimum income even if the value of the underlying asset does not decrease.
Options have a wide variety of uses, from the typical “buy a call” or “sell a put” recommendation, to more advanced strategies such as straddles and spreads .
A Call option gives its holder the right to buy but not the obligation to do so until the contract matures. A Call is usually purchased when one wants to take advantage of rising prices in one’s asset while being protected from large losses in case it falls. In other words, a Call option gives investors what is known as upside protection while providing limited risk versus investing directly in an asset. If done properly, this strategy can significantly increase earnings and stock price gains. However, a Call can also be a risky investment if not done properly.
In its simplest form, a call option is an agreement between the call seller and the call buyer. The buyer of the call pays a small premium to unlock many benefits for his or her portfolio while the seller of the call receives that premium. In this contract, the seller agrees to sell at a specific price (strike price) before a certain date (expiration date). Meanwhile, the buyer has the right to buy at that same price. There are other factors that decide whether or not an option will be worth money when exercised but all else being equal, it will be more valuable if the underlying asset is worth more than its strike price. For example, if at expiration the value of a call is above the strike price, it will likely be worth more than if the options value is below the strike price. At expiration, if the call was purchased by another party and it was immediately exercised, then the buyer would receive the contract’s payoff which is paid by the seller. If there are other options in play (i.e., another buyer who has rights to buy at a lower price), this “other” option may be exercised first resulting in an unwanted result for both parties.
A Put option gives its holder the right to sell but not the obligation to do so until the contract matures. A Put is usually purchased when one wants to take advantage of falling prices in one’s asset while being protected from large losses in case it rises. In other words, a Put option gives investors what is known as downside protection while providing limited risk versus investing directly in an asset. If done properly, this strategy can significantly limit losses and stock price gains. However, a Put can also be a risky investment if not done properly.
In its simplest form, a put option is an agreement between the put seller and the put buyer. The buyer of the put pays a small premium to unlock many benefits for his or her portfolio while the seller of the put receives that premium. In this contract, the seller agrees to buy at a specific price (strike price) before a certain date (expiration date). Meanwhile, the buyer has the right to sell at that same price. There are other factors that decide whether or not an option will be worth money when exercised but all else being equal, it will be more valuable if the underlying asset is worth less than its strike price. For example, if at expiration the value of a put is below the strike price, it will likely be worth more than if the options value is above the strike price. At expiration, if the put was purchased by another party and it was immediately exercised, then the buyer would receive the contract’s payoff which is paid by the seller. If there are other options in play (i.e., another buyer who has rights to buy at a higher price), this “other” option may be exercised first resulting in an unwanted result for both parties.
A Straddle option gives its holder the right to buy and sell (straddle) at the same time and at the same price (call and put, call and put, etc.) The name of the straddle comes from combining these two strategies. A straddler pays a premium to obtain the rights to two features: 1) buying or selling an asset at any time (selling one’s call or buying one’s put), and 2) paying a premium to obtain both features simultaneously.
For example, if someone wanted to own an IBM stock in several months but did not want to pay the current price of $180.00, he might buy a straddle option today at a price of $6.35 for a total premium of $80.05 ($6.35 x 100 shares). This would give him the right to buy or sell 100 shares of IBM at a price anywhere between $146.65 and $190 over the next three months, without paying anything more until that time period was up. At that point he could sell his straddle for a profit if IBM moved up substantially, or continue to hold his straddle and reap continuing profits (until January 19, 2007) by buying or selling IBM options.
A Call Option Spread can be structured as a bull spread or bear spread. A bull spread is created when the investor buys a long-term call and simultaneously writes (sells) one or more short-term calls with higher exercise prices (i.e., lower strike price). A bear spread can be created using similar trading vehicles; however, instead of writing the short-term calls, the investor buys them and sells the longer-term ones.
A Put Option Spread can be structured as a bull spread or bear spread. A bull spread is created when the investor buys a long-term put and simultaneously writes (sells) one or more short-term puts with lower exercise prices (i.e., higher strike price). A bear spread can be created using similar trading vehicles; however, instead of writing the short-term puts, the investor buys them and sells the longer-term ones.
A Calendar option gains its name from a specific feature: expiration dates. The most common form of calendar option is an ordinary calendar option which has only two possible expiration dates, i.e., a fixed date and a fixed time of day at that date. A fixed date calendar option is also known as an American style option. Terms of the contract are set at the time of purchase; i.e.: exercise price, number of contracts purchased, and expiration date. The signature feature of this contract type is the ability to exercise the contract on any business day up until its expiration date. For example, if an investor had purchased a one-month Call Option on Cisco at $26 for $0.80 on January 2nd 2007, he could sell this contract anytime between January 2nd and January 29th inclusive (the expiration date). If the investor was concerned about the price of Cisco dropping during this period, he could exercise his contract early.
The other form of calendar option is the European style option. The European calendar option may only be exercised on the expiration date, or if it is listed as an American-style option, on any business day prior to its expiration date. Like ordinary or fixed strike strike month options, the European style options are also for a fixed exercise price and number of shares. The difference between American style calendar options and European style calendar options is that the former may be exercised any time up until their expiration date, but the latter can only be exercised at expiration or before. If you exercise a European-style Calendar Call Option after its expiration date, it would be treated as an ordinary call with no value.
Why You Need Fintalent’s Freelance Options Consultants
One of the most important things to know about options is that they are not right or wrong, they are simply a tool that can be used correctly or incorrectly. The more you know about the stock market and the underlying assets the better an idea you will have on how to use them effectively. Options trading whether for individuals or for a corporate entity is not for newbies as it requires considerable experience and expertise. This is why Fintalent present options to businesses and individuals looking out for Options Consultants or Options Experts.
Fintalent’s pool of Options Consultants are both varied and professional with numerous years of experience and expertise available to bring in their wealth of experience to the investment of hiring clients.