Whether it is the initiative of unilateral over- or under-doing, or the construction of a portfolio for quantitative multi-gap hedging or quantitative arbitrage, in most cases it is necessary to buy specific futures or options of the relevant variety in order to ultimately realize an absolute return on the strategic model.
** Quantitative hedging investment strategies, investment models, and the underlying trading logic are generally difficult for ordinary investors to understand.
** However, the categories of investment instruments used by quantitative investments are not complicated.
** Whether it is an initiative to unilaterally do more or do less, or to build a portfolio to quantify multi-empty hedging or quantified arbitrage, in most cases it is necessary to buy specific futures or options of the relevant varieties in order to ultimately realize an absolute return on the strategic model.
Futures refer to the long-term futures of commodities that can be traded on the spot market. The difference between the two is that futures are actually commodities that can be traded on the spot market or financial commodities that can be traded on the spot market (including stock indices, exchange rates, bond yields, etc.), whereas futures are long-term standardized tradable contracts for commodities such as cotton, soybeans, oil, etc., or financial assets such as stocks and bonds.
Thus, the item can be a commodity (e.g. gold, crude oil, agricultural products) called a commodity futures; or it can be a financial product, called a financial futures. From the point of view of the item that is marked with the futures, the general futures varieties are very important in addition to the popular commodities or financial products, which is standardization.
Pork, for example, can be a commodity futures, with agreed quality oil, copper, plastic and even raw pork, orange juice, and currently there are pork futures, orange juice futures internationally; but TVs, mobile phones, cars, etc. cannot be commodity futures because their products cannot be commodity futures due to brand, model, etc. factors.
From a specific futures trading level, the contract or agreement to buy or sell futures is called a futures contract, and the place to buy or sell futures is called the futures market.
The timing of the futures contract to deliver the spot (called the "deliverable bid") can be a day later, a week later, a month later, three months later, even a year later or longer.
Investors' futures trades can be broadly divided into two types, namely investment or speculation. For spot traders, short selling of long-term contracts in advance, depending on their own current holdings or production volume, is an investment-based short selling hedge; while downstream vendors of this type of spot can lock in advance the long-term cost of producing the raw materials needed by making a multi-term contract in advance, which is known as investing more.
In addition to the above investment trades, other over- or under-trades can be summarized as either active over- or under-speculation on some kind of quantitative hedging strategy.
An option is a right to buy or sell a certain amount of a particular commodity or financial product at a specific price at a specific time in the future.
It is worth noting that an option is a financial instrument issued on the basis of a futures contract, which gives the buyer the right to buy or sell the underlying asset. The holder of the option can choose to buy or not to buy, sell or not to sell within the time period specified in the option, he can exercise this right or waive this right, while the seller of the option must bear the obligations stipulated in the option contract.
Options trading: Options trading began in the late 18th century in the United States and Europe. Options in the modern sense began with the establishment of the Chicago Board Options Exchange (CBOE) on April 26, 1973, to standardize and sell options contracts.
Subsequently, the U.S. Commodity Futures Trading Commission relaxed restrictions on options trading, deliberately introducing commodity options trading and financial options trading.
Today, more than 2,500 stocks and over 60 stock indices are traded on all stock exchanges in the United States, and options exchanges are now located around the world, with the Chicago Stock Exchange being the largest in the world.
The relevant terms of the option contract, including the amount of the contract, the expiration date, the price of the option, etc. The option contract includes both European and American options.
The buyer of a European option cannot exercise the right before the expiration date and can only exercise the right on the expiration date. The buyer of a US option can request execution on the expiration date or any trading day before. It is easy to find that the buyer of the US option has a relatively large margin of rights. The seller of the US option also has a correspondingly large risk.
Currently, the most common options trading varieties internationally include stock index options, individual stock options, commodity options, foreign exchange options, interest rate options, etc., the vast majority of which are derivatives of the corresponding futures.
It is worth noting that, like many new types of financial derivatives that have become increasingly innovative since 2000, CDS (credit default swaps, also known as credit default swaps), which received worldwide attention at the outbreak of the subprime crisis in the United States in 2008, is also an option. While domestically, the only formal trading varieties that are currently available are the 50 ETF option listed on the Shanghai Stock Exchange, the interest rate swap option traded on the interbank market and the foreign exchange swap option. Last Friday (23 September), the China Interbank Trade Association also announced the official launch of the Chinese version of CDS, which is used to enrich the trading of domestic bond markets and provides investors with a tool to hedge the risk of bond default through this new option.