Description

What are options? 

An option is the right to sell or buy an underlying asset at an agreed price and on a fixed date. The underlying asset is also referred to as the underyling. The agreed price is the strike price or strike, while the respective date means the expiry date. Consequently, each option is a securitised right. For this right, the buyer pays an option premium to the seller. Subsequently, the seller of the option assumes the role of the writer. This means that he no longer has any influence on what happens next. The buyer can decide independently whether to exercise the option or not. This decision is outside the sphere of the seller. 

Options are available on various underlyings. These can be, for example, shares, share indices or futures. In practice, it would be of little use if a single option contract concerned only a single share of the underlying. Since higher sums are often traded, multiples of the underlying are involved. Share options regularly relate to 100 shares. 

What is the subscription ratio of options? 

The subscription ratio of options indicates exactly how many shares in exness Asia login personal area of the underlying are securitised in the specific option contract. The strike price of an option does not refer to the subscription ratio. The strike price always quantifies the price of a single share. Consequently, it is necessary to multiply the total number of all shares in the contract by the strike price of one share. The option ratio is thus necessary to determine the total value of all units in the event of an exercise of the option. 

How is the subscription ratio calculated? 

The calculation of the subscription ratio enables the calculation of the total value of the respective option contract At the same time, the subscription ratio can provide information about the leverage effect of the option. The formula for calculating the subscription ratio is simple. Any buyer or seller of options can quickly make the calculation: 

Total volume option contract=basic value∗reference ratioTotal volume hinspace option contract = underlying value * reference ratio.

Total volumeOptionscontract=Base value∗Ratio of subscription.

Example: The strike of the Apple share in the present share option is 120 euros. The buyer now considers what would happen if he sold his option contract. However, the total volume is significantly higher. Since the option ratio of stock options is usually 100 shares, the total volume of the option contract is 12,000 euros. 

At the same time, subscription ratios can distort the value of an option or warrant. High subscription ratios make the price of the contract appear low. However, this deceives the investor. In order to determine the real value of the transaction, there is no way around taking the subscription ratios into account.