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Can the shares issued by the company still be used to collect interest? How do Tencent bosses use options for low-risk arbitrage

*This article is pure fiction, and any similar references are pure coincidence.

Full text: 800 words; Suitable group: stock investors who hold a certain stock for a long time, but are not satisfied with the income of the stock, are willing to try using options to collect interest; Main content: Use options tools for low-risk arbitrage to maximize the benefits of the stocks they hold

The world is impermanent; the large intestine covers the small intestine.

This is how it happened. My friend introduced me to a Tencent boy to see if the spark of love could be sparked. After meeting for the first time, we started chatting on WeChat. My little brother learned that I do options. I think the option thing sounds risky and has a high threshold; it's not something that ordinary people can play with.

How did a good risk management tool become a high-risk, high-threshold product? I wasn't sleepy in an instant; I'll correct it for my little brother. It doesn't matter if you go on a blind date or something; it's more important to understand the principles of options.

Big companies like Tencent regularly send their own company stock to employees. At the same time that shares are issued, open a Futu Niu Niu account for the employee, then the stock is filled into the employee's Niu Niu account, and a portion of the stock is unlocked to the employee's holdings list every year.

——————Let's talk about the dividing line of business——————

Investment purpose: Hold a certain stock for a long time and expect to buy it while waiting for a price

At present, this little guy's account has unlocked quite a few stocks. He believes that Tencent's current stock price isn't very beautiful; if he wants to wait for a better one, just buy the price and wait for the price. Then use this money to buy some US stocks through currency exchange within the Niu Niu App.

Before using options tools:

Before he didn't know about options tools, my little brother needed to open the Niu Niu app every day, check Tencent's stock price trends, and wait for the stock price to rise while watching day after day. Even if he reached a psychological price one day, he wouldn't dare to sell, fearing that the stock price would continue to rise after he sold it. Fortunately, this little guy got to know me, and the stock he's lying in his account is about to be exchanged for a generator. His needs can be easily realized using options. Isn't this just a natural fit for the call selling scenario!

After using the options tool:

Assuming that on March 8, 2023, Tencent's stock price was HK$347. My little brother expects to be able to ship at a price of 410 and sell 10 lots of Tencent. Then it can be sold directly for calls that expire on March 30. The target price is 410 calls, and 10 copies are sold. Once this option is sold, the boy's account will immediately be credited with HK$1,440, so HK$1,440 will be credited first.

Hearing this, the little brother seemed interested.

I went on to settle the accounts for him:

Situation 1

If by March 30, Tencent's stock price had risen above HK$410, then according to the options contract, the 10 lots of Tencent in the little brother's holdings would be sold directly at the price of HK$410 and received HK$410,000. At the same time, they had received HK$1,440 in royalties in their pockets a long time ago;

Situation 2

If Tencent's price doesn't reach 410 Hong Kong dollars, then in these half months of waiting for Tencent's good price, my little brother didn't wait in vain. The 1,440 Hong Kong dollar premium was obtained, and Tencent's 10 lots were still in a position, so he could start the next round of call selling arbitrage.

When I heard this, I discovered that the little brother was offline. It wasn't long before he went online again. Turns out he went to settle the accounts, then gave me an output.

Little brother:

This method is good. Isn't this using my stock as collateral and continuing to receive interest?

Previously, I wanted to wait until Tencent had a good price before shipping; my stock didn't generate value during this period. If I sell the call, the stock on my account can generate a steady stream of interest.

I've just calculated it. Tencent's market price for 10 lots is 10*100*347=HK$347,000. Starting today, until March 30, there are 28 calendar days. If the stock price on March 30 falls below 410, I charge HK$1,440. After that, the annualized interest rate is 5.41% *. The point is that this is not risky. Also, I was already going to ship the goods; when the time comes, the stock will actually be sold, so I'm happy. Can't I win this game! When I open the market, I'm going to run a round of operations...

*annualized rate of return = [(revenue/principal)/investment days] * 365 × 100% = [(1440/ 347000)/28] * 365 × 100% = 5.41%

After listening to it, I'm just a good guy, right,It really is the logic of “collecting interest”~~ The boss is learning to use it, it's probably too quick to get started.

Like Tencent's little brother, they own shares and have plans to ship. In the process of waiting for a price to sell, they use stocks as a guarantee and continue to receive interest at a low risk. Annualized returns can outperform interest rates on treasury bonds, getting two things in one stroke.

————Draw key dedicated dividing lines————

How to respond to emergencies?

In the above operation, the professional term is a commercial call. A stock guarantee strategy, as the name suggests, uses your stock as a guarantee to sell the call.

If you don't plan to sell your stock at a certain price you want, then I don't recommend doing the above. Because if Tencent's stock price goes crazy and rises to 420 or even higher, then the portion above 410 will have nothing to do with you.

However, the stock price did not rise in an instant. If it wasn't until March 30, Tencent's stock price had already risen to 410. You think it might continue to rise later, and you didn't want to sell the stock at that time, then you can buy back the corresponding call, close the position, and make a little less money. With this treatment, you will keep your shares and participate in the next round of stock market games.

Risk warning

Options are not only a risk management tool, but also a leverage tool.It can leverage considerable profits with a small amount of capital, but at the same time it also amplifies market risk. The underlying stock and options markets are changing rapidly. Operate carefully, keep an eye on the market diligently, control positions, and do a good job of risk control.Otherwise, it will be a basket full of water, all empty。

How to trade options?

Generally speaking, they access the option chain from the options tab next to the individual stock quotation page and select the appropriate options to trade

Selling calls is good, but it's not completely risk-free.

Next, we will focus on what is the biggest risk faced in the above scenario? How to respond and resolve it.

Having a comprehensive understanding of the risks of selling calls, ordinary people can also skillfully use options to “receive interest”

Related reading>>

When stocks fall, how can we not only leave the market without losing money, but also reduce losses from falling?

How to use options to make money during the earnings season?

Disclaimers

The above content is not and should not be considered investment advice, nor does it constitute an offer or solicitation of any offer to subscribe, trade or redeem any investment product. Option contracts are derivatives and are not suitable for all investors. You should carefully measure your suitability to participate in such transactions based on your own investment experience, investment goals, financial resources and other relevant conditions.

The risk of loss when trading options contracts can be extremely high. In some cases, you may lose more than the amount of your initial deposit. Even if you set backup instructions, such as “stop corrosion” or “limit price” instructions, you may not be able to avoid losses. Market conditions may make such instructions unenforceable. You may be asked to deposit an additional security deposit within a short period of time. If the required amount is not provided within the specified time, your open positions may be closed. However, you are still responsible for any shortfall in your account as a result. Therefore, you should research and understand index options before trading, and carefully consider whether such trading is suitable for you based on your financial situation and investment goals. If you trade options, you should be familiar with the procedures for exercising options and when they expire, as well as your rights and responsibilities when exercising options and when they expire.

This statement does not cover all risks of trading options and other important matters. As far as risk is concerned, you should first understand the nature of the contract to be entered into (and the relevant contractual relationship) and the extent of risk you will have to bear in this regard before entering into any of the above transactions.

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