CAPITAL MARKET AND INVESTMENT

ANALYSIS : OPTIONS TRADING

Mauren Putri Salenda
Marselinus Asri

Universitas Atma Jaya Makassar, Indonesia

Email : maureputrisalenda@gmail.com

ABSTRACT
The development of the investment world is not only shown by the increasing amount of money invested or by
the increasing number of investors who invest, but is also shown by the increasing number of alternative
investment instruments that investors can choose to invest in. In addition to investing by owning directly the
securities traded in the market, investors can also invest by buying derivatives of these securities. Securities
whose value is wholly or partly derived from other securities are called derivative securities. One type of
derivative securities that has been widely known and traded by the public is options. Lately there have been a
lot of advertisements regarding options training. Many investors are tempted by this option transaction
advertisement because it can be profitable, even though the option transaction has not worked properly on the
Indonesia Stock Exchange (IDX). Options on the IDX are known as stock option contracts (KOS). IDX started
trading stock option contracts (KOS) on October 6, 2004. IDX defines stock options as the right owned by a
party to buy (call option) and or sell (put option) to another party over a number of shares at a strike price. and
within a certain time.

1. INTRODUCTION functions as an intermediary between the broker

An option is an agreement/contract between the
option seller and the option buyer where the option
seller guarantees the option buyer's right to buy or
sell certain assets at a predetermined time and price.
Options are financial instruments that:
1. Created by an exchange, not a company
2. Purchased or sold primarily by investors
3. Important for investors and financial managers
Stock options are issued by investors to be sold to
other investors, the company that applies the issuer
of the shares that are used as benchmarks are not
involved in the option transaction. Based on the
forms of rights that occur, options can be grouped
into two, namely:
1. Call option, which is an option that gives the
holder the right to buy a certain number of shares at
a predetermined amount of time and price.
2. Put options, namely options that give the owner
the right to sell certain shares at a predetermined
amount, time and price.
Option securities can be traded on stock
exchanges or parallel exchanges. Options traders,
there is a kind of options clearing house that
representing the buyer and the party selling the
option. Option exercise transactions are carried out
using an Option Clearing Corporation (OCC)
intermediary, where OCC becomes the buyer for
all sellers and at the same time becomes the seller
for each buyer.
2. DISCUSSION
The advantages and disadvantages of options are
as follows:
1. Buyer (call option)
For example, there is a call option on ABC stock,
and the strike price is set at Rp. 1000. ABC's share
price at that time was Rp. 1000. The option
premium price is IDR 50. The characteristics of
the advantages and disadvantages of a call option
are slightly different from the characteristics of the
advantages and disadvantages that investors will
get if they buy shares. The amount of profit or loss
that can be obtained by the two investors depends
on the ABC stock price at the expiration date.
Expiration
date is the first expiry date of the registration of
share ownership in a particular company.
2. Seller (call option)
The profit or loss profile of a call option seller is
the opposite of the profit or loss profile of a call
option buyer. Therefore, the profit profile of the
call option seller at the expiration date will be equal
to the loss suffered by the call option buyer.
3. Buyer (put option)
The gain or loss for the put option buyer at the
expiration date will be affected by ABC's stock
price in the market. Buyers of put options will
benefit if the price of ABC's stock in the market
declines.
4. Seller (put option)
The maximum profit that a put option seller can get
is the option premium price, while the maximum
loss occurs when the stock price drops to zero. The
maximum loss for a put option seller is the strike
price minus the option premium.
The factors that affect the option price are:
1. The stock price that is used as a benchmark
2. Strike price set
3. Expiration date of option
4. Expected stock price volatility over the life of the
option
5. Short-term interest rates over the life of the
option.
Valuation of an option needs to be done to
estimate the intrinsic value of an option and will
also be useful in determining the price of an option.
In option valuation, we sometimes encounter
situations where the price of the option premium
exceeds the intrinsic value of the option. This
excess is called the time value or time premium.
The intrinsic value of an option is the economic
value if the option is exercised. If there is no
positive economic value of an option then the
intrinsic value of the option is zero. So, a call
option will have a positive intrinsic value if the
stock price is greater than the strike price.
The amount of intrinsic value depends on the
difference between the actual stock price and the
strike price. However, if it turns out that the strike
price is greater than the stock price, then the
intrinsic value of the call option is zero.
If the strike price of a call option is greater than
the stock price, the option is said to be out of the
money. If the strike price is the same as the stock
price, the option is said to be at the money.
Options that are in a position either at the money
or out of the money will have an intrinsic value of
zero because the two positions do not provide a
profit to the option buyer if the option is exercised.
3. CONCLUSION
An option is an agreement/contract between
the option seller and the option buyer where the
option seller guarantees the option buyer's right to
buy or sell certain assets at a predetermined time
and price. Options give the holder the right to buy
and sell at a certain price and date, but not the
obligation to buy the stock at a predetermined
price. If the holder of the option exercises the
purchase right, the cost of the shares to the holder
of the right = the price of the shares applied in the
contract + the cost of the option contract. But if
not, then the rights holder does not exercise the
contract but incurs a fee for the option. The option
trading mechanism is where the call option seller
submits a number of shares that are used as
benchmarks to the OCC and the option buyer who
will exercise the call option buys the shares from
OCC.
Considering that capital market players do not
yet fully understand or have sufficient experience
in trading stock options, so that the socialization
period for the implementation of stock option
contracts is carried out at least one year, and after
that a re- evaluation is carried out, both the
infrastructure used, the development of the
capabilities of the stock options. market
participants and investors, as well as re-evaluation
of regulations related to trading mechanisms. The
implementation of stock option contract trading
needs to be supported by an adequate set of rules,
both general rules and specific rules for all parties
involved in stock option trading aimed at
protecting the interests of investors.