What are Stock Options Contracts?
In the financial market, options contracts are common derivative financial instruments that grant the holder the right, but not the obligation, to buy or sell a certain quantity of an underlying asset at a specific price at some point in the future, on or before the contract's expiration date. These contracts are particularly significant in the stock market, providing investors with flexibility and risk management capabilities.

Components of Options Contracts
A standard stock options contract typically involves the following key elements:

1.Underlying Asset: The stock or stock index upon which the options contract is based.
2.Premium: The fee paid by the option buyer to the seller in exchange for the rights conferred by the options contract.
3.Strike Price: The fixed price at which the underlying asset can be bought (for call options) or sold (for put options) as specified by the contract.
4.Expiry Date: The final date of validity for the options contract, after which the option becomes worthless.

Types of Options
Stock options are primarily categorized into two types:
1.Call Options: Grant the holder the right to buy the underlying asset at a specific price in the future. Investors may purchase call options if they anticipate an increase in stock prices.
2.Put Options: Grant the holder the right to sell the underlying asset at a specific price in the future. Investors may purchase put options if they anticipate a decrease in stock prices.

On the contrary, if the stock price fails to exceed the exercise price of the call option or drops below the exercise price of the put option, the options become worthless, causing investors to incur losses equivalent to the premium paid. This scenario helps mitigate potential losses that would have been incurred through direct stock purchases.

Value of Options Contracts
The value of options comprises intrinsic value and time value. Options are considered "in the money" if they have intrinsic value; otherwise, they are "out of the money." Additionally, option value, or premium, is influenced by the volatility of the underlying asset.

1、Intrinsic Value:
●In the Money (ITM): Options have positive intrinsic value when exercising them would yield immediate profits.
●Out of the Money (OTM): Options lack intrinsic value when exercising them wouldn't result in immediate profits.
●At the Money (ATM): Options are at the money when the exercise price matches the current market price of the underlying asset, implying neither intrinsic nor time value.

2、Time Value:
Time value reflects the potential for changes in the underlying asset's price before the option's expiration. Time value decreases as the expiration date approaches, a phenomenon known as time decay.
●Determination of Time Value: Time value is based on the time remaining until the option's expiration, with longer durations implying greater potential for price changes and higher time value.
●Time Decay: Time value diminishes more rapidly as the option approaches expiration, especially during the final days before expiration.

Trading Strategies for Options Contracts
Investors can employ various strategies using options contracts:

●Speculation: Investors may purchase options to speculate on anticipated changes in stock prices.
●Hedging: Stockholders may purchase put options to protect themselves from potential price declines.
●Income Enhancement: By selling call options, investors can generate additional income while holding stocks.

Stock options contracts serve as potent financial instruments, offering investors flexibility and the potential for high returns. However, they also entail risks. Investors should select suitable options strategies based on their risk tolerance and market expectations.

How to place a trade on uSMART mobile application：
After logging into the uSMART SG APP, click on "Quick" from the top right corner of the page. Select the desired stock options, and click on the exercise price to view trading details. Then, tap on "Trade" at the bottom right corner, and choose the "Buy/Sell" function. Finally, select the stock price, quantity of shares, and trading conditions before submitting the order. Below are image-guided instructions:

This diagram is provided for illustrative purposes exclusively

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