Among the instruments, Ali Sahraee pointed to the significant role of the put option contracts in facilitating trade in the capital market and said over 20 listed companies in TSE were financed via this instrument.
Recalling the advantages of put option compared with other financial instruments, he said the issuing process for this instrument is both cheaper and faster than any other financial instrument in the capital market. Also, in this method the money is in the capital market which helps boost liquidity of the underlying securities.
Additionally, through this instrument, the minimum return for investors is guaranteed and issues related to sale pressure are avoided, according to Financial Tribune.
“Put option is to the benefit of listed companies in the capital market to facilitate their financing process in a timely and less costly manner,” he told Security and Exchange New Agency.
He said given the developments in the financial and monetary markets across continents, devising modern financial instruments to meet investors’ needs is crucial.
“In keeping pace with developments in international capital markets, TSE offers modern trading instruments such as future contracts, put options, and call options in accordance with domestic capital market needs.”
A put option is a contract that gives the owner the right, but not obligation, to sell a specified amount of an underlying security at a specific price and in a specific period.
According to Sahraee, besides buying the option contract, buyers should also buy the underlying security concomitantly. This means that when financing a particular company or enterprise as the seller of the option contracts, the buyer also acquires their underlying securities.
He said the number of put options owned by investors is matched against their remaining securities systematically on a daily basis, adding that the number of equity options owned by investors at the end of each trading day should amount to the maximum number of their underlying securities.
“Otherwise, the surplus put option contracts lose their validity and the sum paid by the buyer is refunded to the seller after deducting due costs.”
The CEO said put options were initially launched with the aim of boosting securities by issuers and major shareholders and today it also functions as a financing instrument.