Our derivative trading is in no way based upon speculation!
The purpose of the company is to generate income by writing financial contracts. Preferably equity options, index options and volatility contracts, but without restrictions to include other types of derivatives, stock holdings related to options positions and other types of financial instruments if desirable. We mainly write contracts and our trading is in no way based upon speculation. Handling and limiting risk is essential and our main focus.
Nobo Capital was initiated by Combinor (former Norse Combinator), which held experience and expertise in the field, and had for a longer period of time been considering expanding this part of the business. Together with related business partners, Nobo AS was thus founded on July 29th, 2019.
Explaining Our Business
Within our strategy of writing financial contracts, we write put options that obligates us to buy shares of a chosen stock at our strike price, if the stock falls below that price by the expiration date of the contract. We get paid for setting up this obligation, because we are basically selling an insurance policy, so we get the premium. This policy says that if the stock declines below the option’s strike price by expiration, we will buy the stock at the strike price, no matter how far the stock has fallen. This insures another investor, who pays us for this insurance.
Doing this without really knowing what one is doing can be hazardous and involves large amount of risk. Thorough and deep knowledge of how derivative markets work and how quick and large movements in the underlying asset reflect the derivative's price is crucial. Combining this with great knowledge of the underlying companies and maintaining a sufficient amount of excess liquidity and buying power to stand out downturns is the basis of our strategy, together with using financial engineering or just exit burdensome positions early on. Knowing the calculated probabilities for success on each contract or contract combo is further important. What we are looking for is moreover improbabilities. If we also have the ability to write the contract when implied volatility is higher than historical volatility for a great company without major issues, our collected premiums will be greater, but handling and limiting risk always comes first.
What Are Options And Derivatives?
There are many different types of derivatives that can be used for risk management, for speculation, and to leverage a position. Options are one of them. Derivatives is a growing marketplace and offers products to fit nearly any need or risk tolerance. The value of these contracts are reliant upon, or in other words derived out of, an underlaying asset such as a security. Options are contracts between two parties: a buyer and a seller. There are two types of conventional options contracts: calls and puts. A call is the right, but not the obligation, to buy an underlaying asset at a fixed price within a given time constraint set by the expiration date. A put is likewise the right, but not the obligation, to sell an underlaying asset at a fixed price, within a given time constraint set by the expiration date. The key is that buyers of an options contract is not obliged to exercise their agreement to buy or sell. It is an opportunity only, not an obligation.
The rights extended in these contracts can be bought or sold. The party who buys an options contract creates a long ownership position in the contract. Vice versa the party who writes (sells) an options contract creates a short obligatory position. Buyers of options can exercise at their will, so the writers must perform their obligations to get assigned at the discretion of an options holder who exercise. Clearing firms guarantees each trade on behalf of the trader. Each trader of listed options therefore has a clearing firm or a broker that represents the trader to the clearing firm, to make sure everything goes right. Long contracts can be sold to close out the position and ending the right, prior to their expiration date. Short contracts can also be bought to close out the position and ending the obligation. Expiration of the contract, exercise or assignment may therefore not occur.
The Success Of Derivative Markets
Derivative markets have been outstandingly successful. The main reason is that they have attracted many different types of market participants and have a great deal of liquidity. When a trader wants to take one side of a contract, there is usually no problem in finding someone who is prepared to take the other side. Several broad categories of market participants can be identified: hedgers, speculators, arbitrageurs, income traders and strategic investors. Hedgers use derivatives to reduce the risk that they face from potential future movements in a market variable. Speculators use them to bet on the future direction of a market variable. Arbitrageurs take offsetting positions in two or more instruments to lock in a profit. Income traders generate income by writing financial contracts, and strategic investors use derivatives for the ability to get hold of a market variable at a more favorable price than current market price or with less amount of capital binding.