What is an option?
An option is a contract that gives you the right but not the obligation to buy or sell a specific asset at a certain price at a given time.
At Coincall, we offer European-style options, which means you can only exercise your options on the expiration date and not before.
As an option buyer, you can choose to exercise the option or not. However, as an option seller, you are obligated to fullfill the contract if your buyer decides to exercise the right.
For this right, the buyer will pay an amount of money to you, which is called a premium.
Put and call options
There are two common types of options contracts: puts and calls. A call option gives the buyer the right to buy. A put option gives the buyer the right to sell.
Underlying asset and strike price
All options are associated with an underlying asset and strike price.
Suppose you think the price of Bitcoin will rise, so you buy a Bitcoin call option with a strike price at $30,000. Guess what, even if the bitcoin price continues to rise above $35,000, you can still buy bitcoin at $30,000 on the expiration date and make a profit of $5,000.
Of course, if the price falls below the strike price, the option becomes out-of-the-money and cannot be exercised. This means you will only lose the initial premium paid for the option contract.
Conversely, if you expect the Bitcoin price to fall, you can buy a put option. In addition to buying options, you can also become a seller of options.
Nowadays, options are widely used as a tool for investment and hedging risks. If you want to become an advanced trader, join Coincall now and start your options learning!
Find out more at www.coincall.com