What are Crypto Options?
Options are a type of derivative, meaning that they obtain their value from an underlying asset like stocks, bonds, or cryptocurrencies. In crypto, options allow a trader to buy or sell a digital asset at a specified price on or before a specific date. However, the trader is not obligated to purchase the underlying asset. This is what separates options from futures contracts.
The agreed-upon price for buying or selling a crypto is called the strike price and the deadline for exercising the options contract is known as the expiration date.
In crypto options, akin to the gift card scenario, you can buy or sell cryptocurrencies at an agreed-upon date and price, but you don’t have to. It’s like having a gift card for digital assets, where you can potentially benefit from price movements without the obligation to make a purchase.
Because you have a contract for a predetermined price for a digital asset, if the prices go up, you can use the option to purchase the asset at a lower price than the current market value. However, if the prices depreciate or remain constant, you can choose not to use the option, and buy the digital asset at the current market value.
The options market, which is a public space to trade options, offers two basic types of options: call options and put options.
Call options are the type of options that grant you the right to buy an underlying asset, while put options give you the right to sell before the expiration date. Investors buy call options when the asset’s value is projected to appreciate and purchase puts options when the asset has a bearish outlook.