Crypto Options: Choosing Your Future in Trading

Option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specific strike price.

What is an Option?

An option is a derivative financial contract that allows its holder to buy or sell an asset and requires no obligation. Options have a set price, called the strike price, and an expiration date. They can be used in trading cryptocurrencies, indices, exchange-traded funds (ETFs), etc. The rules governing option trading depend on the type of option.

There are two styles of options: American and European. The difference between them lies in the way the holders interact with the instrument between purchase and expiration.

American options, for example, give their holders the freedom to buy or sell on or before the expiration date. European options, on the other hand, allow holders to exercise their rights only on the expiration date.

In the realm of options, buy and sell actions are called call and put, respectively. A call is a signal that the option holder can buy an asset at a predetermined price and time.

Put and call option strategies work in opposition to each other. It should be noted that options are traded in the options market. Despite the fact that these financial instruments have a high level of risk compared to spot trading, they have several advantages.

For example, they can help investors to allocate funds efficiently, thus maximizing their returns. Moreover, because of reduced financial liabilities, options can be less risky than futures and other types of financial instruments. The optimization of options is very flexible, allowing the creation of synthetic instruments and thus broadening investment alternatives.

Related terms