Options
Options: An option is a derivative contract that gives the holder the right, but not the obligation, to buy or sell an asset such as bitcoin at a set strike price on or before an expiry date. The buyer pays a premium for that right, and the seller takes on the obligation.
Calls and puts
A call option gives the right to buy at the strike price, so it gains value if the price rises above it. A put option gives the right to sell at the strike price, so it gains value if the price falls below it. If an option expires out of the money, the buyer loses the premium.
What are decentralised options?
Decentralised options platforms let users buy and sell options through smart contracts rather than a centralised exchange. Collateral is locked in the contract and settlement is automatic. They remove the exchange as a middleman but add smart contract and liquidity risk.
Frequently asked questions
Can I lose more than the premium when buying an option?
No. A buyer can lose only the premium paid. Sellers of options can face much larger losses.
Are options suitable for long-term investors?
Options are complex leveraged products. Many long-term investors never use them, and understanding them fully comes first.