Crypto options
Also called: options · call option · put option
Definition
Crypto options are contracts that give the buyer the right, but not the obligation, to buy (call) or sell (put) a cryptocurrency at a set strike price on or before a set expiry date.
How crypto options works
The buyer pays a premium up front. A call option gains value when the price rises above the strike; a put gains when the price falls below it. If the option expires without value, the buyer loses only the premium. The seller, also called the writer, receives the premium but takes on the obligation and can face large losses.
Option prices depend on the current price, the strike, time to expiry and implied volatility, the market's estimate of how much the price may move. Crypto volatility is high, so premiums are often expensive compared with stock options. Most crypto options are European style, exercisable only at expiry, and settle in cash.
Traders use options to hedge, for example buying puts to protect holdings, or to bet on direction with a capped loss. Deribit is a major crypto options venue, and exchanges such as OKX, Binance and Bybit also list options. Products like dual investment are built on selling options. Contract sizes and settlement rules differ by venue.
Example
Suppose BTC trades at 65,000 USDT and you buy a call for 0.1 BTC with a strike of 70,000, expiring in a month, for a premium of 200 USDT. If BTC ends at 76,000, the call pays 0.1 × 6,000 = 600 USDT, a net gain of 400 USDT. If BTC ends below 70,000, the option expires worthless and you lose the 200 USDT. Your break-even price is 72,000.
Common mistakes
- Selling options for the premium without understanding the size of the potential loss.
- Buying options that are far from the money and short-dated, where most expire worthless.
- Ignoring implied volatility, which can make an option lose value even when price moves your way.
Learn and practise
FAQ
What is the difference between options and futures?
Futures oblige both sides to settle and can be liquidated. An option buyer has a right, not an obligation, and can lose at most the premium.
What happens when a crypto option expires?
If it is in the money, it usually settles automatically in cash. If not, it expires worthless and the buyer loses the premium.