An option is a contract that lets someone choose to buy or sell a cryptocurrency at a set price before a certain date. Options are a type of derivative, meaning their value comes from another asset, in this case, a digital coin or token. The set price is called the strike price, and the last day to use the option is the expiration date.
There are two main types of options. A call lets the buyer purchase the crypto at the strike price, while a put lets the buyer sell the crypto at the strike price. Traders use calls if they think prices will go up and puts if they expect prices to fall. These two types allow for many different trading strategies.
When you buy an option, you pay for the contract and later choose whether to use it or let it expire. If the market moves your way, using the option can let you buy or sell at a better price than the current market. If not, you can simply let it expire and only lose what you paid for the contract. The person who sold the option may have to meet the contract terms if you use it, which means they have certain responsibilities.
People use options to try to earn profits or to protect what they already own. For example, someone with Bitcoin might buy a put to protect against a sudden price drop. Others use options to bet on big price changes without owning the coin itself. Experienced traders sometimes mix calls and puts in strategies like straddles and strangles to benefit from price swings.
Options can help control risk, but they also have their own dangers. Buyers might lose the money they spent on the contract if the market does not move as they hoped. Sellers can lose money if the market changes a lot and they have to meet the contract terms. Crypto markets are often unpredictable, which means there can be big gains or big losses. Rules about margin and how each platform works can make things even more complicated.
Options are traded on special markets and platforms, including both centralized exchanges and some decentralized ones. Both individual traders and large institutions take part. The details, like how options are settled or if the platform uses margin, can be different depending on the product and exchange. It is important to check the platform’s rules before you start trading.
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