You may have heard the term options, or options, in the world of crypto finance. What exactly are options? How does it work? And what are the benefits and risks?
This article will answer these questions. We will also give you a complete guide to getting to know options.
What are Options?
An option is a financial contract that gives rights, but not obligations, to the buyer. This is to buy or sell certain assets at a predetermined price (strike price) at a predetermined time (expiration date).
The asset that is the basis for options can be crypto, index, ETF, or other assets. Options are a type of derivative instrument, namely an instrument whose value is derived from the underlying asset.
Gaya Options: American vs. European
Options are divided into two styles, namely American and European. The option style determines when the buyer can exercise his or her right to buy or sell the underlying asset.
American style options can be used at any time before the expiration date, while European style options can only be used on the expiration date. American style options are usually more expensive than European style options because they provide more flexibility to the buyer.
Call and Put: Basics of Options Trading
Options consist of two types, namely call and put. A call option gives the buyer the right to purchase the underlying asset at the strike price on or before the expiration date.
A put option gives the buyer the right to sell the underlying asset at the strike price on or before the expiration date. The option buyer pays a sum of money called a premium to the option seller to obtain these rights. The options seller is obliged to fulfill obligations if the buyer exercises his rights.
WhatBenefits of Options?
Options have many benefits for investors and traders. One of them is flexibility. Options allow buyers to set trading strategies according to their expectations and risk tolerance.
Options can also be used to create synthetic instruments, namely instruments that imitate the characteristics of other assets using a combination of options. Another benefit is risk management. Options can be used to protect the value of an underlying asset from unwanted price fluctuations. Options also have limited risk, namely only the premium paid.
Conclusion
Options are an interesting and useful financial instrument in the world of crypto finance. By understanding and managing options well, you can gain profits and reduce risks in crypto trading.
However, you also have to be careful and study options carefully before deciding to invest or trade with options. Please remember, options are rights without obligations, not obligations without rights.
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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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