An option is a contract that gives its buyer the right, but not the obligation, to buy or sell something at a set price by a set date. The buyer pays for that right up front; the seller collects the payment and takes on the obligation.
- Call
- The right to buy at the strike price.
- Put
- The right to sell at the strike price.
- Strike
- The agreed price in the contract.
- Expiry
- The moment the contract ends.
- Premium
- What the buyer pays the seller.
How crypto options settle
Most crypto options, including those on Deribit, the largest venue, are European-style: they can only be exercised at expiry, and they settle in cash against an index price at 08:00 UTC on the expiry date. Nobody delivers any coins; the winning side simply gets paid the difference.
Why people use them
Buyers use options to take a view with a known, capped loss, or to insure a position. Sellers collect premium in exchange for taking on risk, which can be open-ended. All of it trades as a price per contract on an exchange, and those prices contain information.