🏫 Options 101

Options provide the holder the right, but not the obligation, to transact an underlying asset at a predetermined and specific price, called the “Strike” price. The holder of an option pays a premium for the right to exercise. Investors may choose to buy options to express a certain view on an underlying asset or hedge an existing exposure. Users can also sell (write) options to collect premium.

Buying options: Investor pays premium to the counterparty. Investor receives the right to buy/sell to/from Counterparty at the Strike price on a future date.

Selling options: Investor receives premium from counterparty. Investor has the obligation to buy/sell to/from the Counterparty at the Strike price on a future date.

Call Option

A call option is a contract that give the holder the right, but not the obligation, to buy a certain underlyer at a specified price within a set time period. The buyer pays a premium to a seller for this right.

• Investors may purchase a call option if they believe that the price of the underlying asset will increase and want to benefit from the appreciation above the Strike price.

• Investors may sell a call option to collect premium and/or if they believe the underlying asset will decline in value or may not appreciate above the Strike price.

Put Option

A put option is a contract that gives the holder the right, but not the obligation, to sell a certain underlyer at a specified price within a set time period. The buyer pays a premium to a seller for this right.

• Investors may purchase a put option if they believe the price of the underlying asset will decrease and want to benefit from depreciations below the Strike price.

• Investors may sell a put option to collect premium and/or if they believe the asset will appreciate in value or not decline below the strike.