Options are financial derivatives that give traders the right but not the obligation to trade an asset at a predetermined price (Strike Price) at a date in the future (Expiration Date).
Overview
When it comes to exercise rules, there are two main types of basic options:
European-style options: European options can only be exercised at the expiration date.
American-style options: American options can be exercised at any time before the expiration date.
On Kyan, you can only trade European options.
When it comes to their purpose, there are two types of options:
Call options: Call options grant their holder the right to buy an asset at a specified price and date.
Put options: Put options grant their holder the right to sell an asset at a specified price and date.
Investors typically buy call options when they anticipate prices to rise, and put options when they anticipate prices to fall.
Call Options
A call option secures your right to buy the chosen asset at a certain price and at a certain moment in the future, no matter if the price of that asset rises in the meantime.
Example
You buy a call option to buy 1 ETH at a price of $2,000 next Sunday. Even if by next Sunday the price of ETH rises above $2,000, you can still buy 1 ETH at $2,000. If you change your mind and decide not to buy ETH next Sunday, your only loss will be the fee you paid for the option.
Put Options
A put option secures your right to sell the chosen asset at a certain price and at a certain time in the future, no matter if the price drops in the meantime.
Example
You buy a put option to sell 1 ETH at a price of $3,000 next Sunday. Even if by next Sunday the price of ETH goes below $3,000, you can still sell 1 ETH at $3,000. However, if you change your mind, you’re not obligated to sell. In that case, your only loss will be the fee you paid for the put option.
Key Takeaways
Options are the most versatile and flexible tool for investing. By understanding the fundamentals of options thoroughly, traders can gain a powerful weapon for their portfolio.