What Are Options?
Options are a form of derivatives contract that give the buyer the right to buy or sell an underlying asset at a predetermined price and date. To obtain this right, buyers have to pay a premium to own the call or put option.
The seller of the option is obligated to buy/sell the underlying asset from/to the buyer if the buyer decides to exercise their option. As an option seller, you will receive a premium from the option buyer.
There are some options terms you should know before starting to trade.
Contract Type: Call and Put
— Call refers to the right to buy.
— Put refers to the right to sell.
Underlying
— The asset you have the right to buy or sell.
Strike Price
— The predetermined price at which you have the right to buy or sell when the option is exercised.
Expiration Date
— The date your options contract expires
With call options, the buyer expects the price of the underlying asset will exceed a strike price, while the seller thinks it won't. Conversely, the put options buyer is expecting the market price of an underlying asset to fall below the strike price, while the seller thinks it won't.
To learn more about how the relationship between delivery price and strike price affects the decisions of option buyers and sellers, please refer to the table below.
|
Types of Options |
Buyer |
Seller |
Call Option |
Maximum Gain: Unlimited Maximum Loss: Premium Paid |
Maximum Gain: Premium Received Maximum Loss: Unlimited |
|
Delivery Price > Strike Price |
||
|
Exercised |
Obligated to sell |
|
|
Delivery Price < Strike Price |
||
|
Expired |
No obligation to perform |
|
Put Option |
Maximum Gain: Unlimited Maximum Loss: Premium Paid |
Maximum Gain: Premium Received Maximum Loss: Unlimited |
|
Delivery Price < Strike Price |
||
|
Exercised |
Obligated to buy |
|
|
Delivery Price > Strike Price |
||
|
Expired |
No obligation to perform |
|
What Are Bybit Options?
Bybit offers European-style cash settled options.
— European style options can be exercised only at expiration.
— There is no actual physical delivery of the underlying asset required.
— Bybit European options will automatically be exercised when an option expires.
Contract Specifications
|
Contract Type |
BTC Call and Put Options |
|
Underlying |
BTC Index |
|
Quote Coin |
USD |
|
Settlement Coin |
USDC |
|
Tick Size |
$5 |
|
Contract Multiplier |
1 |
|
Expiration Time |
08:00AM UTC on Friday of the expiration week |
|
Minimum Order Size |
0.01 BTC |
|
Contract Expirations |
Weekly, bi-weekly, monthly, bi-monthly and quarterly |
|
Trading Fee |
Taker 0.03%, Maker 0.03% |
|
Delivery Fee |
0.015% |
|
Method of Exercise |
Cash Settled in USDC |
On Bybit, the symbol of an option contract is composed of the underlying asset-expiration date-strike price-option type (C = call, P = put).
Take BTC-29OCT2021-48000-C as an example. This is a call option with a strike price of $48,000, which will expire on Oct. 29, 2021.
Types of Options Orders
There are four types of option orders: Buy Call, Sell Call, Buy Put, and Sell Put.
Example 1
The market price of BTC at the start of October is $44,000. Ann thinks the price of BTC will be much higher at the end of the month. Bob believes that prices will decrease.
Take the following option:
- Type: Call
- Strike Price: $45,000
- Expiration Date: Oct. 31, 2021
- Underlying: BTC
Ann buys the call option at a price of $1,000. This means that she has the right to buy 1 BTC at $45,000 when the contract matures. Bob sells call options.
Scenario A: Upon expiration, the BTC price is $48,000.
Buy Call: Ann exercises her call option and makes a $3,000 profit (i.e., $48,000−$45,000). Minus her $1,000 premium, she walks away with a profit of $2,000.
Sell Call: Bob needs to fulfill his obligation to sell the option at a strike price of $45,000, and he loses $3,000 (i.e., 45,000−$48,000). Deducting the $1,000 premium he receives, Bob’s total loss is $2,000.
Scenario B: Upon expiration, the BTC price is $43,000.
Buy Call: In this case, Ann loses $1,000, which is the premium she paid for the call option.
Sell Call: Bob does not need to perform his obligations and earns a premium of $1,000.
Example 2
Let’s say that BTC is trading for $38,000 on June 1. Based on Bob’s research, he thinks BTC’s price will drop by the end of the month. Ann thinks the price of BTC is going to rise.
Take the following option:
- Type: Put
- Strike Price: $37,000
- Expiration Date: May 31, 2021
- Underlying: BTC
Bob buys a BTC put option at a price of $800. This means that Bob has the right to sell 1 BTC at $37,000 when the contract matures. Ann sells put options.
Scenario A: Upon expiration, the price of BTC is $35,000.
Buy Put: Bob exercises his put option and makes a $2,000 profit (i.e., $37,000−$35,000). Minus his $800 premium, he walks away with a profit of $1,200.
Sell Put: Ann needs to fulfill her obligation to sell the put option at a strike price of $35,000, and she loses $2,000 (i.e., 35,000−$37,000). Deducting the $800 premium she receives, her total loss is $1,200.
Scenario B: Upon expiration, the price of BTC is $39,000.
Buy Put: In this case, Bob loses $800, which is the premium he paid for the put option.
Sell Put: Ann does not need to perform her obligations and earns a premium of $800.