Call Options: A Cost-Efficient Way to Earn on Your Assets

Traditional financial markets have been in existence for a long time, with assets such as stocks featuring as their key products. In recent years, however, cryptocurrency has made a significant impact on the finance scene, and is shaping up to be quite the competitor to traditional finance products.

Just like stock options, there are now crypto options, which allow traders to participate in the burgeoning cryptocurrency market without having to own any crypto themselves. Users can profit from the rise or fall of these options, which are tied to the performance of crypto assets.

What Are Crypto Options? Crypto options are financial tools that confer upon an options owner the opportunity (though not the obligation) to buy or sell an underlying asset at a predetermined price 1) before the option reaches expiration, or 2) after a premium is bought.

The two most common types of crypto options are Bitcoin options and ETH options. This makes sense since Bitcoin and Ethereum are currently the two largest projects by market cap.

Although wildly popular, it’s no secret that the crypto ecosystem is plagued by volatility. Amid mounting interest in cryptocurrency, an increasing number of people are exploring crypto options as an alternative means to trading this volatile asset class.

Crypto options cost much less than the assets themselves, and come at a lower risk level than other asset classes. The perfect solution for trading digital assets, options give traders the opportunity to speculate on the future value of an underlying asset’s price, which can then be paid for in fiat or cryptocurrency. Investors also use options for hedging. Before we proceed further, let’s take a look at a few key terms.

Premium: This is a special fee that needs to be paid to the seller before you can secure the rights to an option.

Strike Price: This simply refers to a fixed price above which a seller is not permitted to sell an option (for call options). In simple terms, it’s the price at which a buyer has the right to buy an asset.

“Strike price” can also mean the price below which a buyer is not permitted to buy an option (for put options). In simple terms, it’s the price at which a seller is permitted to sell an underlying asset.

Expiration time: This is the time before which an option is to be bought or sold. If this time is reached, the option loses its value.

What Are Crypto Call Options? Typically, the value of options is tied to the performance of the underlying asset to which they’re attached. As mentioned earlier, crypto options are tied to the performance of crypto assets.

A crypto call option is a contract or tool that confers on a person the choice (rather than the obligation) to buy a specific asset at a preset price, on or before a certain time frame (known as the expiration date).

To buy a call option, the buyer must pay the seller a “premium fee.” Each crypto options contract is made up of one cryptocurrency, bought at a predetermined price. You don’t have to own the particular underlying asset before you can buy or sell its corresponding call option. It should be noted that this period of transaction lasts only for a specified time frame, as the buyer ought to exercise their call on or before the expiration date.

If you predict an increase in the market share of an option, you can decide to buy the call option instead. If the stock booms and the current value surpasses the strike price before reaching the expiration date, it would result in a profit.

If, on the other hand, the stock price records a decline, the buyer allows the call option to expire and the only loss is the option’s premium fee.

American-style options permit their holders to use or exercise the option anytime before the date of expiration. On the other hand, European-style options can only be exercised on the date of expiration.

How Does Crypto Call Options Work? An options contract is usually a transaction that takes place between two parties: The options trader and the cryptocurrency exchange.

An option seller places the options contract on the cryptocurrency exchange with their specific price and expiration date. An interested buyer is then located and linked with the order on the options market.

To ensure transparency, the cost of the premium paid is calculated using different parameters — e.g., the time remaining before reaching expiration, market price, and volatility of the underlying asset alongside the interest rates.

An option is said to have intrinsic value if it’s still valuable at the point of expiration.