What is an Option?
An option is a contract between a buyer and a seller, where the buyer pays a premium for the rights granted by the contract.
The buyer can choose whether to exercise the option on the expiration date, and the seller assumes the obligation to cooperate with the buyer.
Types
Options can be divided into two types: call options (Calls) and put options (Puts).
- Calls: A call option gives the holder the right, but not the obligation, to buy the underlying security at the strike price on or before expiration.
- Puts: Opposite to call options, a put gives the holder the right, but not the obligation, to instead sell the underlying stock at the strike price on or before expiration.
According to the different exercise time, options can be divided into two types: European options and American options.
- American options can be exercised at any time between the date of purchase and the expiration date.
- European options are different from American options in that they can only be exercised at the end of their lives on their expiration date.
Terminology
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Underlying Assets: the currency assets which the option is based on.
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Premium: A fee paid by an option buyer to a seller for the right to exercise the option when it expires.
Buying Call/Put Options Premium = Order Price x ABS (Order Amount) x Contract Multiplier
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Expiration Date: The last date on which the options contract can be exercised (the only exercisable date for European options)
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Strike Price: The price at which you can buy or sell the underlying on the expiration date, also known as the exercise price.
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Options Type: Including calls and puts
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In-the-money Option (ITM) : An option with intrinsic value, and a delta greater than 0.50. For a call, the strike price of an ITM option will be below the current price of the underlying; for a put, above the current price.
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At-the-money Option (ATM) : An option whose strike price is exactly that of where the underlying is trading.
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Out-of-the-money Option (OTM) : An option that produces negative cash flows if exercised immediately. For a call, the strike price of an OTM option will be above the current price of the underlying; for a put, below the current price.
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False Value Degree: It indicates the extent to which the option price deviates from the underlying price. The values of ITM and ATM options are 0.
Call Options: False Value Degree = MAX (0, Strike Price - Underlying Price)
Put Options: False Value Degree = MAX (0, Underlying Price - Strike Price)
Options Trading
In options trading, buyers and sellers will make different decisions based on various factors such as transaction side, options type, and market.
How Do Options Differ From Futures?
1. Margin
Both buyers and sellers of perpetual futures need to pay the initial margin and ensure that there is sufficient maintenance margin in the account to maintain the position.
In options trading, the buyer (long position) does not need to pay a margin, but needs to pay the seller a premium. After the order is filled, the buyer has the rights conferred by the option, and does not need to maintain the position, and can choose whether to exercise the option. In order to protect the buyer's rights and interests, the seller (short position) of the option needs to pay a margin and maintain the margin level to ensure that there are sufficient funds to perform the obligations when the option expires.
2. Expiration Date
Perpetual futures do not have the concept of an expiration date. The option is only valid on or before the expiration date. After the expiration date, the option will immediately expire and be removed from the position.
3. Trading Side
In futures trading, there are 2 sides: buy and sell.
In options trading, there are 4 sides: buying call, selling call, buying put and selling put.
Options in Gate
Gate currently supports BTC options, the features are as follows:
- European options (Exercisable on expiration date only)
- Settlement in cash, does not involve delivery of underlying assets
- Automatic exercise at maturity, without manual confirmation by the holder
Contract Details
Contract Specifications
Contract Specifications
| Item | Details |
|---|---|
| Contract Type | BTC Options |
| Underlying Asset | BTC/USDT Index |
| Quotation Currency | USDT |
| Settlement Currency | USDT |
| Contract Multiplier | 0.01 |
| Minimum Quotation Unit | 1 USDT |
| Exercise Method | European-style exercise, automatically executed at expiration, no user action required |
| Exercise Time | Expiration date at 8:00 UTC |
| Settlement Method | Cash settlement in USDT, based on the average index price of the last 30 minutes on the expiration date |
| Order Price Limits | Buy Max Price = Max(Tick Size × 10, Mark Price + 0.075 × Spot Index × Max(1, 4 × abs(Option Delta))) Sell Min Price = Max(Tick Size, Mark Price − 0.075 × Spot Index × Max(1, 4 × abs(Option Delta))) |
| Minimum Order Quantity | 1 contract, 0.01 BTC |
| Maximum Order Quantity | 10,000 contracts, 100 BTC |
| Single Contract Order Limit | 10 orders per contract |
| Total Order Limit | 80 orders across all contracts, higher limits for market makers |
| Single Contract Position Limit | 400 BTC per contract |
| Total Position Limit | 100,000,000 USDT, higher limits for market makers |
| Item | Details |
|---|---|
| Contract Type | ETH Options |
| Underlying Asset | ETH/USDT Index |
| Quotation Currency | USDT |
| Settlement Currency | USDT |
| Contract Multiplier | 0.01 |
| Minimum Quotation Unit | 0.1 USDT |
| Exercise Method | European-style exercise, automatically executed at expiration, no user action required |
| Exercise Time | Expiration date at 8:00 UTC |
| Settlement Method | Cash settlement in USDT, based on the average index price of the last 30 minutes on the expiration date |
| Order Price Limits | Buy Max Price = Max(Tick Size × 10, Mark Price + 0.075 × Spot Index × Max(1, 4 × abs(Option Delta))) Sell Min Price = Max(Tick Size, Mark Price − 0.075 × Spot Index × Max(1, 4 × abs(Option Delta))) |
| Minimum Order Quantity | 1 contract, 0.01 ETH |
| Maximum Order Quantity | 30,000 contracts, 300 ETH |
| Single Contract Order Limit | 10 orders per contract |
| Total Order Limit | 80 orders across all contracts, higher limits for market makers |
| Single Contract Position Limit | 1,000 ETH per contract |
| Total Position Limit | 100,000,000 USDT, higher limits for market makers |
| Item | Details |
|---|---|
| Contract Type | DOGE Options |
| Underlying Asset | DOGE/USDT Index |
| Quotation Currency | USDT |
| Settlement Currency | USDT |
| Contract Multiplier | 1000 |
| Minimum Quotation Unit | 0.00001 USDT |
| Exercise Method | European-style exercise, automatically executed at expiration, no user action required |
| Exercise Time | Expiration date at 8:00 UTC |
| Settlement Method | Cash settlement in USDT, based on the average index price of the last 30 minutes on the expiration date |
| Order Price Limits | Buy Max Price = Max(Tick Size × 10, Mark Price + 0.075 × Spot Index × Max(1, 4 × abs(Option Delta))) Sell Min Price = Max(Tick Size, Mark Price − 0.075 × Spot Index × Max(1, 4 × abs(Option Delta))) |
| Minimum Order Quantity | 1 contract, 1,000 DOGE |
| Maximum Order Quantity | 10,000 contracts, 10,000,000 DOGE |
| Single Contract Order Limit | 10 orders per contract |
| Total Order Limit | 80 orders across all contracts, higher limits for market makers |
| Single Contract Position Limit | 20,000,000 DOGE per contract |
| Total Position Limit | 100,000,000 USDT, higher limits for market makers |
Options Symbol
In order to simplify the expression, options are usually expressed in the form of symbols, and the unified format is: Market-Expiration Date-Strike Price-Type.
Market: the corresponding currency market
Expiration Date: yyyyMMdd; such as 20220101, that is, January 01, 2022
Strike Price: The exercise price of the option at the expiration date
Type: C stands for call options, P stands for put optionsFor example: BTC_USDT-20220930-18500-C means that the BTC option expires on September 30, 2022, the strike price is 18,500 USDT, and it is a call option.
Gate reserves the final right to interpret the product.
