Options 101
Learn the basic fundamentals of Options
Options are financial instruments that derive their value from an underlying asset.
An options “contract” offers the buyer the opportunity to buy or sell the underlying asset at a predetermined price and date
There are two types of Option contracts:
-Call Options (or “Call”)
-Put Options (or “Put”)
Holders are not required to buy or sell the asset if they decide against it. Each contract has a specified expiration date by which the holder has the right to exercise their option.
The strike price is the price at which the underlying asset can be bought or sold when exercised.
For calls, the strike price is the price at which the asset can be bought by the option holder For puts, the strike price is the price at which the asset can be sold by the option holder.
Calls and puts form the basis for option strategies designed for hedging, income, or speculation.
Dopex.io "What are options"
All options on Dopex are European in type, which signifies that they can only be exercised at expiry (Dopex automates this process), unlike American-style options which can be exercised any time before expiry.
- At-the-money (ATM) - an option whose strike price is exactly that of where the underlying is trading. ATM options have a delta of 0.50.
- In-the-money (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.
- Out-of-the-money (OTM) - an option with only extrinsic (time) value and a delta a less than 0.50. 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.
- Strike price - the price at which you can buy or sell the underlying, also known as the exercise price.
- Implied volatility (IV) - the volatility of the underlying (how quickly and severely it moves), as revealed by market prices
- Expiration - the date at which the options contract expires, or ceases to exist. OTM options expire worthless.
Illustrated is the payoff graph of a "call" option. As defined in the image, the maximum loss for the option buyer is the premium paid for the option. As the underlying price passes the strike price and moves further ITM (Up), the user's profit increases with an unlimited profit potential.
The payoff graph for the seller of the same option (Call Option) looks very similar to the buyers except that it is inversed. The seller instead receives the buyer's premium, and as the price increases, he loses capital which is paid to the buyer whenever the option is exercised.
Illustrated is the payoff graph of a "Put" option. As defined in the image, the maximum loss for the option buyer is the premium paid for the option. As the underlying price passes the strike price and moves further ITM (Down), the user's profit increases with substantial profit potential. (Until price hits 0)
The payoff graph for the seller of the same option looks very similar to the buyer except that it is inversed. The seller instead receives the buyer's premium, and as the price decreases, he loses capital which is paid to the buyer whenever the option is exercised.
Dopex options are fully-transparent and embedded on-chain through “smart contracts.”
Our options are most similar in design to European Options rather than their American counterparts. Read more "here"
Dopex Options features include:
- 1.Transparent and visible on-chain
- 2.Only exercisable at expiration
- 3.Option Collateral can be moved across platforms since it is only needed at expiration
- 4.Options come with an ERC-20 receipt that Users can use to OTC, Leverage, etc
Using these metrics, Dopex develops numerous option-based products, for example, “SSOV” (Single Staking Option Vault), a product that automates the whole procedure while delivering ongoing yields and incentivizing deep liquidity.
To learn more about Options or SSOVs:
Last modified 2mo ago