Options 101

What Are Options?

Options are derivatives that give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price before or at a specified expiration date.

Options come in two main types:

• Call Options → The right to buy an asset at a specified price.

• Put Options → The right to sell an asset at a specified price.

Every option contract has:

• A strike price (the agreed-upon price for the transaction).

• An expiration date (when the option expires).

• A premium (the upfront cost paid by the option buyer).

Moneyness: ITM, ATM, OTM

• In-the-Money (ITM) → The option has intrinsic value (e.g., a call option with a strike price below the current market price).

• At-the-Money (ATM) → The strike price is equal to the current market price.

• Out-of-the-Money (OTM) → The option has no intrinsic value (e.g., a call option with a strike price above the current market price).

Why Trade Options?

✅ Earn Yield: Selling options generates upfront premiums as income. ✅ Strategic Exposure: Traders can take positions on price movements without directly buying or selling assets.

Options are widely used in traditional finance and DeFi for yield generation, hedging, and capital efficiency.