An option is a financial agreement that enables the holder to buy or sell an asset without a binding commitment.
These agreements have a predetermined price, Exchange Traded Fund (ETF) strike price, and an expiration date.
They are commonly used in trading various assets such as cryptocurrencies, indexes, and exchange-traded funds (ETFs).
The rules governing options trading depend on the style of the option.
Understanding the Timing of Execution
There are two main option styles: American and European.
The distinction between them lies in how holders can interact with the option between the time of purchase and the expiration date.
American-style options provide the freedom to buy or sell the asset on or before the expiration date, while European-style options only allow the execution of rights on the expiration date itself.
Understanding Call and Put Options
In the options market, buying and selling activities are referred to as “call” and “put” options, respectively.
A call option gives the holder the right to buy the asset at a predetermined price and within a specific time frame.
Although they carry a higher risk level than spot trading, they offer several advantages.