Guide to Call Options
💡 Options Basics
It's the final step of the course, recruit! In this article, you will:
- Learn the basics of options
- Learn about Call Options
- Learn how to trade DeFi Options on Premia
What are Options?
Options are a financial derivative that give their holder the right, but not the obligation to buy or sell an asset like ETH at a certain price and date.
For example, a Call Option could give its holder the right to buy 1 ETH at a price of $1900 two weeks from now, whereas a Put Option would give its holder the right to sell. Buying an option only requires a small upfront premium, making them inherently efficient and low-risk.
DeFi options are useful for a variety of use cases, whether it's price speculation, hedging, or earning yield through different strategies. These options strategies can also be used to grow the stack in multiple different market conditions: be it bear, bull, or crab, there's an options strategy to make the best of it.
Strike Price: The price at which an option gives its holder the right to buy or sell an asset at.
Expiration Date: Also known as maturity, this is the time at which an option expires, and can no longer be exercised.
Think of a call option as reserving a ticket for an exclusive concert. You pay a small fee now to have the right to buy the ticket at a certain price before the concert date. By doing so, you lock in your chance to attend, especially if the demand for the concert increases and ticket prices surge. However, you're not obligated to buy the ticket if you change your mind or if other plans arise.
Imagine you've already purchased a ticket for a highly anticipated event. Concerned about a potential last-minute schedule conflict, you pay a small fee for an option to sell that ticket at a guaranteed price before the event. This way, if you can't attend or if the ticket value drops, you can still recoup some or all of your initial investment. But if you still want to attend, you simply hold onto your ticket.
Call Option: Gives its holder the right, but not the obligation to buy the underlying asset at a specific strike price and expiration date.
Put Option: Gives its holder the right, but not the obligation to sell the underlying asset at a specific strike price and expiration date.
Buying a Call Option on Premia
This is the finish line, Anon!
Once you've bridged some assets over to OP Mainnet, start by navigating to app.premia.finance. If you haven't already, connect your wallet and switch to Optimism.
1. Choose the token and type of option you'd like to buy. To qualify for the quest, let's choose OP Call.
2. Choose the strike price, expiration date, and size. Option size is the amount of OP tokens that your Call Option will grant you the right to buy.
3. Option premiums up to 15 OP will qualify for Premia's OP raffle. Make sure the Total Cost doesn't exceed that amount, Anon!
4. Click "Buy Option", confirm the details, accept the transactions in your wallet, and that's it! You've got yourself an OP Call Option!
What is the strike price?
The cost of an option.
The spot price at the time of buying the option.
The price at which an option can be exercised.