Everything traders need to know about employing Call & Put Options in DeFi.

Learn about using Call and Put Options in practice!

Call & Put

In this article, you'll learn about the applications, payoff structures, and drawbacks of Call and Put options!

💡 Welcome to Basic Options Strategies!

Defining Call Options

Defining Put Options

Call Option: Gives you the right to purchase an asset like ETH at a specified strike price and expiration date.

Put Option: Gives you the right to sell an asset like ETH at a specified strike price and expiration date.

Applications of Call & Put Options

Speculation

Hedging

Speculation: A means to profit from price movements in the underlying asset.

Hedging: A means to offset potential losses in an existing position.

Call & Put Option Payoff Structure

Calls at Expiration

Calls Before Expiration

Puts at Expiration

Puts Before Expiration

Drawbacks of Call & Put Options

Time Constraint: Options have a limited lifespan, as they come with an expiration date. If the underlying asset's price fails to move as expected within the designated timeframe, the option may lose value rapidly.

Necessary Price Movement: In order to profit from options, the underlying asset's price must surpass (calls) or fall below (puts) the strike price by a margin greater than the premium paid. If the asset's price does not move substantially, the option may not yield a profit.

Loss Risk: As an option buyer, you risk forfeiting the premium paid if the option expires worthless or if the underlying asset's price fails to reach the anticipated level. It is crucial to manage risk and invest only what you can afford to lose.

Everything traders need to know about employing Call & Put Spreads in DeFi Options.

Spreads: Call & Put

A spread is an options trading strategy that involves simultaneously buying and selling an option (call or put) on the same underlying asset with different strike prices. It allows traders to limit their potential losses and potential gains while capitalizing on their market outlook.

💡 What is a Spread?

How Do Call Spreads Work?

How do Put Spreads Work?

Payoffs of Option Spreads

Call Spreads

Put Spreads

Considerations for Spreads

Considerations for Call Spreads

Considerations for Put Spreads

Bull Spreads & Bear Spreads

Bull Call Spread

Bear Call Spread

Bull Call Spread: Used when a trader has a moderately bullish outlook on the underlying asset. They expect the asset's price to rise, but not significantly.

Bear Call Spread: Used when a trader has a moderately bearish outlook on the underlying asset. They expect the asset's price to decline or remain relatively stable.

Bull Put Spread

Bear Put Spread

Bull Put Spread: Used when a trader has a moderately bullish outlook on the underlying asset. They expect the asset's price to rise or remain relatively stable.

Bear Put Spread: Used when a trader has a moderately bearish outlook on the underlying asset. They expect the asset's price to decline, but not significantly.

Everything traders need to know about employing Covered Calls & Puts in DeFi Options.

What are Covered Calls and how do Covered Calls work? Learn with the premier DeFi Options Academy. Premia Blue are the premier DeFi Options Academy.

What is a Covered Call & Put? | DeFi Options

A covered call is an options trading strategy where a trader sells a call option on an underlying asset that they already own. The underlying asset can be stocks, crypto, ETFs, or other securities. This strategy is employed to generate income from the premiums received.

💡 Covered Calls

What is a Covered Call?

How Do Covered Calls Work?

Maximum Gain: The maximum gain is achieved when the price of the underlying asset remains below the strike price of the call option until expiration. At this point, the trader retains the premium received from selling the call option.

Maximum Loss: The maximum loss on a covered call strategy is limited to the price paid for the asset, minus the option premium received.

Breakeven Point: The breakeven point is the level at which the trader neither profits nor incurs a loss. It is calculated by subtracting the premium received from the purchase price of the underlying asset.

Covered Call Payoff Structure

Considerations for Covered Calls

A covered put is an options trading strategy that's similar to a covered call, with the exception that the underlying position is short and the sold option is a put.

💡 Covered Put

How Do Covered Puts Work?

A cash-secured put is an options trading strategy akin to a covered call, but instead of owning the underlying asset, the trader sets aside enough cash to purchase the asset, and the option sold is a put. This strategy is typically utilized as part of a larger income-generating position or when a trader is looking to acquire the asset at a lower price.

💡 Cash-secured Put

Covered Put vs Cash-Secured Put

Maximum Gain: A covered put strategy is most profitable when the short put expires worthless. In this scenario, the maximum gain is equal to the premium collected plus any potential profit from the underlying short position. If the short put expires ITM, the underlying short position alone would be more profitable.

Maximum Loss: The maximum loss is theoretically unlimited. If the price of the underlying asset rises significantly, the loss on the short position in the underlying asset continues to increase. The premium received from selling the put option can offset some of this loss, but the net loss can still be substantial.

Breakeven Point: The breakeven point is the level at which the trader neither profits nor incurs a loss. It is calculated by subtracting the premium received from the price at which the underlying asset was originally shorted.

Covered Put Payoff Structure

Considerations for Covered Puts

Covered Call/Put

Everything traders need to know about employing Option Straddles in DeFi.

Everything traders need to know about Option Straddles in DeFi.

Option Straddle

This strategy involves purchasing a call and a put option with the same strike price and expiration date. It's a bet on volatility, as the investor profits if the underlying asset price moves significantly in either direction. If the price remains relatively stable, the investor loses the premium paid for both options.

💡 Straddle

What is a Straddle?

1. Buying a Call: In a straddle, the trader buys a call option to profit from potential upward price movements in the underlying asset.

2. Buying a Put: Simultaneously, the trader buys a put option to profit from potential downward price movements in the underlying asset.

Payoff Structure of Straddles

Considerations for Straddles

Straddle: An effective tool in highly volatile markets, straddles can be a strong addition to a trader when employed with proper risk management and timing.

Key Takeaways

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Strategy Exam

Exam: Basic Options Strategies

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Course overview

1. Basic DeFi Options Strategies

Call & Put

Spreads: Call & Put

Covered Call/Put

Option Straddle

Exam: Basic Options Strategies