Crypto options: calls, puts and what each side risks

*This page is for information purposes only. Certain services and features may not be available in your jurisdiction.*

Crypto options are derivative contracts that give the buyer the right, but not the obligation, to buy or sell a set quantity of an underlying asset at a set strike price on a set expiry date, in exchange for a price called the premium.

Before you can trade any derivative on OKX, you must complete an appropriateness assessment. It is a short set of questions about your education, knowledge and experience with financial products, it is a requirement under MiFID rules, and it cannot be bypassed.

TL;DR

• What it is. A crypto option gives the buyer the right, not the obligation, to buy (a call) or sell (a put) an underlying asset at a strike price on an expiry date. The buyer pays a premium to acquire that right.

• The two sides differ. A buyer pays a premium and posts no margin, and the most they can lose is that premium. A seller posts margin instead, and OKX states that the potential loss of selling an option is unlimited.

• European exercise. OKX options are European options, which can be exercised only on the expiration date rather than at any point before it.

• Cash settlement. A holder whose option is in the money at expiry receives the cash equivalent of the difference between the settlement price and the strike price. An option that is out of the money at expiry expires worthless.

• Time decay. An option loses value as it approaches expiry, a decline measured by theta. A call buyer breaks even only once the underlying price passes the strike price plus the premium paid.

• Access requirements. Derivatives on OKX in the EEA require identity verification and a one-time appropriateness assessment, and are offered by OKX Europe Markets Limited, which is authorised and regulated by the Malta Financial Services Authority.

Suppose you buy a BTC call option with a strike price set above the current price and an expiry date at the end of the month, and you pay a premium to acquire it. You now hold the right to buyBTC at the strike price on that date.If BTC settles above the strike price on the expiry date, your option is in the money and pays the cash equivalent of the difference between the settlement price and the strike price. Your own result also depends on the premium you paid, because that was an outlay. If BTC settles at or below the strike price on the expiry date, the option expires worthless and the premium is not returned. Buying a put option works the same way in the opposite direction: it pays when the settlement price is below the strike. The key point is that an option has both a price level and a date attached to it. Being right about direction is not sufficient on its own, because the price has to be past the strike on that particular date.

The strike price is the price at which the option holder can buy or sell the underlying asset when exercising a call or a put. It is fixed when the contract is created and does not move with the market.Each combination of underlying asset, strike price and expiry date is a separate contract. One underlying is therefore traded across many contracts at the same time rather than in a single book.

The market price of an option is called the premium, and the buyer pays it to the seller to acquire the right the contract carries. It is the buyer's only outlay: the buyer pays a premium and posts no margin, while the seller posts margin. An option's price responds to the strike price, the time left to expiry and the volatility of the underlying, not to the direction of the underlying alone. Two options on the same asset with different strikes or different expiry dates carry different premiums.

On OKX, options are European-style and cash-settled. A position may be closed before expiry, but it cannot be exercised early.At 08:00 UTC on expiry, in-the-money options are automatically exercised, while at-the-money and out-of-the-money options expire without exercise.The settlement amount depends on the settlement price, contract multiplier and settlement currency; no underlying asset is delivered.

Options are used for risk management, including hedging an existing holding, and for speculation.A holder who wants protection against a fall in an asset they already own can buy a put, and the premium is the cost of that protection.The structural difference from a linear position is the payoff shape. An X-Perps or expiry futures position gains and loses roughly in step with the underlying in both directions. An option's payoff depends on where the price sits relative to the strike on the expiry date, so direction, level and timing all enter the result.For a buyer, the amount at stake is set at the point of entry, because the premium is the whole outlay. A short-option writer receives the premium and must maintain a margin. An uncovered short call can incur theoretically unlimited loss, while a short put can also incur substantial losses. The exact risk depends on the contract type, settlement formula and any offsetting positions.

Options suit someone who already trades derivatives, has a view that involves a price level and a date rather than direction alone, and wants a defined outlay for a position they can describe in advance. They also suit someone hedging a holding they intend to keep. A put bought against an existing position converts an open-ended exposure into one with a known cost.The instrument carries more moving parts than a linear contract. The strike, the expiry date, the premium and the rate at which the premium decays all affect the result, and all four have to be understood together rather than one at a time.

The premium a buyer pays is not the same size as the exposure the contract carries. A contract covers a set quantity of the underlying, and the premium is a fraction of what that quantity is worth, so a given move in the underlying produces a much larger proportional move in the value of the option.That ratio applies in both directions identically.

1. The same percentage move produces very different proportional results on each side.

For a seller the relationship is different, because a seller receives the premium and posts margin against the position rather than paying a fixed amount up front.

An option buyer pays the premium at entry, and that payment is the whole of the position's cost. Margin sits with the seller, so a buyer has no maintenance margin level and no liquidation price. If option selling is available to your account, an option seller posts margin, and a margined position is liquidated automatically when it no longer meets the required maintenance margin level. OKX documents a liquidation process for options positions that begins with delta hedging, which uses a perpetual or futures position to offset directional risk instead of closing the option directly. The closing price in a liquidation is the price the market is showing at that moment rather than a level anyone chooses, which connects this risk to slippage below. Check the product access shown in your account before placing a trade.

Liquidity is how much can trade without moving the price. A quoted price is only good for the size resting at it, and an order larger than that takes the next prices available.Options divide liquidity in a way a linear contract does not. Each combination of underlying, strike price and expiry date is its own contract, so activity in one underlying is spread across many separate books rather than concentrated in one.

Slippage is the difference between the price on screen and the price filled. A market order takes whatever prices it needs to complete, so a large order fills at progressively worse levels as it works through the book. A limit order controls the price but not whether the order fills. That is the trade-off rather than a solution to it.Slippage and liquidation compound. A forced close is executed into the market like any other order, and the conditions that make slippage worst, a fast market in a thin book, are the same conditions that trigger liquidations.

An OKX option is settled on its expiry date, and it can be exercised only on that date. Holding past expiry is not possible, because the contract ends there.Settlement is in cash. An in-the-money option pays the cash equivalent of the difference between the settlement price and the strike price. An option that is out of the money at that moment expires worthless, and the premium paid for it is not returned.The date is fixed when the contract is created, so the settlement outcome depends on where the price sits on that specific date rather than on where it travelled in between.

An option loses value as it approaches expiry, a decline measured by theta and known as time decay. The effect runs in one direction and grows as the date nears.Time decay works against a buyer and in favour of a seller, because the buyer paid the premium that is eroding and the seller received it.

This is also why a call buyer breaks even only once the underlying price passes the strike price plus the premium paid. The premium is a cost the position has to recover before it is level.

• Identity verification. You must complete identity verification (KYC) before you can access the appropriateness assessment.

• The appropriateness assessment. It is a one-time process completed within OKX, and you cannot access X-Perps or any other derivative product until it is done.

• Eligibility. Derivatives on OKX are available to eligible traders in the EEA, which is 30 countries: the 27 EU member states plus Iceland, Liechtenstein and Norway.

• Available options. OKX currently supports BTC/USD, ETH/USD, SOL/USD and XAU/USD options.

Availability may differ by account. Check which contracts are available to you in the OKX app.

• Settlement currency. All four option chains are quoted and cash-settled in USDC. USDT is unavailable to EEA users on OKX.

• Contract specifications. Each option chain has its own contract size and multiplier:

• Fees. Your applicable trading fees depend on your OKX fee tier. Open the contract details and select Fee tiers to check the current rates before placing a trade.

Options are financial instruments under MiFID II, listed in Annex I Section C(4) of Directive2014/65/EU. They are not among the non-complex instruments listed in Article 25(4)(a), so the execution-only exemption does not cover them and the firm must assess appropriateness before providing the service.OKX does this through an appropriateness assessment covering your education, knowledge and experience with financial products. It is completed once, it classifies you as either retail or professional, and you cannot access derivatives on OKX until it is done.

Derivatives on OKX are offered to eligible EEA customers by OKX Europe Markets Limited, which isauthorised and regulated by the Malta Financial Services Authority under the Investment ServicesAct. OKX Europe Markets Limited provides execution-only services. It does not offer personalrecommendations or investment advice.

Disclaimer:

*Leverage increases both gains and losses. Losses can happen quickly and these products are notsuitable for everyone. Access requires completing a mandatory appropriateness assessment. OKXEurope Markets Limited is authorised and regulated by the Malta Financial Services Authorityunder the Investment Services Act and provides execution only services. It does not give investment advice or personal recommendations.