Crypto options contracts: what they are and how they work
A crypto options contract gives the buyer the right to buy or sell crypto at a set price by expiry. The seller must perform if the buyer exercises.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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- A call gives the right to buy; a put gives the right to sell.
- An option can expire worthless, so the buyer can lose the premium.
- A seller can take on obligations that go beyond the premium received.
- Over-the-counter options often cannot be sold before expiry.
The buyer pays a premium to the seller for that right. The strike price is the set price. The expiry is the set date.
How does a crypto option work?
A call gives the buyer the right to buy at the strike price. A put gives the right to sell at the strike price. The right ends at expiry.
How do people use crypto options?
Traders use crypto options in a few common ways. The list below shows the main goals.
- A put can hedge a holding against a fall.
- A call can speculate on a rise.
- A put can speculate on a fall.
- A seller can collect a premium and accept the obligation.
What risks and US rules apply?
An option can expire worthless if the price moves against the buyer. The buyer then loses the premium, which is the amount risked. An option is not a guaranteed hedge. In the US, crypto options fall under CFTC or SEC rules based on the underlying asset.
How is it different from futures?
A futures contract obligates both sides to trade at a set price. An option gives the buyer a right, not an obligation. The buyer can walk away and lose only the premium.
Frequently asked questions
Yes, on regulated US exchanges that list them. Some offshore platforms are not registered with the CFTC or SEC.
The IRS treats crypto as property, so option gains and losses are usually capital gains or losses.
It depends on the contract. Some settle in cash, while others deliver the crypto.
Yes, if it trades on an exchange with a secondary market. Over-the-counter contracts often cannot be sold before expiry.
