Options
An option is a contract that gives the right, but not the obligation, to buy (call) or sell (put) an asset at a set price by a certain date. You pay a premium for that right.
How it works
An option has a strike price, an expiry date and a premium. A call profits if the asset ends above strike plus premium; a put profits if it ends below strike minus premium. The buyer risks only the premium: if the trade does not work, they simply do not exercise.
The option seller collects the premium but takes on an obligation. A naked call seller's loss is theoretically unlimited, so selling options requires margin and experience. The premium depends on how far the strike is, time to expiry and expected volatility.
Options are used to hedge (a put as insurance for a portfolio), to bet on a move with capped risk and to earn premium. They are more complex than futures: the premium decays over time, so even if you get the direction right you can lose if the move comes too late.
You buy a call on 1 BTC with a $70,000 strike, expiring in a month, for $2,000. Breakeven is $72,000. At $75,000 on expiry you make $5,000 − $2,000 = $3,000. Below $70,000 the option expires worthless and you lose $2,000, no more.
You hold 1 BTC at $60,000 and buy a put with a $55,000 strike for $1,500. If BTC falls to $45,000, the put pays $10,000 and your portfolio loss is capped at about $6,500 ($5,000 down to the strike plus the $1,500 premium).
The classic beginner mistake is buying cheap, far out-of-the-money options right before expiry, hoping for a moonshot. Almost all of them expire worthless. The opposite extreme is selling options for premium without understanding the risk. Start by learning how time and volatility affect the premium, and risk only a small amount.
Questions and answers
What are options in simple terms?
An option is the right to buy or sell an asset at a fixed price until a certain date. You pay a premium for it, and that premium is the most a buyer can lose.
What is the difference between options and futures?
A future binds both sides and gives a linear result with liquidation risk. An option gives the buyer a right without an obligation and capped risk, but its premium decays over time.
Can you lose more than you invest with options?
A buyer can lose at most the premium. A seller of uncovered options can lose far more than the premium collected.
Related terms
Read next
We go from choosing the margin mode to checking the liquidation price using one example. By the end you will know how much you…
Read →Leverage and liquidation: how not to lose your depositWhat leverage does to profit and loss, and why a position can be force-closed.
Read →Perpetual futuresPerpetual futures (perps) are futures contracts with no expiry date. Their price is kept close to spot by funding,…
Partner links are marked. If you sign up through them, ARUT may earn a commission at no cost to you. Details
Updated: 2026-10-19