Option

What Is an Option?

An option is a financial agreement that allows its holder to buy or sell an asset without making a commitment. Options have a strike price and an expiration date. They can be used in the trading of cryptocurrencies, indexes, exchange-traded funds (ETFs), and more. The rules for option trading depend on the style of the option.

There are two styles of options: American and European. The difference between the two lies in how holders interact with the instrument between the time of purchase and the expiration date. American-style options give their holders the freedom to buy or sell on or before the expiration date. On the other hand, European-style options only allow holders to exercise their rights on the expiration date.

In the options space, buying and selling activities are referred to as call and put, respectively. A call signal indicates that an option holder can buy an asset at a predetermined price and time. Put and call option strategies work in opposite directions. It is important to note that options are traded in the options market. While these financial instruments carry a higher level of risk compared to spot trading, they also offer several advantages.

For instance, options can help investors efficiently allocate funds, maximizing their returns. Additionally, due to their reduced financial obligation, options can be less risky than futures and other types of financial instruments. Options are highly flexible, allowing for the creation of synthetics and expanding investment opportunities.