What are options? Crypto options course — calls, puts and profit/loss charts

This course is written for someone who has never traded options: concepts first, then the profit/loss chart of each trade type, and finally a step-by-step first trade. Examples are not made up — they use Bitcoin option prices combined from Deribit, OKX, Bybit and Binance as of 2026-11-06 20:54 UTC (BTC ≈ $76,258, example expiry 13 Nov 26, 6 days).

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1. What is an option?

An option is a contract giving the RIGHT to buy or sell an asset (the underlying — e.g. BTC) at a set price (the strike) on a set date (expiry). The holder pays a fee for this right up front: the premium. The seller receives the premium and takes on the obligation.

2. Buying a call — profit from a rise, loss capped at the premium

Example: BTC $76,500 CALL expiring 13 Nov 26. Premium: $1,223 (1-BTC contract). The buyer receives the difference if BTC is above $76,500 at expiry.

Formula: break-even = strike + premium = $76,500 + $1,223 = $77,723. If BTC ends below $76,500, the option expires worthless and the whole premium ($1,223) is lost; between $76,500 and $77,723 part of the premium comes back; above $77,723 the trade is profitable and gains grow with price.

The dashed line shows what the same option would be worth if sold today (Black-Scholes): before expiry the option still has time value, so the curve is smooth. As expiry nears, the dashed line converges to the gold line.

3. Buying a put — profit from a fall, or insurance

Example: BTC $76,500 PUT expiring 13 Nov 26. Premium: $1,790. Break-even = strike − premium = $74,710. Below that at expiry: profit; above $76,500: loss limited to the premium.

As insurance: someone holding 1 BTC who buys this put cannot see the combined value (coin + put) fall much below strike − premium at expiry, however far BTC drops. The cost is the premium; if price doesn't fall, the premium is spent — like an unused insurance policy.

4. Intrinsic value, time value: ITM, ATM, OTM

An option price has two parts. Intrinsic value: what it would be worth if exercised now (spot − strike for a call, never below zero). Time value: everything else — the price of the chance that price moves further in your favour before expiry. Time value goes to zero at expiry. Options with intrinsic value are in the money (ITM), the strike nearest spot is at the money (ATM), options without intrinsic value are out of the money (OTM).

Time value is largest at the money. Four things set the premium: distance between spot and strike, time to expiry, implied volatility (IV — about 37% at the money for this expiry) and rates (small effect in crypto). When IV rises all options get pricier, when it falls they get cheaper — even if price does not move.

5. Exiting before expiry: the effect of time

You don't have to hold to expiry; most trades close by selling the option earlier, at the option's market price. The chart shows the same call at different times: even if price doesn't move, it loses some value each day (theta, time decay), and decay accelerates near expiry.

Scenario table: after buying the $76,500 call (premium $1,223), if BTC moves this much and this many days pass, profit/loss when sold at that moment (IV held constant):

The key lesson: even if price moves the right way, an option buyer can lose if it doesn't move far or fast enough. Buying options requires being right about direction, size and timing.

6. Selling options: collecting premium, taking the risk

The seller has the mirror-image chart: the gain is at most the premium received, the loss can grow. Example: selling the $68,000 PUT — $113 premium received. If BTC is above $68,000 at expiry the premium is kept; below it, losses grow as price falls.

Selling a naked CALL (without owning the coin) has theoretically unlimited loss, since price has no upper limit. The exchange requires margin from the seller; if price moves against the position and margin runs short, it can be force-closed (liquidated). For beginners the safest start is BUYING options or spreads, where the maximum risk is known up front.

7. Spreads and straddles: shaping the risk

Bull call spread: buy the $76,500 call, sell the $84,000 call. The premium from the sold call lowers the cost; in exchange the profit is capped at $84,000. Both maximum profit and maximum loss are known up front.

Long straddle: buy both a call and a put at the same strike ($76,500). No directional view; price must move beyond either break-even in ANY direction. Used ahead of big events, but expensive because IV is usually already high then.

* Chance of profit is implied by the options' implied volatility (log-normal, risk-neutral); not a forecast. Fees are not included.

8. The Greeks: an option's sensitivities

9. Step-by-step first options trade

1. Decide the amount you are willing to lose. When buying options that amount = the full premium; keep the budget small.
2. Clarify your view: direction (up → call, down → put), how far and how soon. Timing sets the expiry, distance sets the strike.
3. Pick the expiry. Very short expiries are cheap but decay fast; for a first trade a few weeks out is more forgiving.
4. Pick the strike. ATM options are balanced; far OTM options are cheap but less likely to end in the money. Compute the break-even (calculator).
5. Check bid and ask in the option chain. A wide spread makes the trade costly; use a LIMIT order between the two.
6. Enter the quantity (on most exchanges 1 contract = 1 coin; minimum size can be as small as 0.01 BTC depending on the exchange) and confirm. The premium is deducted.
7. Monitor: the option's current price = your current profit/loss. Exit by SELLING the option (closing trade) at your target or when the scenario breaks.
8. If you hold to expiry: in the money pays intrinsic value automatically, out of the money expires worthless. Check trading and settlement fees on the exchange's fee page.

10. Differences between crypto options exchanges

All are European and cash-settled. On inverse (coin-margined) contracts premium and P/L are in coin, so the dollar result also moves with BTC's price; USDC/USDT contracts settle directly in dollars — easier to read for beginners.

11. Common mistakes

• Buying far OTM, very short-dated options because they're cheap: unless price moves a lot quickly, they go to zero.
• Buying when IV is very high (before big events): IV drops afterwards and the option can lose value even if price moves your way.
• Using market orders on contracts with wide spreads and low volume.
• Selling options without accounting for margin and unlimited risk.
• Sizing like a leveraged futures trade: losing the whole premium is a real outcome on every trade.

Frequently asked questions

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