Call Options and Types of Options: A Comprehensive Guide

Things to Know Before You Start

Options trading is a financial tool that allows you to have options instead of being obligated to execute a trade. You can profit by buying and selling the options contracts themselves without necessarily having to buy or sell the underlying asset. The majority of trading activity focuses on exchanging contracts, not the actual assets.

There are two main types of options. American options allow you to exercise at any time before expiration, while European options can only be exercised on the expiration date. Regardless of the type, understanding the strike price, option premium, expiration date, and other concepts is the first step to successful trading.

Basic Concepts of Options

What is an Option?

A option is an agreement that gives you the right—but not the obligation—to buy or sell an underlying asset at a predetermined price known as the strike price on or before a certain date known as the expiration date.

To illustrate, imagine you like a property but are not sure. You negotiate with the seller to have a purchase option for this house at a certain price within a specific period. To have this right, you must pay a fee called a option fee.

If the market price rises, you may decide to buy at the agreed price. If the price falls, you simply walk away and only lose the fee. The exercise price remains unchanged, but the value of the option will vary depending on the market price, the remaining time, and market demand.

What Could the Original Asset Be?

In the financial market, underlying assets can include:

• Cryptocurrency: Bitcoin (BTC), Ethereum (ETH), BNB, Tether (USDT) and many others
• Stocks: From large companies like Apple (AAPL), Microsoft (MSFT) to Amazon (AMZN)
• Index: S&P 500, Nasdaq 100, and other market indices
• Commodities: Gold, crude oil, soybeans, and agricultural products

Two Main Types of Options

Call Option (

Call options give you the right to buy the underlying asset at the strike price on or before the expiration date. This is an option you choose when you anticipate that the price will rise.

When you buy a call option, you have many ways to profit:

• Execute the option: Buy the asset at a lower price and then sell it at a higher market price.
• Sell the contract early: If the value of the option increases before expiration, you can sell it to make a profit without exercising it.

The second method is more popular because it allows you to trade contracts without needing to touch the underlying asset.

) Put Option ###

Put option grants you the right to sell the underlying asset at the strike price on or before the expiration date. You choose this type when you expect the price to decrease.

If the market price falls below the strike price, you can:

• Sell assets at a price higher than the current market price
• Sell the options contract when its value increases

Similar to call options, most traders sell put options before expiration to take advantage of price changes.

Important Components of Options Contracts

( Expiry Date

This is the specific date when the options contract becomes invalid. After this point, you can no longer exercise the option. Depending on the type, options may expire in a few weeks or a few years.

For example: If you buy an option with a 1-month expiration, you only have 30 days to decide whether to exercise it or not.

) Realized Price

Strike price is the fixed price at which you have the right to buy ### with a call option ### or sell ( with a put option ) of the underlying asset. The relationship between the strike price and the current market price determines the actual value of the contract.

For example: If the exercise price is $300,000 for a property, that is exactly the amount you have to pay to purchase it, regardless of what the current market price is.

( Option Fee )Premium###

Option fee is the cost you pay to have this right. It's the “ticket price” to enter the game. If you decide not to exercise the right, you only lose this fee.

Factors affecting option fees:

• The current market price of the underlying asset
• The expected volatility of the price (volatility)
• Strike price
• Time remaining until expiration
• Current interest rate

( Contract Size

A stock option contract typically consists of 100 shares. However, for options on indices, cryptocurrencies, or commodities, the size may vary. Always check the contract details before trading to know exactly how many underlying assets you are holding.

Common Terms

) In The Money ###ITM###, At The Money (ATM), Out of The Money (OTM)

These concepts describe the relationship between the strike price and the current market price:

For call options:

• ITM: Market price > Strike price ( is profitable if exercised )
• ATM: Market price = Strike price
• OTM: Market price < Strike price ( no profit if exercised )

For put options:

• ITM: Market price < Strike price
• ATM: Market price = Exercise price
• OTM: Market price > Strike price

( Greek Characters )The Greeks###

In options trading, Greek letters are measures of risk that help you understand how different factors affect the price:

Delta (Δ): Measures the change in the option price when the underlying asset price changes by 1 USD.

Gamma (Γ): Measures the rate of change of Delta when the price of the underlying asset changes by 1 USD

Theta (θ): Measures the rate of decline over time—the price of an option decreases as the expiration date approaches.

Vega (ν): Demonstrates sensitivity to market fluctuations—higher volatility usually increases the price of options.

Rho (ρ): Measures the change in price when interest rates change by 1%

Comparison of American and European Options

( American Style Options

This type can be executed at any time before the expiration date, providing greater flexibility for the holder. You do not need to wait until the expiration date to close the position or exercise the right.

) European Style Option

This type can only be executed on the expiration date or close to the expiration date. Although less flexible, due to this limitation, the option fees are usually lower.

Note about trading platforms: Some exchanges only offer European-style options. On these platforms, options are automatically exercised if they are in the money ###ITM###. Instead of exchanging the underlying asset, parties often settle in cash, simplifying the process.

Trade Before Expiration

An important point is that you do not need to wait until the expiration date to make a profit. Options contracts are actively traded in the market. Their value changes continuously depending on market conditions, remaining time, and other factors.

This means:

• You can buy options and sell them later to make a profit or cut losses.
• You are not required to fulfill the contract.
• Most options trading occurs this way.

This is the main way the options market operates—trading contracts rather than the underlying assets.

Summary of Key Points

Options trading is a powerful tool that allows you to have a choice instead of a commitment. You can profit from price fluctuations without owning the underlying asset. You can buy a call option when you expect the price to rise or buy a put option when you anticipate the price to fall.

However, before you start trading, make sure you have a clear understanding of concepts such as strike price, option fees, expiration date, and Greek letters. While options have the potential to yield profits, they also carry significant risks. Always conduct thorough research and consider seeking advice from experts if necessary.

Disclaimer: This article is for educational purposes only. It is not financial or legal advice. You are solely responsible for your investment decisions. Digital asset prices can be highly volatile, and you may lose your entire investment.