Options Strategies
Main types of options trading strategies
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Main types of options trading strategies
Last updated
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You think the price of the asset will go above the Strike Price before the Expiration date and pay a Premium to the option seller for the right to buy the seller's asset lower. Upside: unlimited as the maximum token price is not limited. Risk: you risk losing Premium if option expires unexercised, no liquidations on price movements down. Example: If you buy a call option on 1 $SOL at a Strike Price of $170 for a Premium of $5, you have the right to buy 1 $SOL for $170 and profit if the $SOL goes above $175 before the expiration. *having $SOL market price at $160 for all the examples.
You think the price of the asset will not go above the Strike Price before the Expiration date. You want to earn a Premium for providing your asset and don't mind selling your asset higher. Profit: you earn a guaranteed Premium and sell higher (for a Strike Price) if option gets exercised. Risk: if price skyrockets then your profit is limited, if price drops you miss selling your asset higher. Example: If you sell a call option on $SOL with a Strike Price of $170 for a Premium of $5, you earn $5 upfront. If $SOL stays at or falls below $170 and the option isn’t exercised before the Expiration, you redeem your $SOL. Otherwise, if exercised by buyer, you get $170 for your $SOL. APY is ~400%.
You think the price of the asset will go below the Strike Price before the Expiration date and pay a Premium to the option seller for the right to sell the asset to the seller higher. Upside: limited with the token price as the maximum token price drop is zero. Risk: you risk losing Premium if option expires unexercised, no liquidations on price movements up. Example: If you buy a put option on $SOL at a Strike Price of $150 for a Premium of $5, you have the right to sell 1 $SOL for $150 and profit if the $SOL goes below $145.
You think the price of the asset will not go below the Strike Price before the Expiration date. You want to earn a Premium for providing cash and don't mind buying the asset lower. Profit: you earn a guaranteed Premium and buy lower (at a Strike Price) if option gets exercised. Risk: if price drops then you are forced to buy higher, if price skyrockets you miss buying asset cheaper. Example: If you Sell a Put option on $SOL with a Strike Price of $150 for a Premium of $5, you earn $5 upfront. If $SOL stays at or rises above $150 and the option isn’t exercised before the Expiration, you redeem your $USDC. Otherwise, if exercised by buyer, you get $SOL for your $150. APY is ~450%.
Now, that you have a general understanding of options and the key terms, let's see how they work in practice and move on to the Sharp Options Platform overview.
