Learn options

An option is a contract that gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a fixed price (the strike) on a fixed date (the expiry), in exchange for a price paid up front (the premium).

A call is the right to buy the underlying at the strike and gains when the price rises; a put is the right to sell it at the strike and gains when the price falls; each can be bought (long) or sold (short), which gives the four basic positions every strategy is built from.

Every option is defined by its strike (the price its payout is measured from), its expiry (the moment it settles) and its premium (the price paid for it), all for one contract of a fixed size in the underlying.

Moneyness describes where an option's strike sits relative to the underlying's price: in the money if it would pay something were it settled at the current forward price, at the money if the strike is about equal to the price, and out of the money if it would pay nothing.

An option's premium splits into intrinsic value, what it would pay if it settled at today's forward, and time value (extrinsic value), the rest, which the market charges for the chance of a further move and which decays to zero by expiry.

A strategy's payoff is what it is worth at expiry at each settlement price; subtracting what it cost gives its profit or loss, whose zero crossings are the breakevens and whose highest and lowest points are the maximum profit and maximum loss.

A strategy is a set of legs, each one a call, put or underlying position bought or sold in a given ratio at a strike and expiry; its shape is described by the width between strikes, its body and wings, and for calendars a near and a far expiry.

BOSS classifies each of its 58 strategies along six dimensions: proficiency level, market direction, volatility outlook, whether risk is capped, whether reward is capped, and whether it aims for income or capital gain.

Every option has a bid (the best price someone will pay) and an ask (the best price someone will sell at); trading at once means buying at the ask and selling at the bid, and that gap from the mid-price, plus the venue's trading fee, is the real cost of entering a trade.

At expiry, crypto options on Deribit, OKX and Bybit settle in cash: each option pays its intrinsic value measured against the venue's official delivery price, and the position disappears from the account, leaving only the cash difference.

Margin is the collateral a venue requires you to hold against a position that can lose more than it cost, mainly sold options: initial margin to open it, and maintenance margin to keep it open, below which the position is liquidated.

Liquidation is the venue forcibly closing some or all of a margined position, for a fee, once the account's equity no longer covers the position's maintenance margin.

Managing an options position means deciding, before expiry, whether to close it, roll it to another expiry or strike, or adjust one of its legs, weighing what is left to gain against the risk still carried and the cost of trading out.

Delta is how much an option's price is expected to change for a $1 move in the underlying: a call's delta runs from 0 to 1, a put's from −1 to 0, and an at-the-money option sits near ±0.5.

Gamma is how much an option's delta changes for a $1 move in the underlying; it is largest for at-the-money options close to expiry, and it is why an option's gains and losses are not a straight line.

Vega is how much an option's price is expected to change for a one-percentage-point change in implied volatility; long options have positive vega, and longer-dated, at-the-money options have the most.

Theta is how much an option's value is expected to change per day from time passing alone, with price and implied volatility unchanged; it is negative for options you own (that is the value they lose each day), and the decay accelerates as expiry approaches.

Rho is how much an option's price is expected to change for a one-percentage-point change in interest rates; calls have positive rho, puts negative, and for short-dated crypto options it has the smallest dollar effect of the Greeks.

Position Greeks are a strategy's net delta, gamma, vega, theta and rho: each leg's Greeks multiplied by its size and by +1 if bought or −1 if sold, then added up, so a multi-leg structure reads as one single exposure.

P&L attribution splits the change in an option position's value into what the underlying's move explains (delta and gamma), what the change in implied volatility explains (vega), what time passing explains (theta), and a residual the Greeks don't capture.

Implied volatility is the volatility of the underlying that, plugged into an option pricing model, reproduces an option's market price: the market's price for expected movement, which includes a risk premium, quoted as an annualized percentage.

Realized volatility is how much the underlying actually moved over a past window, measured as the standard deviation of its daily log returns and annualized, so it can be compared directly with implied volatility.

Comparing implied with realized volatility asks whether options are priced for more movement than the underlying is delivering; IV usually sits above RV, and that gap, the volatility risk premium, is what option sellers try to collect.

The volatility smile is the shape implied volatility takes across strikes for a single expiry: usually lowest near the money and higher in the wings, and in crypto tilted toward whichever side the market is paying up for: usually the puts in sell-offs and bear phases, often the calls in strong rallies.

Volatility skew is how implied volatility tilts across an expiry's strikes, measured at 25 delta: put skew is 25-delta put IV minus at-the-money IV, and the risk reversal, 25-delta call IV minus 25-delta put IV, sums up the tilt between the wings in one signed number.

The term structure of volatility is at-the-money implied volatility plotted against time to expiry; it normally slopes upward (contango), and it inverts (backwardation) when the market expects turbulence in the near term.

The volatility surface is implied volatility across both strike and expiry at once, the smile of every expiry laid along the term structure; traders usually read it by delta rather than by strike, so expiries compare on equal terms.

DVOL is Deribit's implied volatility index for bitcoin and ether: a 30-day expected volatility computed from the prices of Deribit's own options across a wide range of strikes, with a methodology modeled on the VIX, quoted as an annualized percentage.

Put-call parity is the no-arbitrage relationship between a European call and put with the same strike and expiry: the call's price minus the put's price equals the forward price minus the strike (discounted to today).

A box spread combines a bull call spread and a bear put spread on the same two strikes and expiry, so it pays exactly the strike width at expiry whatever the underlying does; its price today therefore implies an interest rate.

The forward price is the price agreed today for buying the underlying at a given expiry; the basis is how far it sits above or below spot, forward / spot − 1, and its annualized value is the market's carry for that horizon.

The index price is a venue's reference spot price, computed from several spot exchanges; the mark price is the venue's own fair value for an instrument, used for margin and liquidation, which is neither a bid, an ask nor a guaranteed fill.

Black-Scholes is the classic model that prices a European option from the underlying's price, the strike, time, the interest rate and volatility; Black-76 is its version written on the forward, which is how crypto options are priced.

Probability of profit is the estimated chance that a strategy ends with a gain at expiry, after its entry costs; BOSS computes it from a lognormal distribution around the expiry's forward at the at-the-money implied volatility.

Inverse options are quoted, margined and settled in the coin itself, like the coin-margined BTC and ETH options BOSS follows on Deribit and OKX; linear options are quoted and settled in a stablecoin, like the ones BOSS follows on Bybit, so their payoff in dollars is the textbook one.

An option with the same strike and expiry trades at different prices on different venues because each has its own order book, forward, index, fees and margin rules; the fair comparison is at execution, after fees.

Deribit, OKX and Bybit list crypto option expiries on overlapping cycles, daily, weekly on Fridays, monthly on the last Friday of the month and quarterly on the last Friday of March, June, September and December, all expiring at 08:00 UTC.

Exercise is the holder using an option's right to buy or sell at the strike, and assignment is the seller being required to fulfil it; the options on Deribit, OKX and Bybit are European and cash-settled, so exercise happens only at expiry, automatically, as a payment of intrinsic value.

Backtesting replays a strategy over historical market data to see how it would have performed, entering and exiting at the prices of the time, and measures the result with statistics such as win rate, total P&L and maximum drawdown.