"Introduction to Digital Asset Options (1): What is Digital Asset Option""Introduction to Digital Asset Options (1): What is Digital Asset Option"。
When many traders are new to options, they always fail to understand what is the difference between digital asset options and delivery contracts? Now, we illustrate with the following example:
The current market price of Bitcoin is $7,000, and an investor wants to invest $7,000 in the market. Currently, there are three products in the digital asset market: spot, delivery contracts, and options.
At this time, the investor has three investment options, and the specific operations are shown in the table below:
After we draw the investment return curve, we can see that investors’ choice of investment plan depends on the consideration of market risks and returns, as well as the position of the market price in the future, among which:
(1) The risk of buying bitcoin spot is the smallest, but compared with delivery contracts and options, its return is also the smallest;
(2) The advantage of the delivery contract is that when "buying price < latest market price < option exercise price", its income is higher than that of the option, but the option has a loss in option premium;
(3) The advantage of options is that in the figure above, if no margin call is made, there will be a risk of liquidation when the delivery contract is around $6,100, causing investors to lose all their money, while the loss of options at this time is still only Option fees, and it can still be profitable when the price rebounds to more than 8,000 US dollars in the future, and the option itself has super leverage. If the price of Bitcoin keeps rising, the option income will far exceed the contract income, so it has high leverage + no risk of liquidation feature.
Through the above cases, I believe everyone has a basic understanding of the difference in market performance between options and contracts. Now let us analyze the essential differences between the two at a deeper level.
Careful readers may find that the yield curve of options is very different from that of digital assets and derivative contracts. The yield curves of digital assets and derivative contracts (forward contracts) are linear and symmetrical, while the yield curves of options are A clear asymmetry emerges.
The asymmetry between rights and obligations is the root of the difference between options and contracts: options give the holder a certain right to do something, but the option holder does not necessarily have to exercise the right, but the seller of the option only has the obligation, once the buyer If you choose to exercise the option, the seller must perform the contract; in the contract market, performance is the common rights and obligations of both buyers and sellers, so both parties must perform the contract.
