In Options Trading, What Is the Role of the ‘Premium’?
The premium is the price paid by the option buyer to the option seller (writer) for the contract. It represents the maximum loss for the buyer and the maximum profit for the seller.
The premium is determined by factors like the underlying asset's price, volatility, time to expiration, and interest rates. It is paid upfront.
Glossar
Option Buyer
Premia ⎊ An option buyer, within cryptocurrency derivatives, initiates a position predicated on a directional view, acquiring the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date.
Maximum Profit
Definition ⎊ Maximum profit represents the theoretical upper limit on the financial gain achievable from a specific trading position or options strategy.
Maximum Loss
Value ⎊ Maximum Loss represents the absolute worst-case financial outcome, expressed as a specific monetary value, that a derivatives position can incur over its entire life cycle.
Options
Hedging ⎊ The primary strategic application of these instruments, allowing market participants to offset potential adverse price movements in their underlying crypto holdings.
Option Seller
Strategy ⎊ The Option Seller, within cryptocurrency derivatives, fundamentally assumes a short position, profiting from a decline in the underlying asset's price or volatility.