What Is the Primary Advantage of a European Option Structure for the Option Writer (Seller)?
The primary advantage is the certainty regarding the exercise date. Since the option can only be exercised at expiration, the writer knows they will not be assigned the underlying asset before that date.
This simplifies their risk management and hedging strategies, as they only need to be prepared for the transaction on a single, known date.
Glossar
Option Writer
Strategy ⎊ The Option Writer, within cryptocurrency derivatives, assumes a short position in an options contract, obligating them to fulfill the contract's terms if the option is exercised by the holder.
European Option Structure
Structure ⎊ European Option Structure dictates that the option holder can only exercise the right to buy or sell the underlying asset at the specified strike price on the exact expiration date, and not before.
Writer
Obligation ⎊ A writer, within cryptocurrency and derivatives markets, assumes contractual obligations through the sale of options or the shorting of underlying assets, establishing a defined liability contingent upon future price movements.
European Call Option
Option ⎊ A European call option, within the cryptocurrency derivatives landscape, represents a financial contract granting the holder the right, but not the obligation, to purchase a specified cryptocurrency asset at a predetermined price (the strike price) on or before a specific future date (the expiration date).
Certainty of Exercise
Exercise ⎊ Certainty of Exercise refers to the guaranteed right, though not the obligation, of the option holder to execute the contract at the strike price upon meeting specific conditions, usually at expiration for European styles.