What Is the ‘Underlying Asset’ in a Cryptocurrency Option?
The underlying asset in a cryptocurrency option is the specific digital asset that the contract is based upon. This is typically a major cryptocurrency like Bitcoin (BTC) or Ethereum (ETH).
The price movement of this underlying crypto dictates the value and eventual payoff of the options contract.
Glossar
Digital Asset
Asset ⎊ A digital asset, within the convergence of cryptocurrency, options trading, and financial derivatives, represents a quantifiable, tradable entity existing primarily in digital or electronic form.
Underlying Crypto
Underlying ⎊ The underlying crypto is the specific digital asset that forms the basis of a derivative contract, such as an option or future.
Payoff
Mechanism ⎊ Payoff, within cryptocurrency derivatives, represents the calculated financial outcome of a contract at expiration or a specified trigger event, determined by the underlying asset’s price relative to the contract’s strike price and other parameters.
Underlying Asset
Futures Pricing incorporates the cost of carry, which in crypto markets includes funding rates derived from perpetual swap markets and the time value associated with holding the spot asset.