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What do we know about option strike price?
As an investor or trader in the crypto market, strike price options are one of the fundamental concepts you need to be aware of. You may have already heard about the crypto option which is a derivative contract that helps traders and investors to purchase or sell the underlying crypto assets at a predetermined price sometime in the near future (which is termed the expiration date). This predetermined price is known as the option strike price of the crypto options contract.
To put it more simply, an option strike price is a price at which any call or put option will become applicable. Whenever an investor or trader purchases a crypto option, selecting the option strike price is one of the most fundamental decisions they have to make because it will surely influence the result of your total investment.
Let us understand what the option strike price is and how it influences your profit and loss with an example.
Suppose, an investor named Lewis is willing to purchase a call option for any crypto asset which is presently trading at $15 dollar but the strike price of the same asset is $10. This price tag signifies that the seller of the crypto contract thinks the value of the crypto asset will decrease in the future; that is why he is trying to avoid any kind of loss by releasing the option contract at a $10 strike price.
Therefore, once the crypto contract expires the underlying crypto assets will be sold at the option strike price of $10 (predetermined by the seller). However, Lewis has done his own research and thinks the price of crypto assets will increase in the near future.
Suppose, Lewis has come to the conclusion that the price of crypto will become $20 and that is why he has purchased the crypto at the $10 option strike price. If the price of crypto increases by $18 then Lewis’s investment will become profitable.
On the other hand, if the price of the crypto is reduced to $8 then the seller will receive the profit while Lewis will have to bear the loss.
The option strike price of put and call crypto options
In case of a call option, the buyer has the authority (but not an obligation) to purchase the underlying crypto assets at the strike price after the expiration. During the purchase, if the spot price is less than the strike price then the buyer will suffer a loss simultaneously if the spot price is greater than the strike price then the purchase will be profitable for the buyer.
In the case of the put option, the investors or traders can sell the crypto asset at the option strike price on expiration. Nevertheless, unlike the call option traders can also sell the asset before the expiry date. With the help of the put option, the buyer can profit if the spot price of crypto is less than the strike price and vice versa.
The actual difference between the spot price and option strike price
The spot price signifies the current market price of a crypto asset in the crypto options trading that can be purchased and released for instant settlement. To be more specific it is the price at which the buyers and sellers can value the crypto asset at present time.
The spot price is used as a reference for determining the option strike price at the crypto options trading. The spot price of any crypto asset is uniform in each and every region and financial market. Generally, in the crypto options market, the strike price is always higher than the spot price.
Both option strike price and spot price are important terms when it comes to understanding the concept of crypto options trading. To know more about them you can visit Delta Exchange.
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