What are crypto options?

Crypto options are contracts that give the buyer the right, but not the obligation, to buy or sell a crypto asset at a fixed price by a set date. They are a type of derivative, meaning their value comes from another asset such as bitcoin. Options work differently from futures, which oblige both sides to trade.

What are crypto derivatives?

A derivative is a contract whose value depends on an underlying asset. In crypto, the best-known types are futures and options. Futures and leverage are covered in what are crypto futures and leverage. Options differ because the buyer pays an upfront fee and can simply let the contract lapse.

How do bitcoin options work?

The SEC's Investor.gov explains the building blocks, which apply to crypto too:

• Call: the right to buy at the strike price.
• Put: the right to sell at the strike price.
• Strike price: the fixed price in the contract.
• Premium: the non-refundable price the buyer pays the seller.

A buyer's maximum loss is the premium if the option expires worthless. Sellers, also called writers, take on the obligation, and Investor.gov warns some option positions can expose writers to unlimited losses.

Contract details vary by venue. CME's options on bitcoin futures each cover one futures contract of five bitcoin, are European style, so they can only be exercised at expiry, and settle against the CME CF Bitcoin Reference Rate. In the US, options on BlackRock's iShares Bitcoin Trust began trading on Nasdaq on November 19, 2024, after SEC approval in September 2024. ETF.com reported close to $1.9 billion in notional exposure on day one. See what is a bitcoin ETF for background.

What does it mean when bitcoin options expire?

Expiry is the moment a contract ends and is settled. On Deribit, expiring options settle at 08:00 UTC. The settlement price is a 30-minute time-weighted average of the Deribit index, which the exchange says reduces manipulation risk. Options are European style and cash settled, so in-the-money contracts are exercised automatically and paid in cash, with no bitcoin delivered.

CME's monthly bitcoin options expire on the last Friday of the contract month, with trading ending at 4:00 p.m. London time.

Why does crypto options expiry get so much attention?

Large expiries can mean many positions closing or being rolled at once, and news coverage often reports the total value expiring. That figure is notional, meaning the value of the underlying, not money that changes hands. Deribit also notes that margin requirements can shift in the final 30 minutes before expiry, so trading conditions around settlement can change.

Options can magnify losses for sellers and lose their full premium for buyers. See can you lose more than you invest in crypto.