Calls And Puts Explained For Crypto Traders

Direct answer

A call option gives the buyer upside exposure above a strike price. A put option gives the buyer downside exposure below a strike price. The buyer pays premium up front. At expiry, the option's payoff depends on the underlying price relative to the strike, and a long option buyer can lose the full premium if the payoff is not large enough.

Call basics

• A call benefits when the underlying rises enough to overcome the premium paid.
• At expiry, a simple long call breakeven is strike plus premium.
• A long call's upside can keep growing as the underlying rises, but liquidity and settlement still matter.

Put basics

• A put benefits when the underlying falls enough to overcome the premium paid.
• At expiry, a simple long put breakeven is strike minus premium.
• A long put's maximum intrinsic value is limited by the underlying price falling to zero.

First questions to answer

• What is the strike?
• What premium is paid?
• When does the contract expire or settle?
• Is settlement cash or physical?
• How wide is the bid-ask spread?