What is an option?

An option is a contract that gives its owner the right, but not the obligation, to buy or sell an asset at a fixed price before a fixed date. That single phrase — right, not obligation — is the whole idea. You get to decide later, and you pay upfront for the privilege.

Every contract is defined by four things: the underlying (what it is written on — BTC, ETH, a stock), the strike price (the fixed price you can transact at), the expiry (when the right runs out) and the premium (what the option costs). One contract normally represents 100 units of the underlying.

The asymmetry matters. The buyer can walk away and lose only the premium. The seller — also called the writer — collects that premium but takes on a real obligation if the buyer exercises. Every option has exactly one of each on either side.

Types: American vs European

The first split is when you are allowed to exercise. It has nothing to do with geography.

An American option can be exercised at any moment up to and including expiry. That extra flexibility is worth something, so American options are never cheaper than their European equivalent. Most single-stock options trade this way.

A European option can only be exercised at expiry. You can still close the position early by selling the contract itself — you just cannot force the transaction before the date. Index options and most crypto options, including the BTC and ETH contracts StrategyView tracks, are European.

Calls

A call is the right to buy the underlying at the strike. It is the instrument you reach for when you think price goes up.

Long call — buying the right to buy

You pay the premium and hope the underlying rises above the strike. With BTC at $60,000 you buy a $65,000 call for $2,000. Above $65,000 you start recovering the premium; above $67,000 — the strike plus what you paid — you are in profit, and from there the upside has no ceiling. If BTC never clears $65,000 the option expires worthless and you lose the $2,000, nothing more. Limited loss, unlimited gain.

Short call — selling that right to someone else

You collect the $2,000 and take the other side. If BTC stays below $65,000 you keep the whole premium — that is your maximum profit, and it is fixed. But if BTC rallies to $80,000 you must deliver at $65,000 and eat the difference. Limited gain, unlimited loss, which is why selling calls without owning the underlying is the most dangerous position on this page — it is what a gamma squeeze feeds on.

Puts

A put is the mirror image: the right to sell the underlying at the strike. It is what you reach for when you think price goes down, or when you want insurance on something you already hold.

Long put — buying the right to sell

You pay the premium and profit as the underlying falls. With BTC at $60,000 you buy a $55,000 put for $1,800; below $53,200 you are in profit, all the way down to zero. Loss is capped at the premium. This is also the classic hedge: if you hold BTC, a long put puts a floor under it without forcing you to sell.

Short put — taking on the obligation to buy

You collect the premium and agree to buy at the strike if asked. Stay above $55,000 and you keep it all. Fall to $40,000 and you are still buying at $55,000. The loss is large but bounded, since the underlying cannot go below zero. Traders use this to get paid while waiting to buy at a price they liked anyway.

Next comes the vocabulary you will meet everywhere once you start reading an option chain: whether a contract is in, at or out of the money — and after that, the greeks that measure how it moves.