Options Introduction

Introduction

Huobi Options is a type of digital currency derivatives. The options buyer has the right to buy or sell the asset at the strike price on the expiration date, while the options seller is obliged to become the counterparty of the buyer if the buyer exercises the options. What the options buyer purchases is a right. If exercising the options on the expiration date is beneficial to the buyer, the buyer can exercise the options to gain profits; while if exercising the options is unfavorable to the buyer, the buyer can give up the right and the seller does not need to fulfill the obligations. Users can trade options to hedge risks and gain profits.

Huobi Options is a European Options, which means that the options can only be exercised at a specified time on the expiration date. When the options expire, the arithmetic average of the index prices in the last hour is used as the delivery price. All open positions of in-the-money options will be delivered in price difference between the strike price and the delivery price. The seller shall pay delivery profits to the buyer without physical delivery involved. In-the-money options will be exercised automatically by the system on the expiration date, while at-the-money and out-of-the-money options will become invalid. Both the options buyer and seller can close positions before the expiry or hold until the expiration date.

 

Notions

  • Option Name: generally composed of key elements, which include the underlying asset of the option, expiration date, call/put, strike price and the option type. For example, BTC0925C10500Quarterly.
  • Options Buyer: An option buyer is someone who buys an option from sellers. The buyer of an option pays a premium and buys the right of that particular option but is not obliged to exercise the option.
  • Options Seller: An option seller is someone who sells an option and receives the premium. Options seller is obligated to keep the agreement if the options buyer exercises the options. Options sellers are required to freeze a certain amount of assets as performance margin when they are selling the options.
  • Call options: Call options give the options buyer the right to buy the underlying asset at a specified price on the expiration date, while the seller is obligated to pay the delivery profit if the buyer exercise the options.
  • Put options: Put options give options buyer the right, but not the obligation, to sell a specified amount of an underlying asset at a specified price on the expiration date. While the seller is obligated to pay the delivery profit if the buyer exercises the options.
  • Strike Price: a fixed price at which a call or put option can be exercised. It is also known as the exercise price.
  • Delivery Price: the arithmetic average of index prices in the last hour before delivery.
  • Options Premium: an option premium is the current market price (USDT) of an option contract. It is the income received by the seller when the buyer is purchasing the options.
  • Performance margin: A certain amount of margin that is required to be frozen when the seller is selling options to open short positions. At the same time, the seller will receive a premium paid by the options buyer. The seller also needs to pay premium when he/she is buying options to close short positions.
  • Mark price: Due to the violent fluctuations in the option market, Huobi Options uses mark prices to calculate various indicators.
  • In-the-money options; at-the-money options; out-of-the-money options

Options can be divided into in-the-money (ITM), at-the-money (ATM) and out-of-the-money (OTM) options based on the relationship between strike price and delivery price.

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Options Variety 

Currently the underlying asset of Huobi options is BTC and ETH, they are quoted in USDT.

Based on the rights of options, options can be divided into call options and put options, for example, BTC call options and BTC put options. Buying a BTC call option means the buyer has the right to buy BTC at a specific price (strike price), while buying a put option means that the buyer has the right to sell BTC at a specific price (strike price).

 

Options Face Value

The unit for options trading is “cont”. Each options contract corresponds to a certain amount of digital currency based on the face value.

The face value of a BTC options contract is 0.001 BTC and the minimum price change in order book is aggregated to 0.01 USDT.

The face value of a ETH options contract is 0.01 ETH and the minimum price change in order book is aggregated to 0.01 USDT

 

Contract Type (Expiration)

There are weekly, bi-weekly and quarterly options available on Huobi Options.

Weekly options will be delivered on imminent Friday; Bi-weekly options will be delivered on next Friday; Quarterly options will be delivered on the last Friday of imminent quarter.

Note: The delivery date of each-type options shall not be identical with each other, and it is based on Singapore time (GMT+8).  Normally speaking, the system will form a new Weekly or Bi-weekly options after settlement every Friday.  However, in terms of a Quarterly options, when settled on the-third-to-last Friday, there are only two weeks left before the expiration, in other words, the Quarterly options turns into a Bi-weekly one, meanwhile, if it forms a new bi-weekly options, there will be a same expiration date on two options. Therefore, for quarterly options, after settlement on the-third-to-last Friday of March, June, September and December, the system will form a new quarterly options instead of a bi-weekly one. Meanwhile, the original quarterly options will become bi-weekly options and the original bi-weekly options will become weekly options.