Options Basics
This module explains what options are, the difference between ITM, ATM, and OTM options, and introduces key contract elements such as the underlying asset, strike price, and expiration date. You'll also learn the basics of the Gate platform's options interface and naming convention.
What Are Options
Options are derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined strike price on or before a specified expiration date. The buyer pays a premium to acquire this right, while the seller receives the premium and must fulfill the contract if the buyer chooses to exercise it.
The core of options trading lies in the asymmetry between rights and obligations:
- Buyer: Has the right to exercise. Maximum loss is the premium paid, while the potential profit can be unlimited (e.g., in a call option if the underlying asset’s price surges).
- Seller: Must fulfill the contract if exercised. Gains are limited to the premium received, but potential losses can be substantial (For example, a call option seller must deliver the asset at the strike price even if the market price skyrockets). Insufficient margin may result in forced liquidation.
Call option buyer: Has the right to buy the asset at the strike price on the expiration date.
Put option buyer: Has the right to sell the asset at the strike price on the expiration date.
Example:
Let’s say you believe the price of Bitcoin (BTC) will go up. You purchase a call option on BTC with a strike price of 100,000 USDT. If the market price rises to 105,000 USDT, you still have the right to buy 1 BTC at 100,000 USDT, earning a 5,000 USDT profit.
If the price stays below the strike price, you can choose not to exercise the option, and your only loss will be the premium paid. Alternatively, if you expect the BTC price to fall, you can buy a put option instead.
You’re not limited to buying options — you can also be an option seller.
Understanding ITM / ATM / OTM
In options trading, ITM, ATM, and OTMare used to describe the “moneyness” of an option — that is, the relationship between the strike price and the current price of the underlying asset.
ATM – At-the-Money Option
- Definition: Strike Price ≈ Current Underlying Price
- Example: BTC is currently priced at $100,000.
- Call or put options with a strike price of $100,000 are considered ATM
ITM – In-the-Money Option
- Definition: Exercising the option would result in a profit.
For call options (Call):
Strike price < Current underlying price
→ You have the right to buy at a lower price, which is advantageous.For put options (Put):
Strike price > Current underlying price
→ You have the right to sell at a higher price, which is advantageous.Example:
- BTC is currently priced at $100,000:
- Call option with strike price $95,000 → ITM (You can buy the asset priced at $100,000 for $95,000).
- Put option with strike price $105,000 → ITM (You can sell the asset priced at $100,000 for $105,000).
- BTC is currently priced at $100,000:
OTM – Out-of-the-Money Option
- Definition: Exercising the option would result in a loss.
For call options (Call):
Strike price > Current underlying priceFor put options (Put):
Strike price < Current underlying priceExample:
- BTC is currently priced at $100,000:
- Call strike price $105,000 → OTM (not profitable, buying at a higher price)
- Put strike price $95,000 → OTM (not profitable, selling at a lower price)
- BTC is currently priced at $100,000:
Comparison Summary Table:
Key Elements of an Options Contract
When reviewing an options contract, there are five key parameters to consider:
1.Underlying Asset
The financial instrument upon which the option is based. The underlying asset can be silver, Bitcoin, other cryptocurrencies, fiat currencies, or equities. The option’s profit and loss are directly tied to the price fluctuations of the underlying asset.
2.Options Type
- Call Options: Grant the buyer the right to purchase the underlying asset at the agreed strike price.
- Put Options: Grant the buyer the right to sell the underlying asset at the agreed strike price.
After paying the premium, the buyer holds the right to exercise, while the seller has the obligation to fulfill the contract.
3.Expiration Date
This is the final date on which an options contract remains valid. Upon expiration, the buyer has the right to decide whether to exercise the contract at the strike price (if the option still holds value). For European options, you can only exercise on the expiration date. For American options, you can choose to exercise any time before or on expiration date.
4.Strike Price
The pre-agreed price at which the underlying asset can be bought or sold.
- Call Option: Grants the buyer the right to buy the underlying asset at a predetermined price.
- Put Option: Grants the buyer the right to sell the underlying asset at a predetermined price.
The relationship between the strike price and the market price of the underlying asset determines the options’ intrinsic value.
5.Option Price / Premium
- The cost paid by the buyer to acquire the right to exercise. This premium is the seller’s income and represents the buyer’s maximum potential loss. - The premium is influenced by factors such as asset volatility, time to expiration, and the strike price’s proximity to the market price.
As shown in the image below, the Gate platform allows users to select different underlying asset option chains and view T-shaped tables for different expiration dates and strike prices.
How to Identify an Option Contract on Gate
On the Gate platform, options are labeled using the following format:
Related Assets – Expiration – Strike – Options Type
For example, if you see:
BTCUSDT – 250620 – 96000 – P
This means the underlying asset is Bitcoin (BTC), the expiration date is June 20, 2025, the strike price is 96,000 USDT, the option type is a put option. Therefore, the buyer of this put option is purchasing the right to sell Bitcoin at 96,000 USDT on June 20, 2025.
If you see:
BTCUSDT-250630-109500-C
This means the underlying asset is Bitcoin (BTC), the expiration date is June 30, 2025, the strike price is 109,500 USDT, the option type is a call option. The buyer of this call option is purchasing the right to buy Bitcoin at 109,500 USDT on June 30, 2025.
The final parameter, the option’s price (premium), is displayed in the options chain and order book and will be explained in detail later.
Below is the order interface on Gate. After selecting a contract, the option identifier is displayed as follows:
Options Basics
This module explains what options are, the difference between ITM, ATM, and OTM options, and introduces key contract elements such as the underlying asset, strike price, and expiration date. You'll also learn the basics of the Gate platform's options interface and naming convention.
What Are Options
Options are derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined strike price on or before a specified expiration date. The buyer pays a premium to acquire this right, while the seller receives the premium and must fulfill the contract if the buyer chooses to exercise it.
The core of options trading lies in the asymmetry between rights and obligations:
- Buyer: Has the right to exercise. Maximum loss is the premium paid, while the potential profit can be unlimited (e.g., in a call option if the underlying asset’s price surges).
- Seller: Must fulfill the contract if exercised. Gains are limited to the premium received, but potential losses can be substantial (For example, a call option seller must deliver the asset at the strike price even if the market price skyrockets). Insufficient margin may result in forced liquidation.
Call option buyer: Has the right to buy the asset at the strike price on the expiration date.
Put option buyer: Has the right to sell the asset at the strike price on the expiration date.
Example:
Let’s say you believe the price of Bitcoin (BTC) will go up. You purchase a call option on BTC with a strike price of 100,000 USDT. If the market price rises to 105,000 USDT, you still have the right to buy 1 BTC at 100,000 USDT, earning a 5,000 USDT profit.
If the price stays below the strike price, you can choose not to exercise the option, and your only loss will be the premium paid. Alternatively, if you expect the BTC price to fall, you can buy a put option instead.
You’re not limited to buying options — you can also be an option seller.
Understanding ITM / ATM / OTM
In options trading, ITM, ATM, and OTMare used to describe the “moneyness” of an option — that is, the relationship between the strike price and the current price of the underlying asset.
ATM – At-the-Money Option
- Definition: Strike Price ≈ Current Underlying Price
- Example: BTC is currently priced at $100,000.
- Call or put options with a strike price of $100,000 are considered ATM
ITM – In-the-Money Option
- Definition: Exercising the option would result in a profit.
For call options (Call):
Strike price < Current underlying price
→ You have the right to buy at a lower price, which is advantageous.For put options (Put):
Strike price > Current underlying price
→ You have the right to sell at a higher price, which is advantageous.Example:
- BTC is currently priced at $100,000:
- Call option with strike price $95,000 → ITM (You can buy the asset priced at $100,000 for $95,000).
- Put option with strike price $105,000 → ITM (You can sell the asset priced at $100,000 for $105,000).
- BTC is currently priced at $100,000:
OTM – Out-of-the-Money Option
- Definition: Exercising the option would result in a loss.
For call options (Call):
Strike price > Current underlying priceFor put options (Put):
Strike price < Current underlying priceExample:
- BTC is currently priced at $100,000:
- Call strike price $105,000 → OTM (not profitable, buying at a higher price)
- Put strike price $95,000 → OTM (not profitable, selling at a lower price)
- BTC is currently priced at $100,000:
Comparison Summary Table:
Key Elements of an Options Contract
When reviewing an options contract, there are five key parameters to consider:
1.Underlying Asset
The financial instrument upon which the option is based. The underlying asset can be silver, Bitcoin, other cryptocurrencies, fiat currencies, or equities. The option’s profit and loss are directly tied to the price fluctuations of the underlying asset.
2.Options Type
- Call Options: Grant the buyer the right to purchase the underlying asset at the agreed strike price.
- Put Options: Grant the buyer the right to sell the underlying asset at the agreed strike price.
After paying the premium, the buyer holds the right to exercise, while the seller has the obligation to fulfill the contract.
3.Expiration Date
This is the final date on which an options contract remains valid. Upon expiration, the buyer has the right to decide whether to exercise the contract at the strike price (if the option still holds value). For European options, you can only exercise on the expiration date. For American options, you can choose to exercise any time before or on expiration date.
4.Strike Price
The pre-agreed price at which the underlying asset can be bought or sold.
- Call Option: Grants the buyer the right to buy the underlying asset at a predetermined price.
- Put Option: Grants the buyer the right to sell the underlying asset at a predetermined price.
The relationship between the strike price and the market price of the underlying asset determines the options’ intrinsic value.
5.Option Price / Premium
- The cost paid by the buyer to acquire the right to exercise. This premium is the seller’s income and represents the buyer’s maximum potential loss. - The premium is influenced by factors such as asset volatility, time to expiration, and the strike price’s proximity to the market price.
As shown in the image below, the Gate platform allows users to select different underlying asset option chains and view T-shaped tables for different expiration dates and strike prices.
How to Identify an Option Contract on Gate
On the Gate platform, options are labeled using the following format:
Related Assets – Expiration – Strike – Options Type
For example, if you see:
BTCUSDT – 250620 – 96000 – P
This means the underlying asset is Bitcoin (BTC), the expiration date is June 20, 2025, the strike price is 96,000 USDT, the option type is a put option. Therefore, the buyer of this put option is purchasing the right to sell Bitcoin at 96,000 USDT on June 20, 2025.
If you see:
BTCUSDT-250630-109500-C
This means the underlying asset is Bitcoin (BTC), the expiration date is June 30, 2025, the strike price is 109,500 USDT, the option type is a call option. The buyer of this call option is purchasing the right to buy Bitcoin at 109,500 USDT on June 30, 2025.
The final parameter, the option’s price (premium), is displayed in the options chain and order book and will be explained in detail later.
Below is the order interface on Gate. After selecting a contract, the option identifier is displayed as follows: