Informations
Table of Contents
- Part 1: Introduction to Options
- Part 2: What is an Option?
- Part 3: The Two Main Types of Options
- Part 4: The Roles in an Option
- Part 5: Example Walkthrough
- Part 6: Why Use Options?
- Conclusion on option
- Workflow
- Intoduction to Futurs
- Part 10: What is a Futures Contract?
- Part 11: The Two Positions in Futures
- Part 12: The Roles in a Futures Contract
- Part 13: Example Walkthrough
- Part 14: Why Use Futures?
- Conclusion on futurs
Part 1: Introduction to Futurs
Options are not just financial tools — they are choices. An option gives you the possibility to act without the obligation to do so. Think of it like reserving the right to buy concert tickets at today’s price, even if the price goes up tomorrow. You pay a small fee for that right, and later you can decide: if the ticket price skyrockets, you exercise your right and save money; if it drops, you simply let the reservation expire and lose only the small fee you paid.
In finance, options work in a similar way: they allow investors to lock in a future buying or selling price of an asset while keeping the freedom to walk away if conditions turn unfavorable.
This flexibility makes options one of the most versatile instruments in modern finance — used not only for speculation but also for risk management and income generation.
Part 2: What is an Option?
An option is a type of financial contract that gives its buyer a right, but not an obligation, to trade an asset (called the underlying asset) at a predetermined price, within a certain time period.
Here are the key elements:
- Underlying Asset: The product or instrument the option is linked to.Example: Bitcoin, Ethereum, a stock, or a commodity.
- Strike Price (Exercise Price): The price at which the buyer can purchase or sell the underlying asset if they decide to exercise the option.
- Expiration Date (Maturity): The date when the option expires. After this date, the contract becomes void.
- Premium: The fee paid by the buyer to the seller for acquiring the option. It’s the cost of having the right.
- Two Main Types of Options:
- Call Option → The right to buy the underlying asset.
- Put Option → The right to sell the underlying asset.
- Exercise Styles:
- European Option: Can only be exercised on the expiration date.
- American Option: Can be exercised at any time up to the expiration date.
Think of a Call as a reservation to buy, and a Put as a reservation to sell.
Part 3: The Two Main Types of Options
Options come in two main forms: Call Options and Put Options. Both are powerful tools, but they serve different purposes.
Call Option (Right to Buy)
- What it is: A Call gives the buyer the right to buy the underlying asset at the strike price.
- When to use it: If you believe the price of the asset will increase.
- Example: You buy a Call option on Bitcoin with a strike price of $50,000. If Bitcoin rises to $60,000, you can still buy it at $50,000, capturing the profit.
Put Option (Right to Sell)
- What it is: A Put gives the buyer the right to sell the underlying asset at the strike price.
- When to use it: If you believe the price of the asset will decrease.
- Example: You buy a Put option on Ethereum with a strike price of $3,000. If Ethereum falls to $2,500, you can still sell it for $3,000, limiting your losses.
| Feature | Call Option | Put Option |
|---|---|---|
| Right to | Buy the asset | Sell the asset |
| Best if price | Goes up | Goes down |
| Example use case | Speculating on a bull market | Protecting against a market downturn |
| Potential Profit | Unlimited (if price keeps rising) | Significant (as price falls) |
| Maximum Loss | Limited to the premium paid | Limited to the premium paid |
European vs. American Options
- European Option: Can only be exercised on the expiration date.
- American Option: Can be exercised any time before expiration.
- In DeOpt V1, the flexibility will depend on the type of contract you choose.
Quick takeaway: Buy a Call if you expect prices to rise. Buy a Put if you expect prices to fall. Your maximum loss is always the premium you paid.
Part 4: The Roles in an Option
Every option involves two parties:
The Buyer (Holder)
- Pays the Premium: This is the cost of acquiring the option.
- Has the Right, Not the Obligation:
- For a Call: the right to buy the asset.
- For a Put: the right to sell the asset.
- Risk: Limited to the premium paid.
- Potential Reward:
- For Calls: Unlimited gains if the price rises.
- For Puts: Large gains if the price drops.
- Analogy: Like paying for insurance — you pay a fee, and if the event happens, you’re protected.
The Seller (Writer)
- Receives the Premium: Immediate income from selling the option.
- Has the Obligation: Must fulfill the contract if the buyer exercises the option.
- Risk:
- For Calls: Potentially unlimited losses if the price skyrockets.
- For Puts: Significant losses if the price collapses.
- Potential Reward: Limited to the premium received.
- Analogy: Like being the insurer — you collect the fee, but must cover the payout if the event happens.
Illustration: Call Option (Buyer & Seller)
Illustration: Put Option (Buyer & Seller)
| Role | Risk | Reward |
|---|---|---|
| Buyer | Limited to premium | Unlimited (Call) / Large (Put) |
| Seller | Potentially very high | Limited to premium received |
Key Insight: Buyers take limited risk for high potential gain. Sellers take high risk for limited gain.
Part 5: Example Walkthrough
Let’s take a practical example to see how an option works in real life.
Scenario: A Call Option on Bitcoin
- Underlying Asset: Bitcoin
- Strike Price: $50,000
- Expiration: 1 month from today
- Premium Paid: $2,000
You believe Bitcoin’s price will rise, so you buy a Call option.
Outcome 1: Price Goes Up (Profit Scenario)
- At expiration, Bitcoin is trading at $60,000.
- You exercise your right to buy at $50,000.
- You immediately own an asset worth $60,000.
- Gross Gain: $10,000
- Net Profit: $10,000 – $2,000 (premium) = $8,000
Outcome 2: Price Stays the Same or Drops (Loss Scenario)
- At expiration, Bitcoin is trading at $48,000.
- Buying at $50,000 would be a loss.
- You decide not to exercise the option.
- Loss: Only the premium of $2,000.
Key Takeaway
Maximum Loss: $2,000 (the premium paid). Potential Profit: Unlimited, depending on how high the price goes. This limited risk and high potential reward is why many investors use options.
Scenario: A Put Option on Ethereum
- Underlying Asset: Ethereum
- Strike Price: $3,000
- Expiration: 1 month from today
- Premium Paid: $150
You’re worried Ethereum’s price might fall, so you buy a Put option to protect yourself.
Outcome 1: Price Falls (Profit Scenario)
- At expiration, Ethereum is trading at $2,500.
- You exercise your right to sell at $3,000.
- You sell for $500 more than the market price.
- Gross Gain: $500
- Net Profit: $500 – $150 (premium) = $350
Outcome 2: Price Stays the Same or Rises (Loss Scenario)
- At expiration, Ethereum is trading at $3,200.
- Selling at $3,000 would be a loss.
- You decide not to exercise the option.
- Loss: Only the premium of $150.
Key Takeaway
Maximum Loss: $150 (the premium paid). Potential Profit: Grows as the asset price falls. A Put acts like insurance against falling prices.
Together, Calls and Puts give traders and investors tools to bet on or protect against any market movement.
Part 6: Why Use Options?
Options are more than just speculative tools. They provide flexibility and control that traditional investments can’t always offer. Here are the three most common reasons investors use them:
1. Hedging (Protection)
- Goal: Protect against unfavorable price movements.
- How it works:
- A farmer sells a Put option on wheat to ensure he can sell his crop at a minimum price.
- A crypto miner buys a Put option on Bitcoin to protect earnings if the price falls.
- Benefit: Reduces risk — like buying insurance.
2. Speculation (Profit Opportunities)
- Goal: Benefit from expected price movements.
- How it works:
- If you expect the price of Ethereum to rise, you buy a Call option.
- If you expect it to fall, you buy a Put option.
- Benefit:
- Profit from market moves with a smaller initial investment.
- Maximum loss is limited to the premium.
3. Income Generation
- Goal: Earn regular premiums.
- How it works:
- Investors sell (write) options to collect the premiums from buyers.
- If the option expires worthless, they keep the premium as profit.
- Example: A trader sells Call options on tokens they already own to earn extra income.
- Risk: The seller must deliver if the buyer exercises the option.
Quick Recap
- Hedging: Protect against losses.
- Speculation: Profit from market moves.
- Income: Earn premiums by selling options.
Options are versatile tools that adapt to many investment strategies — whether you want to secure your capital, take advantage of price swings, or generate passive income.
Conclusion on options
Options are powerful financial instruments that give you the right, but not the obligation, to buy or sell an asset at a fixed price within a set period. With their unique balance of limited risk and flexible strategies, they can be used to protect investments, seize profit opportunities, or generate income.
Understanding how options work is the first step toward unlocking their full potential. Now, let’s see how DeOpt V1 brings these traditional principles into a decentralized and transparent environment, reshaping the way options are traded.
Workflow
This diagram summarizes the DeOpt V1 workflow — from creating an option to exercise and settlement. It shows how buyers, sellers, and the smart contract interact at each step.
Tip: Hover the image to zoom with your browser if you want to inspect details.
Part 9: Introduction to Futurs
Options are not just financial tools — they are choices. An option gives you the possibility to act without the obligation to do so. Think of it like reserving the right to buy concert tickets at today’s price, even if the price goes up tomorrow. You pay a small fee for that right, and later you can decide: if the ticket price skyrockets, you exercise your right and save money; if it drops, you simply let the reservation expire and lose only the small fee you paid.
In finance, options work in a similar way: they allow investors to lock in a future buying or selling price of an asset while keeping the freedom to walk away if conditions turn unfavorable.
This flexibility makes options one of the most versatile instruments in modern finance — used not only for speculation but also for risk management and income generation.
Futures: Obligations Instead of Choices
Futures are not just financial contracts — they are commitments. A futures contract is an agreement between two parties to buy or sell an asset at a predetermined price on a specific date in the future. Unlike options, futures are obligations: if you agree to the contract, you must honor it when it expires.
Think of it like agreeing today to sell 100 bags of coffee to a buyer at a fixed price three months from now. Whether the market price goes up or down, you both must follow through with the deal. If the market price is higher than the agreed price, the buyer benefits; if it’s lower, the seller benefits.
In finance, futures work in exactly the same way — they allow investors, traders, and businesses to lock in a buying or selling price today for a transaction that will happen later. This predictability makes futures one of the most widely used tools in modern finance — not only for speculation on price movements but also for hedging risks and ensuring price stability for producers and consumers.
Part 10: What is a Futures Contract?
A futures contract is a standardized financial agreement between two parties to buy or sell an asset (called the underlying asset) at a fixed price on a specified future date. Unlike options, both the buyer and the seller of a futures contract are obligated to fulfill the agreement at expiration.
Here are the key elements:
- Underlying Asset: The product or instrument the futures contract is based on.Examples: Bitcoin, Ethereum, crude oil, wheat, stock indices.
- Futures Price (Entry Price): The price agreed upon today for the future transaction. This is the reference point for calculating profits and losses.
- Contract Size: The quantity of the underlying asset covered by one futures contract.Example: 1 Bitcoin per contract, 5,000 bushels of wheat, etc.
- Expiration Date (Delivery Date): The date when the contract must be settled.
- Settlement Type:
- Physical Delivery: The actual asset is delivered at expiration.
- Cash Settlement: Only the profit or loss is exchanged in cash or tokens.
- Margin Requirement: A deposit (collateral) required from both parties to ensure they can meet their obligations. Futures are marked-to-market daily, meaning profits and losses are settled every day until the contract expires.
Think of a futures contract as a handshake today for a trade that will happen tomorrow — with both sides committed, regardless of market movements.
Part 11: The Two Positions in Futures
In futures trading, there are no “calls” or “puts” like in options — instead, traders take one of two positions: Long or Short. Both are powerful tools, but they serve opposite purposes.
Long Futures (Buyer)
- What it is: Taking a long position means agreeing to buy the underlying asset at the futures price when the contract expires.
- When to use it: If you believe the price of the asset will increase.
- Example: You go long on a Bitcoin futures contract with an entry price of $50,000. If Bitcoin rises to $60,000, you can still buy at $50,000, profiting from the $10,000 difference.
Short Futures (Seller)
- What it is: Taking a short position means agreeing to sell the underlying asset at the futures price when the contract expires.
- When to use it: If you believe the price of the asset will decrease.
- Example: You go short on an Ethereum futures contract with an entry price of $3,000. If Ethereum falls to $2,500, you can still sell at $3,000, earning the $500 difference.
| Feature | Long Futures | Short Futures |
|---|---|---|
| Obligation | Buy at the agreed price | Sell at the agreed price |
| Best if price | Goes up | Goes down |
| Example use case | Speculating on a bull market | Hedging against a price drop |
| Potential Profit | Unlimited (as price rises) | Unlimited (as price falls) |
| Potential Loss | Unlimited (as price falls) | Unlimited (as price rises) |
Quick takeaway: Go Long if you expect prices to rise. Go Short if you expect prices to fall. Futures are zero-sum contracts — one side’s gain is exactly the other side’s loss.
Part 12: The Roles in a Futures Contract
Every futures contract involves two opposing positions: one trader is long and the other is short. Unlike options, both parties have an obligation to fulfill the contract at expiration.
The Long Position (Buyer)
- Obligation: Must buy the underlying asset at the agreed futures price when the contract expires.
- Objective: Profit if the price increases.
- Risk: Unlimited if the price falls significantly.
- Potential Reward: Unlimited if the price rises.
- Example: Long at $50,000 → if market price is $60,000 at expiration, profit is $10,000 per contract.
The Short Position (Seller)
- Obligation: Must sell the underlying asset at the agreed futures price when the contract expires.
- Objective: Profit if the price decreases.
- Risk: Unlimited if the price rises significantly.
- Potential Reward: Unlimited if the price falls.
- Example: Short at $50,000 → if market price is $40,000 at expiration, profit is $10,000 per contract.
Margin Requirement
- Both long and short traders must deposit margin (collateral) to open a futures position.
- This acts as a guarantee they can cover potential losses.
- Initial margin (to open) and maintenance margin (minimum to keep position open).
Mark-to-Market
- Futures are marked-to-market daily — P&L is computed each day from the current market price.
- Daily gains are credited and losses debited to the trader’s margin account.
- If balance falls below maintenance margin, a margin call requires adding funds.
Illustration: Short and Long on futures
| Position | Risk | Reward |
|---|---|---|
| Long | Unlimited loss if price drops | Unlimited profit if price rises |
| Short | Unlimited loss if price rises | Unlimited profit if price drops |
Key Insight: Both sides face unlimited potential loss because they are obligated to transact at the futures price, no matter how far the market moves. Leverage can amplify both gains and losses.
Part 13: Example Walkthrough
Let’s take a practical example to see how a futures contract works in real life.
Scenario: Bitcoin Futures Contract
- Underlying Asset: Bitcoin
- Contract Size: 1 BTC
- Futures Price (Entry Price): $50,000
- Expiration: 1 month from today
- Margin Requirement: $5,000 (10% of contract value)
Outcome 1: Long Futures (Buyer) — Price Goes Up
- You go long 1 BTC futures contract at $50,000.
- At expiration, Bitcoin is trading at $60,000.
- You are obligated to buy at $50,000.
- Profit: $60,000 – $50,000 = $10,000 per contract.
- Return on Margin: $10,000 profit on $5,000 margin = +200%.
The market moved in your favor — you earned a leveraged gain.
Outcome 2: Long Futures (Buyer) — Price Drops
- At expiration, Bitcoin is trading at $45,000.
- You must still buy at $50,000.
- Loss: $50,000 – $45,000 = $5,000 per contract.
- Return on Margin: $5,000 loss on $5,000 margin = –100%.
The market moved against you — your margin is fully lost.
Outcome 3: Short Futures (Seller) — Price Drops
- You go short 1 BTC futures contract at $50,000.
- At expiration, Bitcoin is trading at $45,000.
- You are obligated to sell at $50,000.
- Profit: $50,000 – $45,000 = $5,000 per contract.
The market moved in your favor — you profited from the price drop.
Outcome 4: Short Futures (Seller) — Price Goes Up
- At expiration, Bitcoin is trading at $60,000.
- You must still sell at $50,000.
- Loss: $60,000 – $50,000 = $10,000 per contract.
The market moved against you — you suffered a large loss.
Key Takeaways
- Both Long and Short futures have unlimited potential loss if the market moves strongly against the position.
- Profits and losses are symmetric: one party’s gain is the other’s loss.
- Leverage means gains (and losses) can be much larger than the margin posted.
Part 14: Why Use Futures?
Futures are among the most widely used instruments in global markets because they combine price certainty, flexibility, and capital efficiency. They serve multiple purposes depending on whether you want to protect, speculate, or optimize your capital.
Hedging – Lock in Prices and Reduce Risk
- Goal: Protect against unfavorable price movements in the future.
- Example:
- A Bitcoin miner sells BTC futures to secure a fixed selling price for upcoming production.
- An airline buys fuel futures to protect against rising fuel costs.
- Benefit: Creates stability and predictability for revenues and expenses.
Speculation – Take a Directional View
- Goal: Profit from anticipated price movements, up or down.
- How it Works:
- Go Long if you expect prices to rise.
- Go Short if you expect prices to fall.
- Benefit: No need to own the underlying asset; margin allows for significant exposure with less capital.
Arbitrage – Capture Market Inefficiencies
- Goal: Exploit price differences between futures and spot markets (basis trading).
- Example: Buy in the spot market and sell futures if the futures price is above fair value, then close both positions when prices converge.
- Benefit: Generate low-risk returns when opportunities arise.
Price Discovery and Liquidity
- Goal: Use futures markets to gauge fair value for forward delivery.
- Benefit: Deep liquidity and continuous trading improve execution and market transparency.
Capital Efficiency with Leverage
- Goal: Control large positions with a relatively small margin deposit.
- Benefit: Free up capital for other investments or strategies.
- Caution: Leverage amplifies both gains and losses — risk management is essential.
Quick Recap
- Hedge: Protect against volatility.
- Speculate: Capture market moves.
- Arbitrage: Exploit pricing gaps.
- Leverage: Enhance capital efficiency, but manage risks carefully.
Conclusion on futurs
Futures are powerful financial instruments that provide certainty in an uncertain market. Whether used to hedge against volatility, speculate on market moves, or capture arbitrage opportunities, they give traders and businesses the ability to lock in prices, manage risk, and access liquidity with precision.
However, the same leverage that makes futures capital-efficient also makes them risky — losses can be substantial if the market moves against a position. Successful use of futures requires not only a clear market view but also disciplined risk management.
By understanding how futures work, market participants can unlock their full potential — using them as strategic tools rather than speculative gambles.
With DeOpt V1, these principles are brought into a decentralized, transparent, and permissionless environment, giving users direct access to futures trading without relying on centralized intermediaries. This evolution blends traditional market mechanics with the trustless power of blockchain.