What is an Option: An option is a contract between a buyer and a seller where the buyer of the contract has the right, but not the obligation, to transact in Bitcoin at a specific Strike price on a specific date (Expiration). The contract size on LedgerX is 1 Bitcoin.

What is the Strike Price: The strike price of an options contract is the price at which the options contract can be exercised.

If you’re buying a call, your call is profitable if the value of Bitcoin goes above the strike price (plus whatever premium you paid). If the value of Bitcoin stays below your strike price, your call option contract will expire worthless. The reverse is true for put options. Both call and put options will be explained in greater detail below.

What is the Expiration Date: The last date on which an option can be traded. The expiration date on LedgerX is 16:00 EST and our contracts are European Style meaning they can only be exercised on the date of expiration.

What Happens at Options Expiration: At 16:00 EST the options contracts will expire and no longer be available for trading. LedgerX affects settlement on the day of expiration at 17:00 EST. Settlement is when the buyer must make payment to the seller while the seller delivers the assets to the buyer. Our contracts are physically settled so in the case of a call option if the buyer exercises their position they will receive Bitcoin and if the buyer of a put option exercises their position they will sell Bitcoin.

What is a Call Option: A call option is a contract that gives the holder the right, but not the obligation, to buy one Bitcoin at a specified Strike price at a specified Expiration. The buyer pays a premium to a seller for this right.

- Investors may purchase a call option because they believe the price of Bitcoin will increase and want to benefit from an increase in the price of Bitcoin above the Strike price.

- Investors may sell a call option to collect premium or because they believe Bitcoin will decline in value or not appreciate above the Strike price.

Example: Let’s say you think the price of Bitcoin is going up. In this example, you would buy to open a call position. Buying a call option gives you the right to purchase Bitcoin from the option seller for the agreed-upon strike price.

In our example you buy one call option, at a strike price of $10,000 with a premium of $1,000 (cost to purchase the call option) that expires in six months. In order to purchase this contract, you will need to fund your LedgerX account with $1,000. Upon executing the trade, the $1,000 will be transferred from your account to the seller’s account and you will now hold one open call position.

If we fast forward six months to expiration of the contract, we see that Bitcoin is trading at $12,000. You will be able to exercise your call option by funding your account with $10,000 (the strike price). You have now essentially purchased one Bitcoin at $10,000 when the market price for Bitcoin is $12,000, giving you a profit of $1,000 if you were to sell the one Bitcoin you received factoring in the premium you paid for the option.

If at expiration of the contract Bitcoin is trading at $9,000, your call option will expire worthless and you will have lost the $1,000 in option premium you paid six months earlier.

What is a Put Option: A put option is a contract that gives the holder the right, but not the obligation, to sell one Bitcoin at a specified Strike price at a specified Expiration. The buyer pays a premium to a seller for this right.

- Investors may purchase a put option because they believe the price of Bitcoin will decrease and want to benefit from a decrease in the price of Bitcoin below the Strike price. Put options are often used to hedge the negative impact of declines in the price of Bitcoin.

- Investors may sell a put option to collect premium or because they believe Bitcoin will increase in value or not decline below the Strike price.

Example: Let’s say you think the price of Bitcoin is going down. In this example, you would buy to open a put position. Buying a put option gives you the right to sell Bitcoin to the option seller for the agreed-upon strike price.

In our example you buy one put option, at a strike price of $10,000 with a premium of $1,000 (cost to purchase the put option) that expires in six months. In order to purchase this contract, you will need to fund your LedgerX account with $1,000. Upon executing the trade, the $1,000 will be transferred from your account to the seller’s account and you will now hold one open put position.

If we fast forward six months to expiration of the contract, we see that Bitcoin is trading at $8,000. You will be able to exercise your put option by funding your account with 1 Bitcoin. You have now essentially sold one Bitcoin at $10,000 when the market price for Bitcoin is $8,000 giving you a profit of $1,000 factoring in the premium you paid for the option.

If at expiration of the contract Bitcoin is trading at $11,000, your put option will expire worthless and you will have lost the $1,000 in option premium you paid six months earlier.