How to get started with options trading: A complete guide for traders

What are options and how do they work?

Options trading is one of the more advanced strategies in financial markets. In essence, options are contracts that give the right – but not the obligation – to buy or sell a specific asset at a predetermined price within a specified time. It is this “option without obligation” that constitutes the fundamental difference between options and traditional transactions.

Imagine that you want to purchase something in the future, but you are not sure if the price will be favorable for you. Instead of buying right away, you “reserve” the right to purchase. For that right, you pay a fee called a premium. If the price goes in the direction you were hoping for – great! You can take advantage of the contract. If it goes the wrong way – you simply withdraw, losing only the premium you paid. That is the logic of options.

Fundamental Elements of Options Trading

What are call options (?

The call option gives you the right to buy the underlying asset at the strike price. You buy a call when you expect the asset's value to increase. If you're right – you can buy it for less than the current market price. However, in practice, we most often trade the contract itself rather than actually purchasing the asset. When the value of the call option increases, you sell it for a profit.

) What are put options ###?

A put option is the right to sell an asset at a predetermined price. You buy this type of contract when you anticipate a decrease in value. The lower the price goes, the more profit you can achieve. Similar to calls, most activity is based on speculation about changes in the value of the contracts themselves, rather than on the actual sale of assets.

What assets can be traded using options?

The possibilities are vast. In financial markets, options can be traded:

• Cryptocurrencies: bitcoin (BTC), ether (ETH), BNB or Tether (USDT)
• Stocks: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and thousands of others
• Stock indices: S&P 500, Nasdaq 100 and others
• Commodities: gold, oil, precious metals

Key parameters of the options contract

( Expiration Date – Your time limit

This is a specific day when the contract expires. You have a set period to make a decision. Options can expire in a few weeks, months, or even years. It is up to you to determine which time horizons suit you.

) Strike price – Your contract

This is the previously set price at which you exercise your right to transact. Regardless of what the actual market price will be, you always have the right to transact at this price. This provides you with certainty and protection.

Premia – Cost of Rights

The premium is the price of the option contract itself. It is the cost you pay for the right ### but not the obligation ### to make a transaction. Various factors influence the amount of the premium:

• Current market price of the asset
• Price volatility of a given instrument
• Time remaining until expiration
• Market demand for a given contract

( Understanding the contract size

In traditional stock markets, one options contract usually covers 100 shares. In the case of cryptocurrency or index options, the size can be completely different. Always check the details carefully before the transaction.

How to Evaluate the Value of Options: Concepts of ITM, ATM, and OTM

These terms define the relationship between the strike price and the current market price:

For the purchase option )call###:

• In The Money (ITM): the market price is higher than the strike price – the contract has value
• At The Money (ATM): the market price is equal to the strike price – breakeven point
• Out Of The Money (OTM): the market price is lower than the strike price – a contract without intrinsic value

For the sell option (put):

• In The Money (ITM): the market price is lower than the strike price – the contract has value
• At The Money (ATM): market price is equal to the strike price
• Out Of The Money (OTM): the market price is higher than the strike price

Greek Indicators – The Language of Risk in Options Trading

Greek letters are measures of a contract's sensitivity to various market factors. Understanding them is an essential skill for anyone seriously involved in options trading.

Delta (Δ) – measures how the price of an option changes when the underlying asset moves by 1 USD. A high delta means that the option moves along with the asset.

Gamma (Γ) – shows how quickly delta changes. High gamma indicates delta volatility with changes in the asset's price.

Theta (θ) – quantifies the time decay. It measures how much value you lose on an option each day due to the passage of time. The closer to expiration, the more negatively theta affects the value for the buyer.

Vega (ν) – sensitivity to market volatility. Higher volatility typically increases option prices, especially those that still have a lot of time left.

Rho (ρ) – the impact of interest rate changes. Positive rho indicates an increase in value with rising rates, negative indicates a decrease.

American options vs European options

The essential difference is when a contract can be executed:

American options: They can be exercised at any time before the expiration date, giving the holder significant flexibility.

European options: They can only be executed on the expiration date.

In practice, for a trader specializing in speculation on changes in contract values, this difference is less significant. However, it is essential to understand what type of options are offered on a given platform.

Settlement: Cash instead of delivery

Modern options trading on most platforms has been conducted in the form of cash settlement. This means that upon execution of the contract, the parties exchange the difference in value in cash rather than actually delivering the underlying assets. This greatly simplifies the process and eliminates logistical complexities.

Many platforms automatically settle ITM options at expiration – you receive the payout directly without the need to manually execute the contract.

The Reality of Options Trading

In reality, most options traders do not wait for expiration at all. They speculate on changes in the value of the contracts themselves, buying them when they think they will go up and selling them when they want to realize a profit or limit losses. It is the options transactions that generate revenue – not the execution of them.

The value of an option contract changes continuously depending on market conditions, volatility, time to expiration, and other factors. This creates opportunities for profit, but also carries risks.

Summary

Options trading is a dynamic market that provides the opportunity to profit from changes in the value of contracts without the need to directly own the underlying assets. The key to success is understanding fundamental concepts: how call and put options work, the role of Greek indicators, and how to interpret parameters such as the strike price or expiration date.

Before making your first transaction, take the time to thoroughly familiarize yourself with the mechanics of options. Knowledge is the best safeguard against mistakes that can be costly. The options market is waiting – but enter well-prepared.