Terminology

What are Options?

An option gives the holder the right to buy or sell a particular asset at a specified price (the strike price) for a certain period of time.

There are two kinds of options, calls and puts. Calls allow the holder to lock in a price at which to buy the stock. Puts allow the holder to lock in the selling price.

You buy calls when you think the stock will go up, and you buy puts when you think it’ll go down.

Options don’t last forever. They have an expiration date. After this date, the holder can no longer buy or sell the asset at the strike price and the option (denominated in the Nmoney you minted) is worthless.

Options can have many different strike prices, and many expiries, giving traders a variety of potential hedging solutions.

Terminology

Traders talk about options in three groups, ‘in the money’ (ITM), ‘ at the money’ (ATM), and ‘out of the money’ (OTM).

In the money (ITM): options which currently give you the right to trade the asset at a better price than the current price.

• For calls: it’s options with strikes that are lower than the asset price. (e.g. the HEX $ .05 call, if HEX is trading at $ .07)

• For puts: it’s options with strikes that are higher than the asset price (e.g. the HEX $1 put, if HEX is trading at $.8)

Out of the money (OTM): options which currently give you the right to trade the asset at a worse price than the current price.

In Night.win, out of the money "options" cannot be exercised, but for the purposes of completeness:

• For calls: it’s options with strikes that are higher than the asset price. (e.g. the HEX $1 call, if HEX is trading at $.80)

• For puts: it’s options with strikes that are lower than the asset price (e.g. the HEX $.80 put, if HEX is trading at $1)

At the money: options with a strike price which is equal or close to the asset price.