Options from scratch: call, put, strike, expiry and premium
An option is the right, but not the obligation, to buy or sell an asset at a pre-agreed price. We go through the basics and build the payoff profile of a BTC call and put with an 80,000 strike on real quotes from October 31, 2026.
This is the first lesson of the options arbitrage course. Before looking for price gaps between exchanges, you need to understand the instrument itself: what the premium pays for, when an option makes money and why the same option can come with different terms on different exchanges.
What an option is
An option is a contract that gives its owner the right, but not the obligation, to buy or sell an asset at a fixed price (the strike) within a set period or on a set date. The option seller (writer) must fulfil the contract if the buyer decides to use it.
| Term | Meaning |
|---|---|
| Call | The right to buy the asset at the strike |
| Put | The right to sell the asset at the strike |
| Strike | The price at which the asset can be bought or sold |
| Expiry | The date after which the option no longer exists |
| Premium | The option’s price — what the buyer pays the seller |
| European option | Exercised only on the expiry date |
| American option | Exercised at any time before expiry |
BTC and ETH options on Deribit, OKX, Bybit and Binance are European and cash-settled: on the expiry date an in-the-money option is exercised automatically and the difference is paid in cash without delivering the coin. More on the venues in lesson 3.
In, at and out of the money
- In the money (ITM) — the option has intrinsic value: a call when the price is above the strike, a put when it is below.
- At the money (ATM) — the strike is roughly equal to the current price.
- Out of the money (OTM) — no intrinsic value; the premium consists entirely of time value.
Example: a BTC call and put with an 80,000 strike
As of October 31, 2026, 06:52 UTC, BTC cost about $77,285. Options with a 80,000 strike expiring on December 25, 2026 were quoted on Binance as follows: the call at about $3,650 per BTC, the put at about $5,575. The call is currently out of the money (the price is below the strike), the put is in the money.
Option buyer’s profit at expiry, $ per BTC
Chart data
| Long call 80,000 | Long put 80,000 | |
|---|---|---|
| $60k | -3650 $ | 14425 $ |
| $65k | -3650 $ | 9425 $ |
| $70k | -3650 $ | 4425 $ |
| $75k | -3650 $ | -575 $ |
| $80k | -3650 $ | -5575 $ |
| $85k | 1350 $ | -5575 $ |
| $90k | 6350 $ | -5575 $ |
| $95k | 11350 $ | -5575 $ |
| $100k | 16350 $ | -5575 $ |
- The call buyer pays $3,650 and profits if BTC rises above $83,650 by expiry. If the price stays below 80,000, the option expires worthless and only the premium is lost.
- The put buyer pays $5,575 and profits if BTC falls below $74,425.
- The seller receives the premium up front, but their potential loss is not limited to it: for a sold call it is theoretically unlimited. That is why selling options requires margin (lesson 8).
Frequently asked questions
What is an option in simple terms?
A contract that gives the right, but not the obligation, to buy (call) or sell (put) an asset at a pre-agreed price — the strike — before or on the expiry date. The buyer pays a premium for that right.
How is a call different from a put?
A call gives the right to buy the asset at the strike and profits from a rising price. A put gives the right to sell at the strike and profits from a falling price.
How much can an option buyer lose?
Only the premium paid. The seller, by contrast, receives the premium up front but can lose much more — for a sold call the loss is theoretically unlimited.
What is a European option?
An option exercised only on the expiry date. Crypto options on Deribit, OKX, Bybit and Binance are European and cash-settled: an in-the-money option is exercised automatically and paid in cash.
What does “in the money” mean?
The option has intrinsic value: for a call the price is above the strike, for a put below it. An out-of-the-money option has no intrinsic value; its premium is pure time value.
Sources
- 1.What is an Option?Options Industry Councilofficial
- 2.Basics (Options FAQ)Options Industry Council
- 3.Options GlossaryOptions Industry Council
- 4.Inverse OptionsDeribit9/26/2026
- 5.What Is Options Trading?Binance
- 6.P2P.Army: options arbitrage scannerP2P.Army10/31/2026
About the author
Crypto expert, arbitrage trader and investor
Crypto expert and hands-on crypto arbitrage trader, investor and software developer with over 20 years of experience. On the P2P.Army blog he covers exchange news, P2P and cross-exchange arbitrage.
- Crypto arbitrage
- P2P arbitrage
- Cross-exchange arbitrage
- Crypto exchanges
- Investing
- Software development
