What is an Option?
Options contracts offered by Gate are financial derivatives designed for cryptocurrencies.
An option is a contract agreed upon by a buyer and a seller.
After the buyer pays a certain amount (the option premium) to the seller, they gain the right to buy or sell a specified quantity of the underlying asset from/to the seller at a predetermined price on a specific date in the future.
The option buyer can choose whether to exercise the option on the expiration date, while the seller is obligated to cooperate if the buyer exercises their right.
What is Simulated Trading?
Simulated trading is a feature on Gate that allows users to trade options contracts using simulated funds in a demo trading mode. The trading interface and operations are identical to live trading, with a “Simulated Trading” label.
Simulated trading does not involve any real costs; the funds used are provided by the platform system and are for experience purposes only.
What Do Option Codes Mean?
To simplify communication, options are usually represented by a code in the following format: Market-Expiration Date-Strike Price-Type
- Market: The corresponding cryptocurrency market
- Expiration Date: yymmdd; e.g., 250627 means June 27, 2025
- Strike Price: The predetermined price at which the option can be exercised on the expiration date
- Type: C stands for Call Option, P stands for Put Option
For example: An option with the code BTC-250627-18500-C refers to a BTC option with an expiration date of 2025/06/27, a strike price of 18,500 USDT, and is a call option.
Common Terms
- Underlying Asset: The cryptocurrency asset specified in the options contract
- Option Premium: The fee paid by the option buyer to the seller to obtain the right to exercise the option at expiration
Buying Call/Put Options: Premium = Order Price x ABS(Order Quantity) x Contract Multiplier
- Expiration Date: The last date the option contract can be exercised (for European options, this is the only exercise date)
- Strike Price: The specific price at which the underlying asset can be bought or sold on the expiration date
- Option Type: Includes call options and put options
What are ITM, ATM, and OTM?
In options trading, ITM/ATM/OTM are used to describe the “moneyness” of an option, i.e., the relationship between the current price of the underlying asset and the strike price.
- ATM (At The Money) – At-the-money option
- ITM (In The Money) – In-the-money option
- OTM (Out of The Money) – Out-of-the-money option
How Are Value and P&L Calculated?
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Unrealized P&L reflects the floating profit and loss of your current position based on the latest price, and changes as the market price fluctuates.
Formula: Unrealized P&L = (Mark Price - Entry Price) × Contract Multiplier × Quantity -
Realized P&L refers to the settled portion, including trading fees and P&L from manual closing.
Formula: Realized P&L = Fees + Closing P&L -
Expiration P&L is determined at expiration based on the strike price and market price:
At-the-money/out-of-the-money options: Not exercised, P&L = 0
In-the-money options: Automatically exercised
Call P&L = (Settlement Price - Strike Price) × Contract Multiplier × Position Size - Exercise Fee - Fees
Put P&L = (Strike Price - Settlement Price) × Contract Multiplier × Position Size - Exercise Fee - Fees
Note: Expiration P&L only calculates the return from the position itself and does not include the premium paid when buying the option.
Options on Gate Are Settled in Cash
Cash-settled options mean that at expiration or exercise, the buyer and seller do not physically deliver the underlying asset. Instead, the profit or loss is settled in cash based on the difference between the market price of the underlying asset and the strike price.
When a cash-settled options contract is exercised, only the difference between the strike price and the current price is credited to the option buyer’s account. Only this cash difference is paid.
At expiration:
- Call Option:
- If Market Price > Strike Price at expiration, the buyer receives (Market Price - Strike Price) × Contract Multiplier in cash.
- If Market Price ≤ Strike Price, the option expires worthless and the buyer loses the premium.
- Put Option:
- If Market Price < Strike Price at expiration, the buyer receives (Strike Price - Market Price) × Contract Multiplier in cash.
- If Market Price ≥ Strike Price, the option expires worthless and the buyer loses the premium.
What is Initial Margin?
Initial margin is the minimum amount required to open a position.
Initial margin (opening margin) is the minimum margin a user must pay when opening an option seller’s position. It is used to cover potential risk exposure and is dynamically adjusted based on the underlying price, the degree of out-of-the-moneyness (OTM) of the strike price, and the system’s margin rate settings.
The margin frozen when opening a position is calculated as:
IM = [max(Margin Rate₁ × Underlying Price, Margin Rate₂ × Underlying Price − OTM Amount) + Option Price] × Contract Multiplier
Example:
Selling a BTC call option, underlying price $115,000, strike price $116,000, option price $200
Initial margin ≈ (max(0.1×115,000, 0.15×115,000−1,000) + 200) × 0.01 = $164.5
What is Maintenance Margin?
Maintenance margin is the minimum amount required to maintain your current position.
Maintenance margin is the minimum margin level that must be maintained in your account while holding a position, to prevent excessive risk from market fluctuations. If the account margin falls below the maintenance margin requirement, the system will trigger forced liquidation to limit further losses.
The minimum margin that must be maintained while holding a position:
MM = (Maintenance Margin Rate × Underlying Price + Option Price) × Contract Multiplier
Example: Maintenance margin ≈ (0.075×115,000 + 200) × 0.01 = $88.25
What is the Settlement Price?
The settlement price is generated by adjusting the mark price up or down by a certain percentage, resulting in the highest and lowest settlement prices. The highest settlement price is the mark price plus a certain percentage; the lowest is the mark price minus a certain percentage. The percentage varies by options contract.
Settlement prices have two uses:
- To calculate the value of a position and determine if its equity is negative;
- To take over part of a user’s position at the settlement price if market liquidity is insufficient when reducing a user’s position.
What is Forced Liquidation?
Under Classic Account:
When the total maintenance margin rate of the options account drops to 100% or below, the system triggers automatic liquidation. The process follows the principle of “risk hedging first, liquidity optimization”:
The system will first select and close short positions that can effectively reduce risk based on the total Delta direction. After all shorts are closed, it will handle long positions as needed. During execution, it will prioritize contracts with better liquidity and those at-the-money, and use IOC settlement price orders in batches to minimize market slippage while releasing margin.
Under Unified Account Mode:
When the total maintenance margin rate of the unified account drops to 100% or below, the system will automatically trigger partial forced liquidation to reduce risk. The process is as follows:
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Priority Order Cancellation and Position Reduction
- The system will first cancel open orders that occupy a higher margin and check if the margin rate returns to normal.
- If still insufficient, the system will close short option positions in order of priority, then repay borrowing liabilities.
- During liquidation, positions with higher liquidity and risk are reduced first and in batches to minimize market impact.
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Market and Settlement Price Execution
- The system will first attempt to execute orders in the secondary market; if liquidity is insufficient, remaining positions will be taken over at the settlement price.
- After each liquidation, the system recalculates the total maintenance margin rate. Once it recovers to above 100%, forced liquidation stops and remaining positions can be held.
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Special Case Handling
- If there is extreme market volatility, all positions may be liquidated, and even negative equity (bankruptcy) may occur.
- The system will use the insurance fund to cover bankruptcy losses and, if necessary, initiate manual review and handling.
What is a Market Order?
A market order is an order type that executes immediately at the best available price in the market: buy orders are filled at the current best ask, and sell orders at the best bid. If a single price level cannot fill the entire order, the system will continue to match deeper order book levels, with the final execution price being a weighted average. If there is insufficient liquidity, no available price, or the price deviates too far from the mark price, the market order may be restricted or partially canceled after partial execution.
What is IV Order Placement?
IV order placement (Implied Volatility order) is a way to place options orders using “implied volatility (IV) instead of price.” You simply enter the IV you want to trade at, and the system will automatically convert that IV into the corresponding price and place it in the order book. As the market moves, your order will always be displayed based on the IV you set. IV order placement is especially suitable for professional traders, as it allows you to quote based on volatility rather than constantly adjusting orders by price.
What is Advanced Order Functionality?
The advanced order feature provides professional traders with more refined control over limit orders. It supports various execution rules such as Post Only, IOC, and FOK, allowing users to choose strategies like “only add liquidity, not take,” “immediate or cancel (partial fill allowed),” or “must be fully filled at once.” This enables more flexible order logic, more controllable execution, and potentially better fee performance in trading.
The final interpretation of this product belongs to Gate.
Disclaimer
The content provided herein is for reference and educational purposes only and does not constitute any financial, investment, trading, or legal advice, nor does it constitute an offer or solicitation to buy or sell any digital assets. Gate makes no express or implied representations or warranties regarding the accuracy, completeness, or timeliness of the information contained herein. Product features, interfaces, rules, and fee structures may be updated or adjusted at any time. Please refer to the latest announcements and the actual information displayed on the Gate platform for the most accurate details.
Digital asset investments involve significant risk, and prices may fluctuate substantially. You may lose the entire amount of your investment. Please make decisions cautiously based on your own financial situation and risk tolerance after fully understanding the associated risks. If necessary, you are advised to consult an independent professional financial or legal advisor.
For more information about potential risks, please refer to Gate's Risk Disclosure and User Agreement.
