What Are Stock Options?
Stock options are financial contracts based on stocks, ETFs, or similar underlying assets. By paying a premium, the buyer gains the right to buy or sell the underlying asset at a specified price before or on the expiration date.
Stock options use the same account as stock trading. Once your stock account is activated, you can trade supported stock options without opening a separate options account.
The platform supports stock options trading with USDT as the designated settlement asset. Available underlyings, contracts, and account requirements are subject to the trading page.
Types of Stock Options
Stock options mainly include calls and puts:
Call
A call gives the buyer the right to buy the underlying asset at the strike price within a specified period.
If you expect the stock price to rise, you may consider buying a call. A price increase generally benefits calls, but option prices are also affected by time to expiration, IV, and other factors.
Put
A put gives the buyer the right to sell the underlying asset at the strike price within a specified period.
If you expect the stock price to fall, you may consider buying a put. A price decline generally benefits puts, but does not guarantee a profit.
Understanding an Options Contract
Each options contract typically includes:
- Underlying Asset: The stock or ETF linked to the option.
- Contract Type: Call or Put.
- Strike Price: The agreed price for buying or selling the underlying asset.
- Expiration Date: The last date the option remains valid.
- Premium: The price paid to buy the option.
- Contract Multiplier: One standard U.S. stock option contract usually represents 100 shares. The multiplier or deliverable may change after stock splits, mergers, or other corporate actions.
- Exercise and Settlement: Rules vary by contract. Refer to the contract details and platform announcements.
For example, if an option is quoted at 2 USDT with a multiplier of 100, the premium for one contract is:
2 × 100 = 200 USDT
The final payment may also include trading fees and is subject to the order confirmation page.
What Determines an Option’s Value?
Option prices depend on more than the underlying stock’s price. Key factors include:
Underlying Asset Price
Generally:
- A price increase benefits calls and hurts puts.
- A price decline benefits puts and hurts calls.
Strike Price
The relationship between the strike price and the current underlying price determines whether an option is in the money, at the money, or out of the money, affecting its value.
Time to Expiration
Options have expiration dates. All else being equal, an option’s time value usually decreases as expiration approaches. This is known as time decay.
Implied Volatility
IV reflects the market’s expectations for future price movements. All else being equal, higher IV usually increases option prices, while lower IV usually reduces them.
Interest Rates, Dividends, and Market Supply and Demand
Interest rates, expected cash dividends, order book liquidity, and market supply and demand may also affect option prices.
Returns and Risks of Buying Options
Option buyers must pay the full premium.
- The maximum loss when buying a call is generally the premium paid plus related fees.
- The maximum loss when buying a put is generally the premium paid plus related fees.
- Options may lose most of their value before expiration or expire worthless.
- Even if your directional view is correct, time decay, lower IV, or trading costs may still result in a loss.
An option being in the money at expiration does not guarantee a profitable trade. The premium paid and related fees must also be included when calculating P&L.
What to Know Before Trading Stock Options
Stock options are leveraged products and may fluctuate more sharply than the underlying stocks. Before trading, understand:
- The difference between calls and puts.
- Strike prices, expiration dates, and contract multipliers.
- Premiums, breakeven points, and maximum potential losses.
- Time decay and changes in IV.
- Expiration, exercise, and settlement rules.
- Contract adjustments following corporate actions.
- Potential slippage from market orders.
Stock options are high-risk financial products. This content explains product mechanics only and does not constitute investment advice.
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.
