# Options are a financial instrument

By [Xeni Kosie](https://paragraph.com/@xeni-kosie) · 2023-04-27

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Options are a financial instrument that allows the holder of the right (the buyer) to buy or sell an underlying asset (e.g., a cryptocurrency) at or before a predetermined price (strike price) at a certain point in time. The option holder has the right, but not the obligation, to exercise his right to buy or sell the asset.

Options can be of two types: call options and put options. A call option gives the right to buy the underlying asset at the strike price, while a put option gives the right to sell the underlying asset at the strike price.

In cryptocurrency, options can be used to protect against possible losses or to profit from changes in the price of an asset. For example, if an option buyer expects the price of a cryptocurrency to rise, he can buy a call option that gives him the right to buy the asset at a predetermined price, thereby protecting himself from a possible rise in price. If he expects the price to fall, he can buy a put option, which gives him the right to sell the asset at a predetermined price.

Options can also be used to generate income. For example, the seller of an option (writer) receives a premium for selling the right to buy or sell an asset. If the price of the asset does not change significantly, the option writer will keep the premium received as profit.

However, the use of options is also associated with high risk as losses can be significant if the price of the underlying asset changes drastically in the wrong direction. Therefore, it is necessary to carefully study the market and make informed decisions when trading cryptocurrency options.

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*Originally published on [Xeni Kosie](https://paragraph.com/@xeni-kosie/options-are-a-financial-instrument)*