What is an option?
An option is a contract that gives the buyer the right (not the obligation) to buy or sell an asset at a specific price (the strike) before a specific date (the expiry). The seller of the option collects a fee called premium upfront, in exchange for taking on the obligation. On b1nary, you are the seller. You earn premium. A market maker is the buyer.Key terms
| Term | Meaning |
|---|---|
| Strike price | The price at which you commit to buy or sell. You choose this. |
| Expiry | When the contract ends. b1nary options expire weekly at 08:00 UTC. |
| Premium | Money you earn upfront for selling the option. Yours regardless of outcome. |
| Put option | The right to sell an asset. When you sell a put, you commit to buy at the strike if the price drops below it. |
| Call option | The right to buy an asset. When you sell a call, you commit to sell at the strike if the price rises above it. |
| ITM (in-the-money) | The option has value at expiry. The seller gets assigned. |
| OTM (out-of-the-money) | The option expires worthless. The seller keeps collateral and premium. |
| Assignment | When an ITM option expires, the seller’s obligation is executed. |
Selling a put
You deposit USDC as collateral and choose a strike price below the current market price. You earn premium immediately.- Price stays above your strike (OTM): your USDC is returned. You keep the premium.
- Price drops below your strike (ITM): you buy the asset at your strike price. You still keep the premium, so your effective purchase price is
strike - premium.
Selling a covered call
You deposit the asset (ETH or cbBTC) as collateral and choose a strike price above the current market price. You earn premium immediately.- Price stays below your strike (OTM): your asset is returned. You keep the premium. Income on your holdings.
- Price rises above your strike (ITM): you sell the asset at your strike price. You keep the premium plus the appreciation from current price to strike.
Risk profile
| Scenario | What happens | Risk |
|---|---|---|
| Sell put, price stays above strike | Collateral returned + keep premium | None |
| Sell put, price drops below strike | You buy asset at strike (minus premium) | Asset could drop further |
| Sell call, price stays below strike | Asset returned + keep premium | None |
| Sell call, price rises above strike | You sell asset at strike (plus premium) | You miss gains above strike |