> ## Documentation Index
> Fetch the complete documentation index at: https://docs.b1nary.app/llms.txt
> Use this file to discover all available pages before exploring further.

# Options 101

> Puts, calls, strikes, premium. No jargon.

## 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 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 |

**What you cannot lose:** more than your collateral. b1nary is fully collateralized. No margin, no liquidations.