What are Options

Options have been around for thousands of years and are far simpler than most people realise. They provide a way to make an agreement to buy or sell an asset at a given price at or before a time in the future.

The first option markets go back as far as ancient Greece, where option markets were used to protect olive growers through bad years.

Option markets for Agricultural goods have always been popular as prices fluctuate wildly over time. Farmers use option markets to "lock in a price" in the future so they have confidence that when they pick their crops they will be able to pay their bills.

The primary benefits of options are:

  • Hedging and risk management: users can reduce the impact of price fluctuations on their portfolio.

  • Short exposure: traders can bet against an asset’s performance even if they don’t hold the asset.

  • Leverage: traders can enter positions that are larger than their account balance.

Other benefits include:

  • You don't get stopped out: Regardless of the volatility or how far a market moves against you an option remains valid until it is either exercised or the time expires.

  • Known risk exposure: Regardless of how far a market moves against you the most you can lose is the premium paid.

  • Transferrable: Option contracts often have a secondary market where they can be sold back to the market for more than if they were simply exercised

  • Earn an income: As an seller you can earn income by providing liquidity to option buyers.

  • Highly flexible: Combinations of options allow the creation of almost any payoff structure

Decentralized on chain option solutions such as Optyn provide these benefits to anyone permissionlessly and can be integrated into other protocols programmatically.

This video is quite long but explains all the concepts very well.