An Asset-or-Nothing Option is a type of binary option where, upon expiry, if the contract finishes in-the-money, the holder receives a predetermined quantity of the underlying asset itself. This contrasts with cash-settled binary options that pay a fixed monetary amount. In crypto institutional options trading, this means the option delivers a specified amount of the underlying cryptocurrency if its price meets a predefined condition at the expiration date.
Mechanism
The operational logic evaluates the underlying crypto asset’s price against the option’s strike price at the contract’s expiration. If the condition for being “in-the-money” is satisfied, for example, the call option’s underlying price exceeds the strike, the system automatically transfers a pre-defined quantity of the crypto asset to the option holder. Conversely, if the condition is not met, the option expires worthless. This direct asset settlement mechanism often occurs on a blockchain or through a regulated institutional options platform.
Methodology
Traders employ Asset-or-Nothing Options for specific directional exposure to a crypto asset’s price trajectory, particularly when the objective is direct ownership of the asset upon a successful outcome. Valuation involves sophisticated models that account for the probability of the option expiring in-the-money, the volatility of the underlying crypto, and the remaining time to expiration. Institutional participants in RFQ crypto markets might utilize these options to manage basis risk or gain targeted asset exposure without immediate spot market acquisition.
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