Options on Futures are derivative contracts that grant the holder the right, but not the obligation, to buy or sell a specific underlying futures contract at a predetermined strike price on or before a specified expiration date. In crypto markets, these instruments provide institutional investors with tools to hedge existing futures positions or speculate on the future price of digital asset futures.
Mechanism
A call option on a futures contract conveys the right to acquire a long position in the underlying futures contract, while a put option confers the right to establish a short position. Upon exercise, the option holder receives the corresponding futures position, which then carries its own settlement obligations. These options offer leverage and a predefined risk profile for the buyer.
Methodology
The strategic application involves managing exposure to volatile digital asset prices, executing directional views on futures markets with limited capital at risk (for the option buyer), or generating premium income (for the option seller). In institutional crypto options trading, these instruments serve as sophisticated components for constructing complex hedging strategies and expressing nuanced market outlooks.
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