Introduction to Bybit Options

The Option is a type of Derivatives contract that provides the buyer with the right to purchase or sell an underlying asset at a predetermined price and on a specific date. To acquire this right, buyers must pay a premium to acquire either a Call or Put Option.

The seller of the Option is obliged to purchase or sell the underlying asset to the buyer if the buyer chooses to exercise their Option. As an Option seller, you will receive a premium from the Option buyer.

Bybit Options

Bybit offers Options that are margined and settled in USDT. This simplifies benchmarking and return calculations. We provide European-style cash-settled Options, which have the following features:

1. European-style Options can only be exercised at expiration.
2. There is no requirement for the actual physical delivery of the underlying asset.
3. Bybit's European Options automatically exercise upon expiration.
4. The Option's payoff at settlement is determined by the difference between the final settlement price and the strike price, with the final settlement price calculated using the average index price 30 minutes before the Option's expiration.

Benefits of Trading Options

1. Risk Control and Profit Potential: Options provide a way to manage risk and unlock unlimited profit potential. Traders can limit losses when predictions are wrong and seize significant profits when they're right. Options' leverage can boost profits, and Put options act as a safeguard against market declines.
2. Diversified Strategies: Traders can optimize their strategies by blending different types of Options, enabling them to generate profits across various market conditions.
3. Eliminate Funding Fees and Liquidation Concerns: Option buyers avoid the risks of position liquidation and the burden of funding fees. This ensures a cost-efficient, risk-averse trading approach that shields against unforeseen market fluctuations. It's crucial to acknowledge that Options sellers face potential liquidation risks.

Differences Between Option Discover, Easy and Pro

The following are the key differences between the three (3) trading tools:

Before diving into trading, it's essential to familiarize yourself with some key Options terms:

Note: On Bybit, the symbol of an Option contract is composed of the underlying asset-expiry date-strike price-option type (C = call, P = put).

For example, BTCUSDT-8NOV23-32000-P is a BTC-USDT Put Option settled in USDT with a strike price of $32,000, which will expire on Nov. 8, 2023.

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FAQ — Bybit Options

To learn more about Bybit Options contract specifications, please visit here.

Understanding Call and Put Option Dynamics

In the realm of Call Options, buyers anticipate the underlying asset's price surpassing the strike price, while sellers hold the belief that it won't. Conversely, Put Option buyers predict the market price of the underlying asset to drop below the strike price, while sellers maintain the opposite viewpoint.

For further insights into how the interplay between delivery price and strike price influences the choices of Option buyers and sellers, please refer to the table below.

Types of Options Orders

There are four (4) types of Option orders: Buy Call, Sell Call, Buy Put, and Sell Put.

Example 1:

At the beginning of Nov 2023, the market price of BTC stood at $35,000. Ann is optimistic that BTC's price will substantially rise by the end of the month, while Bob anticipates a decline. They engage in the following option trade:

1. Type: Call
2. Strike Price: $37,000
3. Expiry Date: Nov 30, 2023
4. Underlying Asset: BTC

Ann buys the Call Option for $1,000, granting her the right to buy 1 BTC at $37,000 when the contract matures. Bob, on the other hand, sells a Call Option.

Scenario A: Upon expiration, the BTC settlement price is $40,000.

1. Buy Call: Ann exercises her Call Option, securing a $3,000 profit ($40,000 − $37,000). After deducting her $1,000 premium, she realizes a net profit of $2,000.
2. Sell Call: Bob fulfills his obligation to sell the Option at the strike price of $37,000, resulting in a loss of $3,000 (37,000 − $40,000). Deducting the $1,000 premium he received, Bob incurs a total loss of $2,000.

Scenario B: Upon expiration, the BTC settlement price is $34,000.

1. Buy Call: In this case, Ann experiences a loss of $1,000, equivalent to the premium paid for the Call Option.
2. Sell Call: Bob is not required to fulfill his obligations, earning a premium of $1,000.

Example 2:

Suppose BTC is trading at $38,000 on Dec 1, 2023. Bob anticipates a drop in BTC's price by the end of the month, while Ann expects it to rise. They engage in the following option trade:

1. Type: Put
2. Strike Price: $37,000
3. Expiry Date: Dec 31, 2023
4. Underlying Asset: BTC

Bob bought a BTC Put Option for $800, granting him the right to sell 1 BTC at $37,000 when the contract matures. Conversely, Ann sells a Put Option.

Scenario A: Upon expiration, the BTC settlement price is $35,000.

1. Buy Put: Bob exercises his Put Option, securing a $2,000 profit ($37,000 − $35,000). After deducting his $800 premium, he walks away with a net profit of $1,200.
2. Sell Put: Ann fulfills her obligation to sell the Put Option at a strike price of $35,000, resulting in a loss of $2,000 (35,000 − $37,000). After deducting the $800 premium she receives, her total loss amounts to $1,200.

Scenario B: Upon expiration, the BTC settlement price is $39,000.

1. Buy Put: In this case, Bob incurs a loss of $800, equivalent to the premium paid for the Put Option.
2. Sell Put: Ann is not obligated to fulfill her obligations and earns a premium of $800.