Differences between Kraken options and contracts

Unlike contracts, which obligate the buyer to buy or sell an asset, options grant the buyer the right but not the obligation to do so.

Nov 18, 2024 at 02:38 pm

Differences between Kraken options and contracts

Kraken is a cryptocurrency derivatives exchange that offers two main product types: options and contracts. While both products allow users to speculate on the future price of cryptocurrency, they have several key differences.

Options

Options are a type of derivative contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date. The buyer of an option pays a premium to the seller in exchange for this right.

There are two main types of options: calls and puts. Call options give the buyer the right to buy the underlying asset at a specified price on or before a certain date. Put options give the buyer the right to sell the underlying asset at a specified price on or before a certain date.

The price at which the buyer can buy or sell the underlying asset is known as the strike price. The date on which the option expires is known as the expiration date.

Contracts

Contracts are a type of derivative contract that obligates the buyer to buy or sell an underlying asset at a specified price on a certain date. The buyer of a contract pays a premium to the seller in exchange for this obligation.

There are two main types of contracts: futures and forwards. Futures contracts are standardized contracts that are traded on an exchange. Forwards contracts are customized contracts that are traded over-the-counter (OTC).

The price at which the buyer must buy or sell the underlying asset is known as the contract price. The date on which the contract expires is known as the delivery date.

Key differences between options and contracts

• Obligation vs. right: Options give the buyer the right, but not the obligation, to buy or sell the underlying asset. Contracts obligate the buyer to buy or sell the underlying asset.
• Premium: The buyer of an option pays a premium to the seller in exchange for the right to buy or sell the underlying asset. The buyer of a contract pays a premium to the seller in exchange for the obligation to buy or sell the underlying asset.
• Expiration date: Options have an expiration date on which the right to buy or sell the underlying asset expires. Contracts have a delivery date on which the buyer must buy or sell the underlying asset.
• Underlying asset: Options and contracts can be based on a variety of underlying assets, including cryptocurrencies, stocks, and commodities.
• Standardization: Futures contracts are standardized contracts that are traded on an exchange. Forwards contracts are customized contracts that are traded OTC.

Which product is right for you?

The choice between options and contracts depends on your individual trading goals and risk tolerance. If you are looking for a way to speculate on the future price of cryptocurrency without having to take on the obligation to buy or sell the underlying asset, then options may be a good option for you. If you are looking for a way to hedge against risk or to lock in a price for a future purchase or sale, then contracts may be a good option for you.