Buying Crypto Call Option(Buy Call)
What does buying a Call option do?
Buying a Call gives you the right to buy the underlying asset at your Strike Price on your Settlement Date
Why would I buy a Call option?
You believe the price of the underlying asset (Settlement Price) on the Settlement Date would be greater than your Breakeven Price
How do I calculate my Breakeven Price?
Breakeven Price [Call option] = [Strike Price] + [Premium Payable]
E.g. Buying a Call option with Strike = $10,000 will require you a Premium Payable of $200 ( In BTC equivalent = $200/$10,000 = 0.02 BTC), giving you the right to buy 1 BTC for $10,000 at settlement. Your Breakeven Price would be $10,200.
How do I calculate my profit at Settlement?
Profit = [Settlement Price] — [Breakeven Price]
Loss = Premium Payable
Scenario 1: P&L — If Settlement Price (BTC settles at $12,500) > Strike Price
Profit = Settlement Price — [Breakeven Price = Strike Price + Premium Payable]
= ($12,500 — $10,000 — $200) / $12,500
= 0.184 BTC
Scenario 2: P&L — If Settlement Price (BTC settles at $7,500) ≤ Strike Price
Loss = Premium Payable
What is my maximum profit?
Buying a Call option gives you the opportunity to enjoy potentially unlimited upside during a bull market
What is my maximum loss?
Buying a Call option limits your loss to the Premium Payable
Buying a Call option on Sparrow
Here’s a scenario
- You are bullish on BTC and expect it to trade above $11,000 on 27 March 2020
- You can buy a Call for 1 BTC with Strike Price at $11,000, Settlement Date on 27 March 2020
- The cost for making this position will be 589.99 SP$ (Premium Payable)
How do I profit?
- In order to profit from your buy Call, BTC will have to trade above your Breakeven Price at Settlement Date
- Breakeven Price is calculated as [Strike Price + Premium Payable]
- In this scenario, Breakeven Price will be $11,589.99 (11,000 + 589.99)
- The higher BTC trades above your Breakeven Price at $11,589.99, the greater your profit. Technically, your profit is unlimited
- However, if BTC trades below $11,589.99, your maximum loss will be limited to your Premium Payable (589.99 SP$), even if BTC goes to $0
Why are premiums paid in SP$?
SP$, as the settlement token in Sparrow, helps in simplifying and standardising the trade settlement process for greater liquidity despite the customized nature of the contracts. Traders can easily value and make better decisions across Sparrow Option contracts.
Learn more about
Buying a Crypto Option Contract
– Buying Crypto Call Option (Buy Call)
– Buying Crypto Put Option (Buy Put)
- Selling a Crypto Option Contract
– Selling Crypto Call Option (Sell Call)
– Selling Crypto Put Option (Sell Put)
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