What is options trading?

Last updated: 8 October 2026

Options give you the right, but not the obligation, to buy or sell an asset at a set price, before a set date. Think of them as a flexible way to trade a view on the market. Instead of buying an asset outright, you pay a smaller amount (the premium) for exposure, and decide later whether to act on it.

Every options trade comes down to four inputs: type, strike price, expiration date and premium.

Keep in mind: Options have an expiration date, so timing matters as much as direction. They can lose value even if you’re right on direction, if the move is too slow. Selling options without a hedge can expose you to significant or unlimited losses.

  • Call: the right to buy at the strike price. Gains value when price rises.

  • Put: the right to sell at the strike price. Gains value when price falls.

Strike price

The price at which the option can be exercised. Your strike choice sets the trade-off between cost, probability and payoff.

Expiration date

The date the option expires. After this, it either has value (and is exercised or settled) or expires worthless.

Premium

The price of the option itself. Buyers pay it, sellers receive it.

  • Buyers have limited risk (the premium) and the potential for larger gains.

  • Sellers receive premium upfront but take on more risk if the market moves against them.

Moneyness shapes both how much the option costs and how likely it is to finish profitable.

  • At the money (ATM): strike is at or very close to current price

  • In the money (ITM): strike is favorable vs current price (calls below, puts above)

  • Out of the money (OTM): strike is unfavorable vs current price (calls above, puts below)

Black-76 is a formula for estimating what an options contract should be worth. It’s a version of the Black-Scholes model adapted for options where the underlying is a futures contract, which is the case for all options on Kraken.

The formula combines five inputs to produce a theoretical fair price for the contract:

  • The current futures price

  • The option’s strike price

  • Time until expiration

  • Implied volatility

  • The risk-free interest rate

Every options trade on Kraken Pro is priced through an RFQ. You specify the contract you want to trade and get a response with a firm price. You then choose whether to accept the quote within a fixed timeframe. If you accept, the trade executes immediately.

  • Expressing a directional view: bullish or bearish, with defined risk

  • Hedging existing positions: protect spot or margin exposure against adverse moves

  • Generating yield: sell options to collect premium in range-bound markets

  • Controlling capital efficiency: get leveraged exposure without borrowing

  1. BTC is trading at 40,000 USD.

  2. You buy a 45,000 USD call (OTM) expiring in one month for 1,500 USD.

  3. If BTC rises above 46,500 USD by expiration, you’re in profit.

  4. If it stays below 45,000 USD, the option expires worthless and you lose the 1,500 USD premium, but nothing more.