Digital Asset Options Introduction Guide (3): Options Market Mechanisms
1. Options Trading
When trading options for the first time, many ordinary investors feel unaccustomed to it, because in the options market, the option price (premium) reflects the price of "rights" rather than the price of digital assets. For example, when trading Bitcoin quarterly contracts, the delivery/perpetual contract price reflects the price of Bitcoin in the next quarter; whereas in options trading, the option price reflects the price of "this right."
There are many factors that affect option prices, such as the current price of the underlying asset S, the strike price K, expiration date T, price volatility, risk-free interest rate r, etc. Professional financial analysts use these influencing factors to price options through binomial tree models or the Black-Scholes-Merton model. This involves advanced mathematical knowledge such as Monte Carlo simulation, Wiener processes, and Ito's lemma, which will not be discussed in detail here.
Consistent with the operation method of the contract market, there are also two methods to close positions in the options market:
Operations and Explanations
*Expiration Delivery
Using the cash settlement method: On the expiration date, the profit or loss of the held contract is calculated using the expiration date price, and the transaction is settled by directly transferring the profit or loss in cash (USDT or BTC) between the buyer's and seller's accounts.
*Closing Position
Undertake a position opposite to the initial trading position
ü The option buyer issues a closing order to sell the same option to clear the position
ü The option seller issues a closing order to buy the same option to clear the position
Currently, most position-closing methods in the options market use closing operations. When an option is being traded, if neither party to the trade closes their existing trade, the total open interest of the market increases by 1; if one party closes their existing position while the other party does not close their position, the total open interest of the market remains unchanged; if both investors close their positions, the total open interest of the market decreases by 1.
2. Margin
In the delivery contract market, we often mention the concept of margin. The purpose of margin is to ensure that the party providing the margin can fulfill the contract. However, in the options market, option margin is only charged to the seller, not to both buyers and sellers as in the contract market.
This asymmetry in margin payment precisely reflects the asymmetry of rights and obligations in options. The option buyer purchases "rights" rather than "obligations." The option fee paid by the buyer is deducted from the account at the beginning of the transaction, and there is no default risk. This transaction will not become a liability for the buyer in the future. However, if an investor chooses to sell options, margin is required because a liability will arise when the option is exercised in the future.
Market Participants and Risk Theoretical Analysis
Buyer:
Pays option fee at market price
Unlimited returns, limited risk
Seller:
Deposits large margin
Limited returns, unlimited risk
3. Leverage in Options
Many users often feel confused when trading options. Unlike the contract market, there is no leverage setting visible in the options market, so where does the high leverage of options manifest?
To understand this problem, we first need to understand what leverage is.
In the contract market, leverage ratio is the ratio of the actual value represented by the contract to the cash amount paid to establish a position. Taking the Bitcoin quarterly contract market as an example, when we determine the leverage of the quarterly contract, we are actually determining the cash amount (i.e., margin) paid to establish the contract position. For example, when the Bitcoin price is $20,000, investor A invests $20,000 and buys 80,000 USDT-margined contracts with a face value of 0.0001 BTC at 8x leverage. At this point, the contract margin is $20,000, so
Leverage ratio = Number of contracts × Contract face value × Bitcoin price / Margin = 80,000 × 0.0001 × 20,000 / 20,000 = 8
Therefore, from a cost perspective,
From the perspective of cost leverage ratio, it reflects how much Bitcoin price index value can be purchased for every $1 of options. However, some readers with options trading experience may notice that cost leverage ratio cannot truly reflect the actual leverage of options.
The cost leverage ratio of options changes with Bitcoin price and option price. Why does this situation occur? Because the relationship between option returns and the underlying asset price is non-linear.
From the perspective of return rate, leverage refers to: when the price of the underlying asset changes by 1%, by what percentage can the derivative price change?
In the delivery contract market,
Return = (Latest price - Buy price) × Number of contracts × Contract face value = (Latest price - Buy price) × Leverage × Margin
In the above formula, leverage is a fixed variable, so from a return perspective, the return change of delivery contracts only has a linear relationship with the market price, and the leverage of delivery contracts is fixed.
In the options market, when we close our position,
Option return = (Latest option price - Option buy price) × Number of options
Although we know that during option delivery settlement:
Delivery return = Number of option contracts × (Underlying asset price - Strike price) × Contract multiplier - Option fee
In "Options Introduction Guide (2) — Options vs. Delivery/Perpetual Contracts" we mentioned that the price of an option is not only related to the return (S-K) at delivery, but also to factors such as option term and volatility. Therefore, the actual return of options is not linearly related to the underlying asset price, so the actual return of options changes with changes in option and underlying asset prices, and option leverage is constantly changing.
From the perspective of return rate,
Among them, we use the Greek value Delta to represent option price change / futures price change, that is,
From the above, we can see that because the cost leverage ratio is fixed, the actual leverage ratio of options is actually related to the Greek value Delta. Studying option leverage is actually studying Delta, and Delta analysis involves the B-S pricing model, so we will not discuss this further here.
Disclaimer
This article may contain product-related content that is not applicable to your region. This article is intended to provide general information only and does not take responsibility for any factual errors or omissions therein. This article represents only the author's personal views and does not represent the views of OKX. This article is not intended to provide any of the following recommendations, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holding digital assets (including stablecoins) involves high risk, may fluctuate significantly, and may even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For questions about your specific situation, please consult your legal/tax/investment professional. The information appearing in this article (including market data and statistics, if any) is for general reference only. Although we have taken all reasonable precautions in preparing these data and charts, we assume no responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in its entirety, or excerpts of 100 words or less from this article may be used, provided that such use is non-commercial. Any reproduction or distribution of the entire article must also prominently state: "Copyright © 2025 OKX. Used with permission." Permitted excerpts must cite the article name and include attribution, such as "Article Name, [Author Name (if applicable)], © 2025 OKX". Some content may be generated or assisted by artificial intelligence (AI) tools. Derivative works or other uses of this article are not permitted.
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