Introduction to Pi42 Options

Options are a type of financial derivatives contract that grant the buyer the right—but not the obligation—to buy or sell a specific underlying asset (such as a stock, cryptocurrency, or commodity) at a predetermined price, known as the strike price, on or before a specified expiry date. 

To obtain this right, buyers pay a premium upfront and can choose between two types of options: 

Call Options: (which allow them to buy the asset) or Put Options (which allow them to sell the asset).

On the other side of the contract, the seller (also called the writer) has the obligation to fulfill the terms if the buyer chooses to exercise their option. This means the seller must either deliver or accept the underlying asset at the agreed-upon price. In return for taking on this potential obligation, the seller receives the premium paid by the buyer, regardless of whether the option is eventually exercised.

Options trading provides flexibility for investors to hedge risks, speculate on price movements, or generate additional income through the collection of premiums.

Pi42 Options: Pi42 offers Options that are quoted in USDT but margined and settled in INR. This simplifies benchmarking and return calculations. We provide European-style cash-settled Options, which have the following features:

• European-style Options can only be exercised at expiration.

• There is no requirement for the actual physical delivery of the underlying asset.

• Pi42’s European Options automatically exercise upon expiration.

• 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.

  
  

Advantages of Trading Options

• Risk Management and Profit Opportunities: Options allow traders to control risk while accessing high profit potential. Losses can be capped if trades move unfavorably, while gains can be amplified with correct market calls due to the leverage options provide. Put options also offer protection during market downturns.
  
  

• Flexible Strategies: By combining various types of options, traders can create diverse strategies that profit in different market environments.
  
  

• No Liquidation or Funding Fee Worries: Buyers of options are not exposed to forced liquidations or ongoing funding fees, making this a cost-effective and lower-risk way to trade, even in volatile markets. However, it’s important to note that option sellers may still be exposed to liquidation risk.

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

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.