If you are interested in the world of options trading and finance in general, it is essential for both experienced investors and newcomers to understand key and basic concepts such as strike price. Traditionally, the strike price has been a fundamental component in options contracts but recently there have been advanced features produced to solve the existing weaknesses of Strike Price. DBOE has introduced the upgraded version of Strike Price called Price Range with the ability to upgrade Strike Price risk management to another level.
What is Strike Price?
Strike price, also known as exercise price, is the predetermined price at which a buyer/seller of the option can purchase or short the underlying asset. The strike price is a crucial factor in an options contract because it helps to determine whether an option is in-the-money (profitable) or out-of-the-money (not profitable) at expiration.
Example: If you buy a Bitcoin call option with a strike price of $58,000, it means that you have the right to buy Bitcoin at $58,000 regardless of the market price. If Bitcoin price rises to $60,000 at expiration, your option is in-the-money (profitable) and your options will be exercised immediately with profit based on the gap between market price at expiration and strike price. On the other hand, if the market price is below $58,000, your options contract is considered worthless and you will lose a premium to the seller of the options contract.
Understanding Price Range
Recognizing the limitations relating to Strike Price, DBOE has established a more advanced upgrade from Strike Price called Price Range. Price Range is a combination of the Strike Price and the Target Price representing options writer’s range of potential loss from minimum to maximum and options buyer potential gain from maximum to minimum.
Example: If you want to buy a call option on 1 Bitcoin with the Price Range of $52,000 to $56,000 (in which $52,000 is the Strike Price, and $56,000 is the Target Price). Firstly you will have to pay an up-front premium for the seller.
On expiration, if the price of Bitcoin reaches $54,000, which is within the Price Range, you will receive a profit of Market Price – Strike Price = 56,000 – 52,000 – premium fee = $4,000 – premium fee (Premium Fee Value will be determined by the market price when you buy/sell the options and the time until expiration).
If the price surges too strong and reaches $56,000, which is higher than the Target Price and above the Price Range, your option will gain max profit = Target Price – Strike Price – premium. But on the other hand if the price sinks or is unable to reach the Strike Price before expiration, your option will be considered worthless and you will even lose your premium to the seller of the option.
Why does DBOE favor Price Range over Strike Price?
Traditional Options that apply Strike Price usually don’t attract a lot of options writers because of the low Risk:Return ratio due to the unlimited risk that options writers have to deal with in every call option they sell. This significantly affected the liquidity in the options market, making the options market unable to be adopted wide-spread like other derivatives because of its complexity that traditional options requires in order to profit from it.
Most traditional options writers are extremely experienced traders or hedge funds because of the difficulties in capital requirements and analytic skills, it’s almost impossible for newcomers to get in touch with this tool.
Recognizing these limits, DBOE established Price Range in order to balance buyers and sellers benefits. This feature helps investors to trade options with ease by evaluating their risk in each option, unlike other exchanges where selling call options can lead to immediate bankruptcy.
DBOE’s vision is to make Options Trading more accessible and more effective for both newcomers and experienced investors. In order to achieve that goal, DBOE has established a variety of features and lower the requirements:
- Price Range: Help managing risk better.
- On-chain Order Book: Enhance transparency and fairness.
- Minimizing Capital Requirements: You can start buy/sell your first Option from just $0.5.
- 100% DEX: Complete security.
- High Capital Efficiency: High capital efficiency for options sellers, maximizing their potential returns.
Start your options trading journey with DBOE today at: https://dboe.exchange/
or https://download.dboe.exchange/ on mobile
Disclaimer: The information in this article is not intended as investment advice. Cryptocurrency investment activities are not legally recognized or protected in some countries. Cryptocurrencies always involve financial risks.
