📄Option Contract

Learn how option contract is specified on Gamma Options

Definition

An option contract is a financial derivative that grants the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price (known as the strike price) on a certain date.

Specification

1. Option style: European - can be exercised only on the expiration date.

2. Type of Options:

   • Call Option: Gives the holder the right to buy the underlying asset.

   • Put Option: Gives the holder the right to sell the underlying asset.

3. Underlying Asset: The specific asset on which the option contract is based. Gamma Options supports ETH (Ether) as the underlying asset.
4. Base (Quote) Asset: The specific asset used for expressing option price on the market (aka cash), typically US$. Gamma Option uses USDC.

5. Strike Price: The pre-determined price at which the underlying asset can be bought (in case of a call) or sold (in case of a put).

6. Expiration Date: The date on which the option contract is exercised. Prior to this date, the option cannot be exercised.

7. Premium: The amount paid by the buyer to the seller (or writer) of the option. This is essentially the cost of obtaining the rights granted by the option.

8. Contract Size: The number of underlying asset units represented by the option. On Gamma Options, each option represents 1 unit of underlying asset, i.e. 1 call option grants holder the right to buy 1 ETH.

9. Min Trade Size: The minimum options that can be bought/sold on the market. Set to 0.1 contracts per transaction.

10. Max Trade Size: The maximum options that can be bought/sold on the market. Currently, there is no setting for max.

11. Margin Requirements: The amount of collateral required to write or trade options on margin. On Gamma Options, margin requirement is set to 25% of the underlying asset, i.e. option writer can sell 1 option contract if he holds more than 0.25 ETH in value in margin account.
12. Settlement: the process of settling balances between the two parties. Gamma Options is using cash settlement, where the net cash difference is settled between the two parties based on the prevailing market price and strike price.