Epicentral LabsLearning the Foundation
A quick overview of what options are and how to trade them.
Learning the Foundation
Options - For Starters offers a concise introduction to options, covering why traders use them and how Epicentral Labs continues to provide relevant educational content and trading strategies throughout the documentation.
Epicentral Labs aims to ensure that traders from every background can clearly understand the essentials of options trading.
Let’s begin with the basics!
Prerequisites
Understanding options can challenge newcomers, especially those who have not encountered these concepts before. The introductory guides in this section help provide a general framework for how derivatives trading functions.
To measure readiness, every trader should be able to clearly explain the following core concepts:
| Concept | Brief Description |
|---|---|
| Bid/Ask | The price a buyer is willing to pay (bid) versus the price a seller asks. |
| Bullish/Bearish or Long/Short | Bullish means expecting price increase (long); bearish means expecting price decrease (short). |
| Market Order | An order to buy/sell immediately at current market prices. |
| Limit Order | An order to buy/sell at a specified price or better. |
| Stop-Loss Order | An order that automatically sells or buys once price hits a specific threshold, minimizing possible loss. |
| Hedging | Using financial instruments to reduce potential losses. |
| Financial Derivatives | Contracts whose value is based on the performance of an underlying asset. |
What are Options?
Option contracts act as financial derivatives for an underlying asset or token. An option represents an agreement between a buyer and a seller to potentially transact at a predetermined date (the expiration date) and price (the strike price).
Options: Traditional Finance (TradFi) vs Decentralized Finance (DeFi)
Options trading and options pricing are now accessible permissionlessly on-chain. On OPX, smart contracts handle the underwriting and dynamic pricing of DeFi options.
TradFi vs DeFi: The Summary
In summary, options trading in TradFi and DeFi shares a common foundation, but DeFi introduces new mechanisms, risks, and opportunities. Both approaches remain integral to modern trading. Many financial institutions monitor options markets as a key sentiment indicator for underlying assets. Epicentral Labs continues working to lower the barrier to entry for all participants so that more traders can benefit from options trading.
Disclaimer
None of the information presented here or elsewhere on this site is financial advice. Epicentral Labs offers these materials for educational purposes. Each trader must conduct independent research before entering into any option trade.
Terminology
Note
This course focuses on the Solana Ecosystem. All examples and discussions refer to cryptocurrencies and tokens native to Solana.
Learn More
For more in-depth materials and further reading, Epicentral Labs suggests these resources:
| Resource | Link |
|---|---|
| Investopedia - Options Contract: What It Is, How It Works, Types of Contracts | Read more |
| Investopedia - What Are Options? Types, Spreads, Examples, and Risk Metrics | Read more |
| ProjectFinance (YouTube): Options Trading for Beginners in 10 Minutes | Watch here |
Disclaimer
None of the information found in these resources should be considered financial advice. Please conduct your own research (DYOR)—options involve risk and returns are never guaranteed.
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