Payoff Mechanics of Basic Crypto Option Strategies
Summary
This primer explains expiration payoffs for common BTC option positions, including naked calls, synthetic futures, vertical spreads, straddles, strangles, and butterflies. It uses payoff diagrams and position combinations to show how the strategies change directional exposure, volatility exposure, premium cost, and the range of possible outcomes. It also introduces put-call parity as a way to relate calls, puts, spot, and futures.
Examples show that a same-strike call and short put form a linear synthetic long future, while a call spread limits upside in exchange for reduced premium compared with a standalone call. Long straddles and strangles express a view that price will move substantially; butterflies target an expiry price near the middle strike. The text notes that Deribit option premiums are paid in BTC, which can affect USD-denominated payoff diagrams unless the premium exposure is hedged. The examples assume aligned strikes and expiries and simplify some technical details; they describe payoff shapes, not a complete treatment of pricing, execution, or risk before expiry.
Key ideas
- A same-strike long call and short put create a linear synthetic long future with no option convexity at expiry.
- Put-call parity links option combinations to spot or futures exposure when expiries and premium hedges are aligned.
- Call spreads reduce premium relative to a long call and cap gains at the higher strike.
- Long straddles and strangles benefit from sufficiently large price moves, with strangles requiring a move beyond their wider strikes.
- A butterfly concentrates its payoff near the middle strike and has zero gross payoff outside its outer strikes.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.