What Is (Option) Rights? A Detailed Guide for Beginners

What is an Option? Basic Concepts of Options

Option (Option) is a derivative contract that gives the holder the right – but not the obligation – to buy or sell an underlying asset at a predetermined price, on or before the expiration date of the contract.

To understand better, imagine you predict Bitcoin will increase in value in the future. Instead of buying Bitcoin directly with a large amount of money, you can purchase a call option contract to buy Bitcoin at $28,000. If the actual price rises to $35,000 at expiration, you will make a significant profit. But if the price drops to $20,000, you only lose the initial premium paid without additional losses.

The Difference Between Option and Futures

A common question is the difference between (Option) and (Futures) contracts. The main points are:

• Option: The buyer has the right but is not obligated to execute the trade
• Futures: The holder has an obligation to buy or sell the asset at the contract price upon expiration

The Three Main Benefits of Options

1. Access to assets without owning them
Options are derivative tools that allow you to profit from price movements of Bitcoin, Ethereum, or other assets without owning or storing them. You only need to pay a small fee called (Premium).

2. The power of financial leverage
With $1,000, you can profit from a position equivalent to $100,000 if using 1:100 leverage. This enables trading with less capital, but the risks are proportionally higher.

3. Profit in a declining market
Unlike traditional trading (buy and wait for price increase), you can profit when asset prices fall by purchasing a put option (Put option).

Components of an Option Contract

Expiration Date (Expiration Date)
The last day you can exercise your right. After this date, the contract becomes worthless if not exercised.

Strike Price (Strike Price)
The fixed price at which you have the right to buy or sell the asset. This price remains unchanged throughout the contract’s validity, regardless of market fluctuations.

Premium (Premium)
The amount you pay to purchase the option. If you decide not to exercise your right, this fee is non-refundable – considered as a transaction cost.

Contract Size (Contract Size)
The quantity of the underlying asset that one option contract represents. Usually, this is fixed for each asset type.

Call Option and Put Option: The Two Basic Types of Options

Call Option – Buying the Right

Call Option grants the right to buy the asset at a specified price. You buy a Call when you expect the price to rise.

Example: Bitcoin current price is $27,800. You buy a Call option with a strike price of $30,000. If the price rises to $35,000 at expiration, you can buy at $30,000 and sell immediately for a profit of $5,000 (minus Premium). If the price only rises to $28,000 or even drops, you will not exercise the option and lose the premium.

Risks and profits of Call Options:

• Maximum loss: Equal to the Premium paid
• Potential profit: Unlimited

Three states of a Call Option:

• In The Money (ITM): Strike Price < Current Market Price → Profitable if exercised
• At The Money (ATM): Strike Price ≈ Market Price (close to) → Loss equal to Premium
• Out Of The Money (OTM): Strike Price > Market Price → Not profitable to exercise

Put Option – Selling the Right

Put Option grants the right to sell the asset at a specified price. You buy a Put when you expect the price to decline.

Example: Bitcoin current price is $27,800. You buy a Put option with a strike price of $25,000. If the price drops to $20,000 at expiration, you can sell at $25,000 – protecting your position and making a profit. But if the price rises to $32,000, you will not exercise the option.

Risks and profits of Put Options:

• Maximum loss: Equal to the Premium paid
• Potential profit: Unlimited

Three states of a Put Option:

• In The Money (ITM): Strike Price > Market Price → Profitable if exercised
• At The Money (ATM): Strike Price ≈ Market Price (close to) → Loss equal to Premium
• Out Of The Money (OTM): Strike Price < Market Price → Not profitable to exercise

Comparison Table: Call Option vs Put Option

Basic Options Trading Strategies

Covered Call Strategy
Own Bitcoin and sell a Call option to generate additional income. If the price does not exceed the strike price at expiration, you keep the Bitcoin and collect the premium. If it exceeds, you sell Bitcoin at the strike price – locking in gains at that level.

Long Put Strategy
Buy a Put option when expecting a decline. If the price drops significantly, profits can multiply your initial investment. The risk is limited to the premium paid.

Married Put Strategy
Own Bitcoin and buy a Put option as “insurance.” If the price rises, you profit from Bitcoin. If it falls, the Put offsets losses. This is a portfolio protection strategy.

Advantages of Trading Options

• Increased profit opportunities: Profit in both rising and falling markets
• Risk hedging: Risks are predefined (max = Premium), suitable for risk management
• Capital efficiency: Leverage allows high returns with small capital
• Flexible strategies: Multiple combinations of Call/Put to suit goals
• No need to own assets: Trade indirectly without storing Bitcoin or Ethereum

Disadvantages of Trading Options

• More complex: Involves technical concepts and rules, not suitable for complete beginners
• Higher costs: Margin requirements and trading fees are often higher than futures or stocks
• Risks for sellers: Option writers can face unlimited losses if the market moves strongly
• Margin calls: Insufficient margin can lead to forced liquidation
• Exchange risks: Incidents like exchange crashes can cause loss of funds (e.g., mass liquidation events in the industry)

Legal Status of Options Trading in Vietnam

In Vietnam, options are not yet explicitly regulated. However, options trading is conducted under Decree 158/2020/ND-CP on derivatives securities. Currently, options are only traded OTC (over-the-counter) and mainly serve large institutional investors.

The first derivative product on Vietnam’s official stock market is the VN30 futures contract. As of November 2022, the number of derivative trading accounts exceeded 1.15 million, with the average trading volume of VN30 futures increasing from 10,954 contracts per session (in 2017) to nearly 250,000 contracts per session (by November 2022).

In the future, Vietnam’s stock market may expand to include other derivative products such as stock and index options.

Where to Trade Options

Since Vietnam’s stock market only allows trading of VN30 futures, investors interested in options can turn to international platforms that support these products.

Criteria for choosing a trading platform:

• Regulated by reputable international financial institutions
• Provides risk management tools and negative balance protection
• Good customer support
• User-friendly platform supporting multiple devices
• Flexible leverage ratios and competitive trading fees

How to Start Trading Options

First, you need to understand that trading options differs from buying Bitcoin or traditional stocks. When you buy Bitcoin low and sell high, your profit depends on the price difference. But with options, you have the chance to profit even if the asset price does not move as you expect.

Step 1: Learn thoroughly
Before starting, spend time studying basic concepts, types of options, trading strategies, and risk management.

Step 2: Start small
When ready, do not invest large amounts immediately. Begin with small contracts to gain experience.

Step 3: Choose familiar assets
Focus on assets you understand well (e.g., Bitcoin or Ethereum) before expanding.

Step 4: Develop a clear strategy
Define your profit target, acceptable loss, and stick to your plan consistently.

Step 5: Manage risks
Never bet everything on a single contract. Diversify capital, use stop-loss orders, and keep some funds as margin buffer.

Conclusion

Trading options opens up many new profit opportunities alongside traditional investment methods. However, it is a complex tool with risks. Not everyone is suitable for options trading – you need solid knowledge, high discipline, and willingness to accept risks.

Remember: high profits always come with high risks. Before entering the options world, make sure you fully understand what you are doing.