Explanation of option-related terms

1. European / American options
Definition: Options can be performed in two ways, the European way and the American way. Buyers of European options are not entitled to exercise their rights until the option becomes exercisable and can only exercise their rights on the exercise date. Buyers of American options can exercise their rights on or before the exercise date. In short, the former places a greater advantage on the seller because it can only be exercised at a particular time, which is beneficial for building a portfolio. The latter is more advantageous to the buyer. Because of its high flexibility, it can effectively avoid market risks. American option prices are also relatively higher.
CoinEx's digital currency options follow the European way.

2. The premium
Definition: The premium is the price of the option. It is the money that the buyer of the option pays to the seller to obtain the right. For the seller, it is the income from selling the option. The amount of premium is determined by the month of option expiration, the target volatility, the price of the underlying asset, etc. It is generated by the bidding between sellers and buyers.

3. Insurance
Definition: To ensure that the issuer of the option can exercise the option on the exercise date, the exchange will request the seller to pay a certain amount of insurance. The call option insurance is in the form of trading currency and the put option margin is in the form of pricing currency. There are two types of insurance rate:
1) The insurance rate is 100%, and there is no limit on the exercise PNL of the buyer.
2) The insurance rate is lower than 1:1, and the exercise PNL of the buyer will be limited. The call option has the highest settlement price, and the put option has the lowest settlement price.

4. Redemption
Definition: After the successful issuance of the option, if a certain number of options have been sold, the same number of options can be repurchased by the seller in the secondary market before the option product is delivered. Then, the insurance is released through the redemption operation.

5. Exercise options
Definition: Exercising options refers to the right one party of the option contract has to require the obligatory party under the contract to perform the obligations stipulated at the time and price and by the method agreed. The obligatory party must perform corresponding obligations at the time the option is being exercised by the buyer.

6. Leverage
Definition: Leverage in this context refers to the relationship between the option price and the underlying spot price. The relationship between the option price and the underlying spot price is not a simple linear relationship. As a result, the leverage of the option is constantly changing.
Leverage = Related index price / Option price