Options are financial contracts that give you the right to buy or sell an asset for a specific price by a specific date.
An option that allows you to buy an asset is called a call option, while an option that allows you to sell an asset is called a put option. For brevity, they are often referred to as just calls and puts.
At minimum, options contracts always have the following specifications:
- Asset and quantity
- Option type (call or put)
- Strike price -- the price at which the underlying asset can be bought or sold
- Expiration/maturity date -- the date by which the option must be exercised (used)
The premium is the price of an options contract. When an option is first written, the premium is the income that the option writer receives. If an option is traded on secondary markets, the premium is the price at which it changes hands.
Options are used in various trading strategies, often to hedge existing long or short positions. Knox Finance uses options to generate yield for users (by selling options contracts) while remaining resilient to market swings with risk-adjusted vaults.
Premia options are ERC-1155 tokens that offer the holder the rights (but not the obligation) to buy or sell the underlying token by a specified date. While traditional stock option contracts usually represent 100 shares of the underlying stock, options on Premia represent the same number of tokens as described.