Learn: options, from zero

Options sound intimidating, but the core idea is simple and useful. This guide builds you up from "what is an option" to actually placing a yield-earning trade — with concrete numbers throughout (we'll use ETH at around $1,700).

What is an option?

An option is a contract that gives the right — but not the obligation — to buy or sell an asset at a fixed price, before a set date. You pay a small amount today (the premium) for that right.

Think of it like a deposit on a house. You pay €5,000 to lock the right to buy a €300,000 house at that price for 3 months. If prices jump, you exercise and buy cheap. If they crash, you walk away — you only lose the €5,000 deposit. That asymmetry — small, known cost for a large, optional upside — is the heart of options.

Calls vs. puts

There are exactly two kinds of option:

• Call — the right to buy the asset at the strike. You want a call when you think the price will go up.
• Put — the right to sell the asset at the strike. You want a put when you think the price will go down (or to insure something you own).

Mnemonic: you call something up to you (buy), you put something down / away (sell).

The vocabulary

Buyer vs. seller (the two sides)

Every option has a buyer and a seller. Their positions are mirror images:

How an option's price is built

A premium is made of two parts:

premium = intrinsic value  +  time value

intrinsic value = what it's worth if exercised right now
   call:  max(0, spot − strike)
   put:   max(0, strike − spot)

time value = extra paid for the chance it moves your way
   before expiry — driven mostly by:
     • time left   (more time → more value)
     • volatility  (wilder asset → more value)

Example: ETH is $1,700. A call with strike $1,650 has $50 of intrinsic value ($1,700 − $1,650). If it trades at $80, the other $30 is time value. An OTM option (e.g. a $1,800 call) has zero intrinsic value — its whole premium is time value, and it decays to zero if the move never comes.

Implied volatility (IV)

IV is the market's expectation of how much the asset will move. It's the single biggest driver of time value: higher IV → fatter premiums. As a seller (the Iris yield strategies), high IV is good — you get paid more. Iris shows the IV on every option so you can see when premiums are rich.

The greeks, in plain language

"Greeks" just measure how the premium reacts to things. You don't need the maths — only the intuition:

Derive computes all of these server-side — Iris just displays them. You never calculate anything.

Why options are useful

• Income — sell options to collect premium as recurring yield (the core Iris use-case).
• Insurance / hedging — buy a put to protect a holding from a crash, like an insurance policy.
• Leverage with defined risk — buy a call for big upside while risking only the premium.
• Precision — express "I'm fine owning ETH below $1,600" or "I'll cap my upside at $1,800 for extra yield" — views you can't express by just holding spot.

Why they fit retail (the Iris angle)

• Defined, known risk — fully collateralised, so no liquidation and no surprise debt.
• Real yield — premiums are paid by the market, not printed by a token.
• Small capital — start with the size of one contract.
• Plain framing — Iris turns "sell a 0.25-delta put" into "deposit USDC, earn X% APR, worst case buy ETH cheaper."

Strategy: the cash-secured put ⭐

The flagship. You sell a put and set aside the cash to buy the asset if you're assigned. You get paid to agree to buy something you'd be happy to own — at a discount.

Cash-secured put — payoff at expiry (sold $1,600 put, +$45)

 profit
   +45 ┤━━━━━━━━━━━━━━━━━●────────────  ← keep premium if ETH ≥ 1600
     0 ┤            ╱
       ┤          ╱
       ┤        ╱
  −loss┤      ╱   (you own ETH below 1600, but cheaper)
       └──────┼────────┼───────────────▶ ETH price
            1555     1600
         breakeven  strike

You win in two of three scenarios (price up or flat → keep premium; price down a bit → still above breakeven). You only "lose" if ETH drops hard — and even then you simply own ETH you wanted, bought below today's price. This is why it maps cleanly to "deposit USDC, earn APR."

Strategy: the covered call

You already own the asset and sell a call against it to earn extra yield. The trade-off: you cap your upside.

Covered call — you hold ETH + sold $1,800 call (+$40)

 profit
       ┤            ╱──────────●─────── ← upside capped above 1800
   +40 ┤          ╱
     0 ┤────────●
       ┤      ╱
       ┤    ╱  (still exposed to ETH falling)
       └────┼──────────┼──────────────▶ ETH price
          1660       1800
       breakeven*   strike      (*on the ETH you hold)

Strategy: buying a call

The simplest bullish bet. You buy a call: big upside, and the most you can lose is the premium.

Long call — bought $1,800 call (−$40)

 profit
       ┤                    ╱──────────
     0 ┤━━━━━━━━━━━━━━━━●──╱   ← unlimited upside
   −40 ┤───────────────●         loss capped at premium
       └───────────────┼──┼──────────▶ ETH price
                     1800 1840
                    strike breakeven

How trading actually works

Derive runs an orderbook, like a stock exchange. At any moment there's a best bid (highest price buyers will pay) and a best ask (lowest price sellers will take). When you sell a put, you're hitting the bid; when you buy a call, you're lifting the ask.

• Limit order — "trade only at this price or better." Iris places a limit that crosses the spread so it fills immediately.
• Matching — Derive matches your order off-chain (fast), then settles it on-chain (non-custodial).
• Fully collateralised — because your worst case is pre-funded, there's no margin engine that can liquidate you.

Each order you place is cryptographically signed — it's a precise authorization (this instrument, this size, this price, this fee cap). That's what makes a fast off-chain orderbook safe and non-custodial. (See the Docs → Order signing for the mechanics.)

How to trade on Iris

1. Connect with Privy (email/social → an embedded wallet, or your own wallet).
2. Fund — pick any token on any chain; LI.FI routes it into USDC on Derive Chain.
3. Pick a yield — browse live cash-secured puts shown as APR. Each card has the premium, collateral, breakeven and IV.
4. Earn — click a card, confirm; Iris signs the order and it hits Derive's live book.
5. Track — your position, collateral and P&L show in Portfolio; closed trades in History.

Risks to watch

• Assignment / direction. Selling a put means you may have to buy the asset. Only sell puts on assets you'd be happy to own.
• Capped upside. A covered call gives up gains above the strike. Fine if you're neutral-to-mildly-bullish.
• Time decay (for buyers). A bought call loses value every day if the move doesn't come — theta works against you.
• Liquidity. Thin books mean worse fills; Iris flags whether a quote is live or marked.
• Volatility. Premiums are paid because the asset can move. High yield often means higher risk — IV tells you how much.

Glossary (quick recap)

• Call / Put — right to buy / right to sell at the strike.
• Strike — the fixed price. Expiry — when it ends.
• Premium — the option's price (seller's income).
• ITM / OTM — has / doesn't have intrinsic value.
• Assignment — seller is forced to fulfil the contract.
• IV — implied volatility; the main driver of premium size.
• Greeks — delta/theta/vega/gamma: how the premium reacts.
• Cash-secured put — sell a put, fully backed by USDC = "deposit, earn APR."

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