> For the complete documentation index, see [llms.txt](https://hegic-1.gitbook.io/hegic/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://hegic-1.gitbook.io/hegic/hegic-options.md).

# Hegic Options

The term option refers to a financial instrument that is based on the value of underlying securities such as stocks or cryptocurrencies. An options contract offers the buyer **the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset**. Unlike futures, the holder is not required to buy or sell the asset if they decide against it.

## Put & Call

Call and put are the 2 basic type options in the market.

#### Call

A call option gives the holder the right, but not the obligation, to buy the underlying security at the strike price on or before expiration. A call option will therefore become more valuable as the underlying security rises in price (calls have a positive delta).

A long call can be used to speculate on the price of the underlying rising, since it has unlimited upside potential but the maximum loss is the premium (price) paid for the option.

#### Put

Opposite to call options, a put gives the holder the right, but not the obligation, to instead sell the underlying stock at the strike price on or before expiration. 

A long put, therefore, is a short position in the underlying security, since the put gains value as the underlying's price falls (they have a negative delta). Protective puts can be purchased as a sort of insurance, providing a price floor for investors to hedge their positions.

## American vs. European

**Hegic Classic Option uses the rules for American options.**

**Hegic Inversion Option uses the rules for European options.**

American options can **be exercised at any time between the date of purchase and the expiration date**. European options are different from American options in that they can only be exercised at the end of their lives on their expiration date. (On Hegic, it will be automatically exercised and the P\&L will be returned to the user account)

The distinction between American and European options has nothing to do with geography, only with early exercise. Many options on stock indexes are of the European type. Because the right to exercise early has some value, an American option typically carries a higher premium than an otherwise identical European option. This is because the early exercise feature is desirable and commands a premium.