What
An option is a financial contract that give its buyer the right, but not the obligation, to buy or sell an underlying asset for a specific price (called strike price) on (or possibly before) a specific time. The most widely used exchange for trading crypto options is Deribit. They offer European style options for Bitcoin and Ethereum. There are also several DeFi protocols that allow people to buy or sell options of smaller cryptocurrencies, as well as protocols that automatically execute various options strategies in order to generate yield on people's deposits.
Why
Options are complex financial instruments with many potential uses and strategies to trade. A Call option allows its owner to buy a cryptocurrency at the strike price on the date of its expiry. Buyers of Call options are betting that the price will go up, roughly speaking. A Put option, on the other hand, allows its owner to sell at the strike price. Buyers of Put options are betting that the price will go down.
Risk
Since exercising options at expiry is optional, buying options has limited downside; we cannot lose more money than what we paid for purchasing the contracts, even if they end up valueless at expiry — unlike futures, where one may be forced to liquidate their entire margin account. Nonetheless, options are notoriously complex instruments. It is advisable to learn more about them than what fits in the scope of this page before jumping into trading them, lest we are parted from our money by smarter traders.
Reward
Similarly to futures, options can be used to speculate on cryptocurrencies with leverage, or to hedge exposure. Besides simply buying call or put options, traders can also make more sophisticated bets on the price (or volatility) of cryptocurrencies by combining buying and selling contracts at various strike prices and expiry dates.