Introduction
The buying of various cryptocurrency options represents a relatively low-cost and low-risk solution for many investors than purchasing crypto futures or perpetual swaps for digital trading assets.
As a type of derivative contract, an option gives its buyer the right to buy or sell the underlying asset at a defined price at (or, in some cases, before) an expiration date but does not obligate the purchaser to do so. There is a call option that can help the owner of the underlying asset purchase it, while there is a put option that they can use to sell it.
In the same way as derivatives, options are simply contracts that give investors a chance to speculate on the future value of an underlying asset and can be settled in cash (US dollars) or various cryptocurrency e.g., Bitcoin, Ether, and digital yuan.
Deribit, the world’s largest crypto options exchange, settles contracts using cash, whereas OKEx, the second-largest crypto options exchange, delivers cryptocurrency assets to investors once a transaction is complete. At settlement, a trader who exits a bitcoin option trade successfully on OKEx receives their profit in bitcoin.
Options trading using bitcoins
Currently, Bitcoin [BTC] options are being traded on CME, Deribit, LedgerX, IQ Option, Quedex, Bakkt, and OkexopportunitiesE group, Bakkt, and other regulated platforms in the US, including the CME Group, are among these.
Additionally, while most exchanges only allow the buyer to buy options, Okex also allows the seller to purchase options. By enabling buyers of unexercised options to pay premiums to the sellers, they are making a profit. However, if you’re looking at the risk of selling opportunities, they’re much closer to those of futures.
Options for Ethereum
In most exchanges, the only derivative contract available is the Bitcoin option. Although the CFTC has recently indicated positive sentiments about Ethereum as a commodity, recently, the CFTC has also expressed positive sentiments.
Various exchanges like Binance, Huobi, Okex, and BitMEX also allow the trading of Ethereum futures contracts. At present, there is not a great deal of choice in terms of the availability of options contracts on these futures.
Only a few exchanges offer Ethereum options, and the Deribit exchange is one of them. Deribit’s offering of ETH/USD complies with the price discovery in Bitfinex, Gemini, Bitstamp, GDAX, Kraken, and Itbit available on the market.
How cryptocurrency options work
Cryptocurrency options can be divided into two types:
- In America, a buyer has the right to exercise the contract before it expires
- Europe: Only at the moment of the others. They canxpiry can a buyer exercise the contract
You have two different options to choose from:
- The right to buy the underlying asset is known as a call
- An underlying asset is called a put when it comes to putting it in the market.
An options trade works as follows: A call or puts option seller “writes” (creates) options contracts on call or put options. The contract expiration date and the strike price together define the date by which it must be settled and the underlying asset price at which the contract buyer has a right to buy or sell the asset at expiration (or before if it is an American-style option).
It is possible to place an order on the business and sell to it from a seller of options.
The cost of an option is typically known as a “premium,” which is a little like insurance in some respects. A put buyer, for example, is doing so to protect himself against losses. A writer of an option is pretty much guaranteed to buy the underlying asset from its owner.
During the contract’s start and end dates, the premium price is taken by considering the contract time remaining, volatility , interest rates, and the cost of the underlying asset at the current time.
Where and how can I trade Bitcoin options?
By comparing the strike price (the contract price) with the price at expiration, buyers and sellers make a profit/loss.
Furthermore, it is a lot like futures, so we might not choose a wise investment. Marge and premium are therefore critical to understand.
Margin and premium rates
Writers and sellers sell calls and puts. A seller is only liable for the amount of money the buyer pays when they use this option .
Purchasing call and put options give an option buyer a right, but not an obligation.
Profiting from Bitcoin options: How to do it?
It is essential to understand the premiums and margins of an options contract. Buying or selling Bitcoin at a specific time, on a specified date, comes with a premium for the buyer.
- They sell Call and put options at a premium only.
- Yet, the put or call option buyer pays the margin, which they must cover based on the market and strike prices. Nevertheless, the seller makes a profit on the premiums when the strike price and expiration date prices are close.
The buyer only earns profit if the premium paid for the option is higher than the premium.
It is also possible to understand market sentiment based on the average premium on specific strike prices.
For example, if the premium for a Bitcoin call option is high, it translates to bullish traders. The high premium for a Bitcoin put option means buyers are heavily betting that the price will fall. For more information, you can visit YuanPay Group to invest your money securely.
