Crypto options trading is a form of speculative trading that allows investors to make an investment based on the projected future price of a cryptocurrency. Investors do not buy and hold the actual crypto asset, but get potential profits even if the underlying asset does not move in their predicted direction. Crypto options trading consists of two primary types: Call options and Put options, both of which will be explored further in this article.
Call Options and Put Options
There are two main types of crypto options trading – call and put options.
With call options, you can sell for more money if the price goes up. On the other hand, a put options buyer benefits from a decline in the asset’s price. As a result, you may still profit from the trade even if the underlying asset’s price drops below your buy price.
Platforms that offer crypto options trading
1. Deribit
2. OKEx
3. BitMEX
4. Delta Exchange
5. Bybit
6. eToroX
7. LedgerX
8. Binance Futures
9. CME Group
These exchanges provide crypto options trading on different underlying assets, such as Bitcoin and Ethereum. Each exchange offers its own unique features and a wide range of tools for traders to use in order to make informed decisions. For example, Deribit provides detailed analytics for its users; OKEx has the lowest fees among all other crypto exchanges; BitMEX offers the highest leverage available (100x); Delta Exchange has customizable options; Bybit uses perpetual contracts; eToroX supports a variety of fiat currencies; LedgerX is regulated by the CFTC; Binance Futures provides one of the most comprehensive order types in the market; and CME Group offers a range of products for institutional investors.
Advantages of crypto options trading
1. Leverage: With crypto options trading, you can benefit from using leverage to increase your profits. Leverage allows you to open a larger position than what is currently available in your margin account. You can use leverage to magnify the gains of any winning trades and offset any losses incurred on losing trades.
2. Time Frame: Crypto options trading also offers investors the ability to choose a specific time frame for their trades. This can range from short-term trades that last just a few minutes to longer-term trades that may last several months.
3. Risk Management: Crypto options trading also offers you the ability to manage their risk more effectively than traditional methods of investing because you can invest a little amount of money periodically.
4. Low Cost: Crypto options trading is a relatively low-cost form of investing. Since there are no commissions or fees charged, you can open large positions without having to worry about the associated costs.
5. Low Risk of Losing Original Investment: Your potential loss of the original investment you made is bounded by the price of the option. If, for example, the price of Ethereum does not fall below the price at which you purchased it, you will not suffer any losses.
Risks associated with crypto options trading
Answer:
1. Volatility Risk: There is a possibility that the premium attached to an options contract may be extraordinarily volatile. On any one day, prices may fluctuate by nearly 90 to 100%. Because of this, the market is fraught with peril for consumers who put a significant amount of money into options.
2. Not a Very Reliable Investment Plan: Trading crypto options is comparable to betting and should not be considered a reliable investment plan. You will only be able to make a profit if there is a change in the price of the underlying asset that is in your favor.
What is hedging in crypto options trading?
The practice of using derivatives, like options contracts, to protect against the risk of incurring losses in a particular cryptocurrency investment is known as hedging. This strategy is implemented when an investor wants to protect themselves against sudden changes in the market or a negative move in the underlying asset. Putting on a trade in the opposite direction of an existing position does this.
Crypto options trading strategies
1. Covered Call Strategy: Writing call options on cryptocurrencies that you already own as means of generating extra income
2. Long Straddle/Strangle Strategies: Buy both a call and put option at different strike prices, with an expectation that the market will move strongly in either direction but cannot predict which way it will go
3. Bull Spreads & Bear Spreads Strategies: Utilizing multiple sector calls or puts with different strike prices to spread out risk while still expecting profit from one side of your position
4. Butterfly Options Trading Strategy: Combining the benefits of bull and bear spreads, “butterfly spread” is an options trading technique that consists of four call options, four put options, or a mix of both with three strike prices.
Bottomline
Ultimately, crypto options trading can be a great way to diversify your portfolio and take advantage of the potential gains that come with leveraging the cryptocurrency market. However, it’s important to understand the risks associated with this type of investing before you get started and strategies you can employ to minimize risk while still taking advantage of potentially profitable opportunities in the market.
