Crypto Options: As the cryptocurrency market matures, there are now many new financial toys available to play with.
Crypto trading has grown strongly over the years. In 2020, the market size stood at a respectable $1.49 billion. But, it is projected to reach a massive $4.94 billion price point by 2030 and grow at a compound annual growth rate (CAGR) of 12.8%.
As more and more investors continue to make their way into this affluent space, a number of crypto-focused trading tools have emerged and gained mainstream traction. These allow users – like the traditional finance sector – to seamlessly engage in various crypto-focused trading activities.
Crypto Options: What Are ‘Options Contracts’?
A stock option can be described as a financial offering that gives an investor the right to buy/sell a stock at a predetermined price and date. In terms of how these novel instruments are traditionally traded, options are bought/sold as part of a timed setup that can be as short as a day or as long as a few years.
Like other derivatives-based instruments (such as futures, credit default swaps, among others), stock options represent new financial contracts. These allow traders to speculate on the price of an underlying asset, allowing for settlement in exchange for various fiat assets as well as cryptocurrencies.
Crypto Options: What Are They?
When a person buys an option, they have the right to trade its associated/implied asset without being in any way obligated to do so.
In layman’s terms, crypto options trading works in much the same way, with an investor paying a premium to receive the “right” to buy/sell crypto (eg: bitcoin, ethereum, etc.) Does matter. – on date. There, the cost of an option is commonly referred to as the “premium”.
types of options
As the trading landscape has evolved over the years, two styles of options have emerged and entered the consciousness of the mainstream public.
american style contract: The investor has the right to exercise the option at any time, i.e. even before the expiry of the contract.
european style contract: European contracts allow their owners to use them only after the expiration of the contract. That said, even though European-style options are only executable at their expiration, they can be traded or closed at an earlier point in time by their owner.
There are two different types of options contracts, calls and puts.
call option: Gives an investor the power to acquire the underlying asset at a predetermined price point (also called ‘strike price’,
put options: Gives the buyer the ability to trade/sell an asset at a specified strike price.
An in-depth look at how crypto options work
Let’s assume that at the beginning of 2022 (e.g. January 1) one bitcoin was worth $24,000, but ‘Investor A’ is convinced that the number will be much higher by the end of February. So they decided to acquire 10 European-style call options at a fixed rate of $26,000 for a 0.002 bitcoin premium per contract – which is due to expire on March 1.
Mathematically speaking, when Investor A decided to buy the above call option (10 x 68 = $480), 0.002 bitcoins at an amount of $24,000 per token works out to $48.
Now each contract gives the investor the ability to receive 0.1 BTC at a fixed amount of $26K per token. Therefore, when his contract expires, investor 1 can potentially buy 1 BTC for $26,000.
That said, there are two possible scenarios that could potentially come into play:
case 1: If at expiration, BTC is valued at $30,000, Investor A can execute his contract and earn a flat profit of $4,000 ($30,000 – $24,000 = $4,000) minus the associated premium of $480.
Case 2: If at expiration, for example, the value of BTC is $22,500 and Investor A gives up his call option, he loses the premium ($480) he had to pay.
crypto options, Where can you trade them?
With the crypto market becoming quite mature in recent years, a growing platform of investors continues to look for reputable exchanges to fix their options trading itch. Listed below are some of the platforms available in the market today.
bit.com
Launched by Asian crypto giant Matrixport, a company led by Chinese billionaire, cryptocurrency entrepreneur Jihan Wu. Bit.com is a high-performance derivatives exchange that offers its users a wide range of institutional and retail-friendly features. For example, the platform comes loaded with a portfolio margin module that allows hedgers to earn quality incentives while reducing their portfolio risks. Not only that, it also enables block trading on all products through the use of quality derivatives brokers like Paradigm and ACCX.
When compared to other exchanges, Bit.com offers users an advanced trading tool called ‘Unified Margin’, which in its most basic sense can be described as an advanced trading and risk management system, which is a single The trading option optimally adopts the spot to account solution. , margin, perpetual and futures.
To elaborate the setup, all collateralized cryptocurrencies in the above integrated account are shared as USDT denominated margin in order to not only enhance the core capital utilization capabilities of the system but also reduce its overall liquidation risks Can you
ftx
Another hugely popular cryptocurrency options trading platform, FTX, is one such platform that has been topped by Sam Bankman-Fried, an American entrepreneur who was recently honored as the world’s youngest billionaire.
FTX specializes in trading many different derivatives and leveraged products, including options contracts, various volatility offerings, the spot market, and more. Also, every option call facilitated by the user on the platform is backed by a number of security guarantees. In addition, FTX’s user interface features a custom-built hot and cold wallet solution that requires the use of two-factor authentication (2FA) approval to facilitate transactions every time.
On a more technical note, when using the exchange, traders have the power to design/design their own options contracts and to request quotes directly from the exchange. Once the investor has received an offer, the individual can either accept the deal, decline the request or make a counter-offer.
deribit
Widely considered one of the most popular crypto derivatives platforms in the world, Deribit’s position as the market leader has grown in recent years as the platform offers its clients a range of financial instruments including futures, perpetual swaps . And options related to bitcoin and ethereum.
The exchange is loaded with an extremely professional dashboard that allows users with various technical skills to trade options, futures contracts seamlessly. Furthermore, Deribit’s deep liquidity pool coupled with its low latency rates (i.e. the time taken to complete a specified transaction) has helped increase its popularity among derivatives traders.
Finally, it should be noted that all options on Deribit can only be exercised upon their expiration, with all contracts “cash settlement”. Finally, each option on the Platform is automatically settled upon expiration, i.e. any intrinsic value is paid out to the owner as a “profit”.
okex
OKX, formerly known as OKEx, is a popular cryptocurrency exchange that offers users a range of features including options/spot/derivatives trading (among many others). The platform made its debut in 2017 and has since continued to earn an increasing amount of mainstream traction thanks to its industry-leading liquidity.
From a technical point of view, OKX offers its clients a few unique products that are designed to assist beginners in their journey towards trading options – all while giving them various price discovery advantages (i.e. providing investors with the best for themselves). allow to source deals).
Lastly, the platform also provides users with a host of technical data from the global options markets, allowing them to identify and understand financial ongoing trends in order to maximize their profits.
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