A Complete Guide To Cryptocurrency Options Trading
Many of us first came across the word “Cryptocurrency” in late 2017, when the famous cryptocoin Bitcoins was making records on each and every week. The cryptocurrency options are the milestone in the development of Bitcoins and all other cryptocurrencies
In this article let us briefly look at the cryptocurrencies options and its types,styles,benefits and more.
What is Cryptocurrency Options trading ?
An Options Trading is simply a trading option done with any securities on any stock or bond market or assets. Options Trading offers you the right and not obligation to buy or sell crypto assets at a specific price within a specified time or date.
Thus , with the options (Contracts) any investor can buy/sell any underlying assets at a certain period of time at a certain price, which is termed as Options Trading. Options Trading can be quite complex than stock trading,since the options can make you larger profit when the price of the security goes high.
Here is a video that explains about general options trading.
Now, let you think about what an option means and what does an option contains ? This is the query rolling in and out of your head. Right ? Here is the explanation !
What are Cryptocurrency Options ?
Options are nothing but derivative contracts that allows an investor or an individual to buy or sell any underlying asset such as security, crypto assets and, etc at a specified price over the mentioned time period. The Buying and Selling options are available on the options market, which makes trading of contracts/options based on the predefined securities.
The process of buying an option that allows you to buy shares/stocks at a specified time is known as “ Call Option“.
The process of buying an option that allows you to sell shares/stocks at a specified period of time is known as “ Put Option”.
Terms Related to Cryptocurrency Options
Call Option : A contract that traders buy when they are confident about the cryptocurrencies future price.
Put Option : A Contract that allows traders to sell the cryptocurrency at the strike price even the current is lower.
Strike Price : The price at which the traders buy or sell the underlying assets.
Premium : The amount paid by the buyer if the options.
Maturity : The expiry date of the option is its maturity.
Delivery Date : The date on which the option is realized or finalized or settled or delivered.
Trade Date : The date on which the option executed on the market, if the trader decides to exercise his option.
Types of Options Trading
What is Call Option ?
A Call Option is a contract that allows the investor to buy a specific amount of shares of a specific security at a fixed profit price on a fixed date and time.
For Instant, A Call Option allows you to buy a certain share of any stocks or bonds or even Index at any specified time duration ( Before the Expiry of the Contract ). A trader or investor can buy a call opions when he predicts the price of a stock or commodity is about to rise in future, and he wish to buy the commodiies at a fixed profit price on a specific fixed ime.
The fees that you pay for buying a call option is known as “Premium”. The premium of the call option is nothing but a strike price ( Which will be same until the contract expires ) that you agree to pay to seller.
Thus call options is similar to Insurance, in which you pay for a contract over a time which allows you to purchase a stock at a certain price.As like renew options in Insurance,in options trading, the value of the options decays over the time.
What is Put Option ?
A Put Option is a contract that allows investor to sell a specified amount of shares of a certain commodity or security at a certain amount of price over a period of time. As like Call Option, Put Option offers the traders the right to sell the specified security on or before the contract expires.
As similar to Call Option, the price you agree to sell the certain stocks is known as “Strike Price” and the fees that you pay for buying the put option is known as “Premium”.
The Put Option works in the same way as like Call Option, except one thing that when you buy a put option, you wish the price of the certain security to drop, so through which you can make profit.
Higher the strike price, more the put option’s intrinsic value.
Styles of Option
There are two styles of options available and they are
An American Style : This allows the traders to exercise the options any time before the expiry of contract.
An European Style : This allows the traders to exercise the options at only the time of expiry.
Most of the options that are available on the cryptocurrency market are of European Style which includes major crypto exchange such as Okex, CME and more.
A Bitcoin option derives its value from the price of Bitcoins, which terms as the underlying asset here. Because of the volatility of Bitcoins, these Bitcoin options will have potential profits. A Bitcoin Option allows traders for the right not obligation, as in the case of Bitcoin Future Contracts.
As Like Bitcoin Options, Ethereum Options have ETH and its value as underlying asset which allows traders to hedge or speculate through it.
Deribit Exchange is one among the few exchanges that offers the Ethereum Options.
Why Use Cryptocurrency Options ?
Benefits of Cryptocurrency Options Trading
Listed here are the main key reasons for usings options and options trading.
Options Trading restricts the losses that occurs when the price of the security goes down. This process of reducing the losses is known as “Hedging”
Thus, Options Trading helps you to protect yourself from all the price fluctuations of shares and allows you to buy/sell shares at a predetermined price over a predefined time.
Options Trading helps you to enjoy the profit from the share price and which eliminates putting down the whole price of the share. This implies that you got control over the price of buying shares.
The other main advantage of options and options trading is that it minimize the risk of all of your investments.
Thus options trading limits the risk over each of your investment than in stock trading.
Different for Different Markets
There are many markets available in crypto markets and when it is options trading, the traders can change the strategies of the options as per the market condition that he has chosen.
Huge Potential Returns
When trading cryptos through Options Trading, one can experience the higher percentage of returns of their investments.
Thus, using the options or options trading will be the better way that can make your crypto trading more effective.
How to make Profits On Options ?
For the clear understanding of the concept of Options Contract or Options Trading one must know the difference between Premium and Margins.
Premium - The buyer pays some amount as premium for the selling or buying of certain Bitcoin at a certain time duration, within a specified date.
Margin - The Seller pays some amount as margin, that needs to be covered to strike and market price.
However, when there is small difference in the strike price and expiration date price, the seller of margin enjoys the profits on the premiums.
The buyer only makes profits, when the odds turn into his favor above the premium of the option.
Thus, the Premium of the specific strike price is an important metric that helps in understanding the market aspects.
Many crypto exchange such as Gate.io ,Huobi and more inherits cryptocurrency options in their exchange and increased their crypto options volumes went from $200 million in August 2019 to over $3 billion in May 2020.
To Wrap up,
The Cryptocurrency Options are prevailing on the crypto market since from the first decades of the cryptocurrency. But it doesn’t made huge sound ever before. Now, Options are becoming the milestone of the cryptocurrency markets.
By knowing the benefits and significant of Options Trading, every Cryptocurrency Exchange is inheriting the Options Trading in their platform. We, Bitdeal - Leading Cryptocurrency Exchange Development Company, offers the best cryptocurrency exchange development services with options trading in the crypto platform.
If you have any queries, related to Options Trading, Contact our Experts immediately, to get clarified !!
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