Get Started in This New Financial Frontier
Crypto Options: As the crypto market matures, there are now a lot of new financial toys available to play with.
Cryptocurrency trading has grown from strength to strength over the past few years. In 2020, the market size is valued at 1.49 billion USD. However, it is forecast to expand in size and reach a price of $4.94 billion by 2030, growing at a compound annual growth rate (CAGR) of 12.8%.
As more and more investors continue to enter this vibrant space, a number of crypto-focused trading tools have emerged and are gaining mainstream traction. These allow users – just like in the traditional financial sector – to engage in various crypto-focused trading activities seamlessly.
Cryptocurrency Options: What is an ‘Options Contract’?
A stock call option can be described as a financial offering that gives an investor the right to buy/sell shares at a predetermined price and date. Regarding how these new instruments are traditionally traded, options bought/sold as part of a time-limited setup can be as short as a day or as long as several years.
Quite like other derivative-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 payments to take place on behalf of various fiat assets as well as cryptocurrencies.
Cryptocurrency Options: What Are They?
When an individual purchases an option, he or she has the right to trade its related/underlying asset without being obligated to do so in any way.
In layman’s terms, crypto options trading works the same way, where the investor is required to pay a fee to obtain the “right” to buy/sell an agreed amount of cryptocurrency (eg. e.g. Bitcoin, Ethereum, etc.) under a date-agreement. There, the cost of an option is often referred to as the “premium”.
Types of options
As the trading landscape has continued to evolve over the years, two styles of options have emerged and entered the mainstream of public consciousness.
American contract: The investor has the right to exercise the option at any time, that is, even before the contract expires.
European-style contract: European contracts allow their holders to exercise the contract only after expiration. That said, while European-style options are only exercisable at expiration, they can still be traded or closed by the holder at an earlier time.
There are two different types of options contracts, call and put.
Selective call: Gives investors the power to acquire the underlying asset at a predetermined price (also known as ‘real price’).
Set options: Gives buyers the ability to trade/sell off assets at a fixed price.
An in-depth look at how crypto options work
Assume that the value of one bitcoin at the beginning of 2022 (e.g. Jan 1st) is $24,000 but ‘Investor A’ believes that at the end of February this number will be much higher. Therefore, he decides to buy 10 European call options at a fixed rate of $26,000 with a premium of 0.002 bitcoins per contract – scheduled to expire on March 1.
Mathematically speaking, 0.002 bitcoins totaling $24,000 each works out to $48 at the time Investor A decides to buy the aforementioned call options ($10 x 68 = $480) .
Now, each contract offers investors the ability to gain 0.1 BTC at a fixed amount of $26k per token. Therefore, Investor 1 has the ability to buy 1BTC for 26,000 when his contract expires.
That said, there are two possible scenarios that could happen:
Case 1: If at expiration the BTC value is at $30,000, then Investor A can execute his contract and earn a fixed profit of $4,000 ($30,000 – $24,000 = $4,000) minus fees related insurance is $480.
Case 2: For example, if at expiration the value of BTC is at $22,500 and Investor A gives up his call, he will lose the premium ($480) he had to pay.
Crypto options: Where can you trade them?
With the crypto market having matured dramatically in recent years, a growing forum of investors has continued to search for reputable exchanges to cure the itching of rights trading. their choice. Here are some of the platforms currently on the market.
Bit.com
Launched by Asian crypto giant Matrixport, a company headed by Chinese billionaire, crypto entrepreneur Jihan Wu. Bit.com is a high-performance derivatives exchange that offers users a wide range of institutional and retail-friendly features. For example, the platform is fully equipped with a portfolio margin module that allows underwriters to accumulate all quality offers while minimizing their portfolio risk. Not only that, it also enables block trading across all products through the use of quality derivatives brokers like Paradigm and ACCX.
When compared to other exchanges, bit.com offers its users an advanced trading tool known as ‘Consolidated Margin’ which in its most basic sense can be described as a system. The upgraded trading and risk management system adopts a single account solution to optimize trading options, points, margin, perpetual and futures.
To further explain the setup, all collateral cryptocurrencies in the aforementioned consolidated account are shared as escrow in USDT to not only enhance the natural capital utilization of the system but also minimize the risk associated with its overall liquidation.
FTX
Another hugely popular crypto options trading platform, FTX is a platform run by Sam Bankman-Fried, an American businessman who was recently hailed as the world’s youngest billionaire.
FTX specializes in trading a wide variety of derivatives and leveraged products including (but not limited to) options contracts, various volatility services, spot markets, etc. User-facilitated selections on the platform are backed by multiple security guarantees. Furthermore, FTX’s user interface features a custom-built hot and cold wallet solution that requires the use of two-factor authentication (2FA) approval each time a transaction is made.
On a more technical note, when using an exchange, traders have the right to design/make their own options contracts and request quotes directly from the exchange. After an investor receives an offer, the individual can choose to accept the transaction, decline the request, or propose to oppose it.
Deribit
Regarded as one of the most popular crypto derivatives platforms in the world, Deribit’s market leadership has only continued to grow in recent years as the platform offers clients a wide range of Financial instruments include futures, perpetual swaps, and options related to Bitcoin and Ethereum.
The exchange is fully equipped with an extremely professional control panel that allows users with different technical skills to seamlessly trade options, futures contracts. Furthermore, Deribit’s deep liquidity pool combined with low latency (i.e. the time it takes to complete a particular transaction) has helped drive its popularity among derivatives traders. .
Finally, it should be noted that all options on Deribit can only be exercised at expiration with all contracts “settled in cash”. Finally, every option on the platform is automatically paid at expiration, i.e. any intrinsic value due is paid to the holder as “profit”.
OKX
OKX, formerly known as OKEx, is a popular cryptocurrency exchange that offers users a wide range of features including options/spot trading/derivatives (among many others). The platform first launched in 2017 and has since continued to accumulate a growing amount of mainstream traction thanks to its industry leading liquidity.
From a technical point of view, OKX offers its clients certain niche products designed to assist beginners in their journey towards options trading – all while providing them with the advantages of Useful Discover different prices (ie allows investors to find the best deals for themselves).
Finally, the platform also provides users with a wide range of technical data from the global options markets, allowing them to identify and understand ongoing financial trends to maximize their profits. .
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