Sunday, 19 May 2024
Currency

Features of Bitcoin Options Trading

Features of Bitcoin Options Trading

Bitcoin options are a form of financial plagiarism that gives you the right, but not the responsibility, to buy or sell at a specific price, termed the strike price. In order to purchase an option, a trader can pay a premium, which is generally cheaper than buying cryptocurrency.                        

In contrast, buying bitcoin via digital currency exchange, options enables a trader to take a theoretical position on the future direction of market price, whether it increases or decreases. Bitcoin options trading has been allowed in cryptocurrency exchanges for a while but needs to be appropriately managed. But now, bitcoin options are slowly being introduced by a few regulated institutions, however, only some traders will have access to it, so it is crucial to have the assurance to manage the bitcoin options trading.

Bitcoin options empower an investor to trade in the cryptocurrency volatility market without ever having to take ownership of the underlying asset. As bitcoin is a well-known market of volatility, its 1000% RALLY in 2017, followed by an 82% decline throughout 2018, has been in high demand and has set a benchmark for every other product in the market.

Let’s go through some essential strategies to learn more about bitcoin options trading.

There are various kinds of Bitcoin options trading strategies that can be used depending upon the investor’s aims and goals towards trading. However, there are two common strategies – 

  1. Speculation on bitcoin’s price. 
  2. Safeguarding against any risk to surviving BTC holdings 
  1. Speculation on bitcoin’s prices – Speculation traders are provided with a range of options strategies that can be used to take advantage of options volatility. For example, a sub-strategy known as ‘straddle options’ involves absolute buying and selling an equal number of bitcoin calls and puts with a similar strike price and same expiring date. Simply put, the profit on one position would neutralize the loss to the other. To ensure a trader has a net profit, it channels that they can take advantage of bitcoin volatility regardless of which direction the market proceeds. Although the loss of one bitcoin option is larger than the gains of the other, ultimately, it is addressed as a net loss.
  1. Safeguarding against any risk to a surviving BTC holding – This is the most common options trading strategy; barricading an existing holding is termed a covered call. It involves writing a call for the same number of BTC that the trader owns. If there is an increase in market price, the trader has to sell out the holdings as they have earned options as superior. But if there is a decrease in market price, the short-call options will have to equalize the losses on the trader’s BTC holdings. As a result, some profits and losses have to be faced by an investor in this volatile market.

Key features of bitcoin options trading –

The terms used in options trading markets are similar to other specific markets where an investor usually trades. Although, it is essential to get along with the key features of bitcoin options trading.

  1. Bitcoin call options – Purchasing a bitcoin call option has the right but not the commitment to buy a specific amount of bitcoin at the strike price or before the expiration dates. A call option bitcoin is purchased when a trader believes there is an increase in market price. If the trader’s prediction is accurate, and the market price of the Bitcoin option increases above the strike price, they would be able to buy that bitcoin option at a pre-specified price. Although if the underlying price rises against the strike price, it will impact how much profit investors have made from the trade. However, if the trader’s prediction is inaccurate and the market price of the Bitcoin option decreases, it could directly affect the loss of the premium paid by the trader while opening a trade account.
  1. Bitcoin put options – Buying bitcoin put options has the right but does not permit buying a specific amount of Bitcoin options at a strike price or before the expiration date. A trader would buy a bitcoin trade option if they expect the market to decline. If the trader’s prediction is accurate, and the market price of the Bitcoin decreases above the strike price, they can sell their Bitcoin holding at a higher price in the new market value. Although if the underlying price decreases against the strike price, it will impact how much profit investors have made from the trade. Nonetheless, suppose the trader’s prediction is inaccurate, and the Bitcoin price increases instead. In that case, the trader can let the options contract expire and can only lose the premium paid during account opening. 
  1. Holding and Writing bitcoin options – In a contract of options, there are two parties involved; the buyer, known as the ‘holder,’ and the seller, known as the ‘writer.’ It also applies to call-and-put options, which means a trader can lay hold of a long or short position while options trading. When a trader holds on to an option, they pay a premium to purchase the right to buy or sell bitcoin. In this scenario, if the trader writes (sells) an option, they have been selling their rights to the holder where the option contract now gets exercised by the holder where they can redeem back their premium.

How to make profits in Bitcoin options trading?

Bitcoin options trading tracks underlying assets and then reflects the value of holding during the trade process. Across other trading industries, options trading has proven to be highly useful in generating income, profiting from speculative trading, and safeguarding against price movements. Although the concept is slightly confusing and technical, options trading can become a profitable tool that can be easily turned into an investor’s companion.

Conclusion

The goal of every trader, investor, or business person is to make a profit rather than setting out for losses. With the recognition and growth in cryptocurrency, Bitcoin options trading has gained much more popularity in recent years, and now this goal is more achievable in collaboration with the nature of economic systems. However, Bitcoin options require discretion rather than an ideal mindset of getting rich quickly. In order to maximize your profits, you’ll require more than enough patience and the ability to observe opportunities and act quickly through them.

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