Cryptocurrency Options It’s a great way to unlock alternative trading strategies, maximize profits and manage risk in uncertain market conditions.
If you want to learn the basics Cryptocurrency Options Trading You’ve come to the right place, including what it is, the different types, and how they work.
Let’s dive in.
Something Cryptocurrency Options?
Like other derivatives Cryptocurrency Options You can guess the future price of the underlying asset.
More specifically, Cryptocurrency Options A derivative that gives you the right (but not the obligation) to buy or sell an underlying asset (e.g. a cryptocurrency) at a predetermined price (or cryptocurrency). strike price.
The strike price of a cryptocurrency option is fixed throughout the contract. The cost of an option is called an ‘option’. premium. The premium is also the maximum loss you can face in a trade.
The right to purchase an option at the strike price put option. The right to sell an option at the exercise price is called a right. call option.
In all options agreementDecide whether the underlying asset will be physically delivered or settled in cash upon exercise (all profits/losses will be credited to the option holder’s account).
Difference Between Perpetual Swap and Options
Both perpetual swaps and options are derivatives, and each has its own advantages and disadvantages. Options, in particular, are a great product to look at from a risk management and cost perspective.
Simply put, the shooter is made for people who can handle uncertain market movements with potential losses. However, if you are a trader who wants to avoid the anxiety of sudden liquidation or additional costs, take a look at your options.
|
permanent swap |
option |
|
|
expiration |
No expiration date set |
Expiration date related |
|
Fixed capital risk |
Unlimited loss potential |
Maximum loss is premium |
|
Funding rate |
Funding rates vary depending on the swap. |
No funding rate involved |
|
liquidation risk |
High – Depends on leverage used |
Low – no liquidation risk |
How do cryptocurrency options work?
Below is a diagram showing the options trading process.
- Option sellers create call and put option contracts.
- Each contract specifies A) an expiration date, and B) an exercise price.
- Option sellers list their contracts on an options exchange (e.g. BitMEX Options).
- In some cases, an option buyer may place an order on an exchange, or an option seller may sell on an exchange.
- If an option buyer wishes to purchase an option, he or she pays a premium to the option seller.
- The premium is determined based on the current price of the underlying asset.
Cryptocurrency Option Types
The relationship between the current price of the underlying asset and the strike price determines whether the option is classified as one of the following:
In-the-money (ITM)
A call option becomes ITM when the exercise price is lower than the current market price of the underlying asset.
A put option becomes ITM when the strike price exceeds the current market price of the underlying asset.
context: BTC price $60,000
- A trader purchases a call option with a strike price of $55,000.
- ITM up to $5,000.
- The trader has the right to purchase BTC for $55,000.
- A trader purchases a put option with a strike price of $65,000.
- ITM up to $5,000.
- The trader has the right to sell Bitcoin for $65,000.
At-the-money (ATM)
For both call and put options, an option becomes ATM when the strike price is equal to the current market price of the underlying asset.
Out-of-the-money (OTM)
OTM options arise when the strike price is unfavorable based on the current market price of the underlying asset.
context: BTC price $60,000
- A trader buys a call option with a strike price of $65,000.
- Up to $5,000 OTM.
- It would not be profitable for a trader to exercise his right to buy Bitcoin at $65,000.
- A trader purchases a put option with a strike price of $55,000.
- Up to $5,000 OTM.
- Exercising the right to sell Bitcoin for $65,000 is not advantageous to the trader.
What are the advantages? Cryptocurrency Options Trading?
Cryptocurrency options are a way for traders to generate significant profits from market movements, regardless of the direction of movement. This allows profits during market uptrends as well as downtrends or sideways periods.
Options act as a hedge against various market positions and act as insurance to protect other portfolio positions from a potential economic downturn.
Where Cryptocurrency Options Trading
BitMEX Options, launched in partnership with PowerTrade, is a platform for all types of traders, beginners and advanced, to utilize cryptocurrency options.
BitMEX Options allows you to trade a variety of cryptocurrency options, including:
- Pricing and settlement in USDC eliminates the need for tedious asset conversions.
- Multi-collateral allows users to deposit spot tokens (BTC, ETH, SOL, AVAX, etc.) to use as collateral for options trading.
And much more.
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