Options trading has long been a staple of traditional finance, and today it’s all about bitcoin and other cryptocurrencies.
I’m talking about options trading in bitcoin.
I think you already know this, but are looking for more information on bitcoin options trading.
If that’s the case, I have to say you’re in the right place.
Options trading for Bitcoin and cryptocurrencies is catching up. This is especially true for people who have a well-stocked portfolio of cryptocurrencies, so they can hedge the risk of their positions.
To do this kind of trading, you need to find reliable exchanges for trading bitcoin options and crypto options. I found a few because I want to hedge my portfolio risk like yours!
Best Bitcoin Option Exchange: Trading (buying) options on bitcoin?
Usually people who are new to options don’t know how and where to trade bitcoin/crypto options?
That’s why we’ve compiled a list of the best exchanges for trading bitcoin options where you can quickly learn how to trade BTC options and how to trade them!!!
You should also be aware that not all cryptocurrency exchanges create a level playing field, and not all exchanges offer bitcoin option contracts to trade.
Bitcoin and crypto options trading is still a niche market and there are few established players in this field. But all cryptocurrency options available on the exchange are up to the task.
Here they are:
Derbit is the preferred exchange for trading options on bitcoin and cryptocurrencies.
Based in Amsterdam, Netherlands, it has been serving the crypto community with its crypto options since 2016.
Due to the small number of options for cryptocurrencies, Derbit has become an options exchange for many cryptocurrency traders with established portfolios.
In addition, Derbit grants European-type options, which means that these options can only be exercised on the expiration date. Also, the settlement is in cash instead of underlying, but that shouldn’t be a problem for anyone since they always do the work for you!
Finally, Derbit currently allows options trading on Ethereum and Bitcoin on its platform, with a fee of 0.04% of the underlying asset or 0.0004 BTC or ETH per option contract.
Try the Derbit option exchange now
Quedex is another European options trading platform that allows for bitcoin options trading and cash settlement.
The exchange itself has less liquidity, but it’s arguably decent in terms of an options niche, and the exchange just started serving the crypto markets in December 2017.
Moreover, Quedex is fully regulated by the Gibraltar Financial Services Commission and you can trade reverse price options with a face value of $1.
The commission for the money producer is zero and for the prostitute 0.03%, which is quite low. You can also negotiate three types of options with different maturities, namely
weekly, runs every Friday,
Monthly, ending on the last Friday of the month,
quarterly, ending on the last Friday in March, June, September and December.
Try Quedex now
#3. General ledger
LedgerX is a US-based exchange that has been offering bitcoin options, futures and swaps since October 2017.
It became the first exchange to be fully regulated by the US Commodity Futures Trading Commission (CFTC) after a rigorous 3.5 year regulatory process.
Originally only open to institutional and accredited investors, the exchange has recently opened its doors to retail investors.
But please note, only US customers can use this exchange, subject to strict knowledge checks. So, if you are in the US and have a portfolio of BTC to hedge risk, LedgerX is for you.
Try LedgerX Exchange now
What is trading bitcoin/crypto options?
Options trading is not new, but I think some of you may not be aware of its benefits.
Then let me help you.
Options are financial instruments that derive their value from other underlying assets. These assets can be stocks, bonds, indices or cryptocurrencies.
As the name implies, options trading allows the trader to buy or sell an asset in the future at a pre-agreed price, regardless of the price of the asset at maturity.
Complicated? Let me explain it to you with an example.
Let’s say you have a healthy bitcoin portfolio and you’re happy with it. But you are also aware of the volatility of the BTC market and expect a bear market.
You are skeptical that a bear market is imminent, and you are not sure that your healthy portfolio will remain so.
In this case, you want to minimize the risk of your portfolio and not lose unrealized gains, especially if the bear market never ends.
Give the bitcoin options for this.
You can buy put options on bitcoins. Put options are financial instruments that fix the selling price of your bitcoins in the future, so to speak. Providing options in such a case is like portfolio insurance.
These puts can easily be bought on the bitcoin options market, where you have to pay a small premium or commission to buy these puts.
Let’s say you have 10 BTC, each of which you bought for $10,000. You expect the price of BTC to reach $8,000 in the future, so you bought 10 bitcoin put options at $50 each on $10,000 per BTC in the future.
After a while, your skepticism turns out to be true and the price of BTC remains bearish for a long period and you want to exit your position around $8000 (strike price).
So in this case, you can exercise your puts and still sell your bitcoins at $10,000 per BTC.
In this scenario, you were able to realize all the profits of your BTC portfolio regardless of the market price of BTC. With BTC, put options on it.
Also note that you could use this put option because you had already paid a premium of $500, or $50 per put option, which I think is a good deal to hedge your portfolio risk.
If you didn’t have a put option, you would have lost 20,000, or $2,000 per BTC, since bitcoin was trading at $8,000 at the time.
Here’s how to secure yourself with bitcoin put options.
But keep in mind that the buyer is not obliged to do so if the price of BTC increases in the future. That’s why it’s called an option.
However, the seller of the put option must now buy the underlying asset, namely BTC, if the buyer decides to exercise his put option in a downward scenario of bitcoin.
Additional basis for bitcoin options
In general, there are two types of options: puts and calls.
Traders, hedgers, etc. use a call option (right to buy) or a put option (right to sell). They are also called option contracts and generally consist of four main elements:
Size: This is the size or number of option contracts that someone should buy, whether it is a call or a put. Sometimes also called plot size
Expiration date : The date until which the option contracts can be exercised. After this date, the options expire and the holder no longer has the right to exercise the contract.
Exercise price : This is the price at which an asset would be bought or sold if the actual market price of the asset were to reach it.
Bonus: It’s like the cost you pay to buy different options. When you pay a premium for call options, it means that you are paying to exercise the right to buy during the expiration period. In contrast, when you pay for put options, it means that you are buying the right to sell the asset at the end of the contract.
So, with bitcoin options, bitcoin owners usually make these two types of transactions:
Protection position: It’s about buying put options on bitcoins that you already own. By buying this product, you are protecting your BTC portfolio from a possible decline. In case a drop does not occur, you only lose the premium you paid to buy these puts.
Interior call: In this case you also own BTC and you have confidence in the future price development. By taking advantage of this situation, you can generate additional income from your shares.
So if the calls you wrote expire and the strike price is not reached, you earn additional income from the premiums on the calls you wrote.
On the other hand, if the strike price is reached and the buyer of the call option wants to exercise the contract, you as the seller are obliged to sell your bitcoins.
Options trading for cryptocurrencies is still a niche and few cryptocurrency exchanges offer this service.
This is partly due to the generally low liquidity of the options market. Liquidity is low because few investors have built portfolios of crypto or bitcoin on which to hedge their risk. As a result, the liquidity of BTC options is typically low due to the lack of demand itself.
As the market matures, options trading becomes something that does not want to reduce the risk in one’s portfolio.
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