Many people think options are a new invention for the age of complex finance. There are two sides to every option contract, a buyer and a seller. An option contract gives the owner the option the rights but not the obligation to either buy or sell the underlying asset at the chosen price strike price in the contract at a predetermined date in the future expiry. Although trading options contracts has taken place for millennia, their use has been banned in multiple countries around the world at times.

The reasons for banning options is due to their perceived riskiness. Options have a bad image and are seen as highly risky, largely due to their highly leveraged nature.

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The very thing that draws speculators to them. Options allow market participants to speculate, generate regular income and hedge portfolio positions. Underlying Asset — The asset upon which the Options are based, in our case this is Bitcoin. Calls give the right to buy at the strike price on expiration, Puts give the right to sell at the strike price on expiration. Expiry Date — The end of the contract and the date on which the Option is automatically exercised. Premium option Price — The premium is the price paid by the buyer of an Option.

European Style — as opposed to American style options. European style options can only be exercised at the expiry date.

Bitcoin options and futures have never been better

Deribit Bitcoin Options are of the European style. Which means that they cannot be exercised until expiration. You can sell them at any time during the lifetime of the option. Options will be automatically cash settled at expiration. Cash Settled — In a cash settled option, the writer would pay the holder and profits due in cash rather than transferring the underlying asset as is often the case with other contracts in many other assets.

Option Chain — Sometimes called the option matrix, the option chain is the dashboard that displays all of the options contracts that are available, both puts and calls, for the underlying asset. The option chain features all available expiration dates and strike prices. When buying Options, your losses are limited to a fixed amount, unlike Futures contracts. This is what you pay the premium for. Buyers of options always have a fixed maximum loss. The maximum loss possible for the buyer is the premium that they paid for the option. It is much safer to be a buyer of options rather than a seller.

Your risk is well defined. This is a good reason why buying options is seen as more newbie friendly than selling options. This gives the Deribit options payoff-charts that banana shape where in traditional options, the trajectory of the payoff lines would be straight.

Guide to Trading Bitcoin on IQ Option - IQ Option Wiki

At The Money — When the strike price is at the same similar price to the current bitcoin spot price. ATM options are the most sensitive to spot price movements and therefore their Implied Volatility. As there is no intrinsic value to an ATM option as the strike price is the same as current spot price , its value is entirely extrinsic, coming from its time to maturity.

In The Money — IN the money options have intrinsic value. It has no intrinsic value, all of the value of an OTM option comes from its premium extrinsic value. Sometimes called the option matrix, the option chain is the dashboard that displays all of the options contracts that are available, both puts and calls, for the underlying asset. The option chain is split into two halves. Calls and Puts. Along the left hand side are the expiration dates — sometimes called maturity date. Option contracts make you decide not only what price you want strike price but also how long you want for your trading plan to come to fruition.

Most options are not held until the expiration date.

They are instead sold back to the market. As lesser time erodes the value of the option, it is risky and not recommended for new option traders to buy an option with less than 30 days left on the contract and to sell the contract well in advance of expiration.

What are bitcoin options?

The contracts available are weeklies, monthlies, quarterly and 6-month. The monthlies expire on the 3rd Friday of the month. The weeklies expire every Friday. Note, the buyer only makes a profit if the odds turn in his favor above the premium paid for the option. Hence, the rate of premium on specific strike price is an important metric which can also help in understanding the market sentiments.

For e. On the other hand, if the premium for a Bitcoin put option at a particular strike price is high, it means that traders are heavily betting on the price falling below it on expiration. Futures and options contracts were originally formed to protect or hedge the losses of companies depending on the asset they trade or produce. Leverage of 10xx implies that some of these derivatives contracts lets a trader bet on Bitcoin using only 1 BTC. It is basically borrowing money from liquidity providers to speculate on assets. Hence, the miner can sell futures contracts at the present rate.

Hence, if the price drops below the present rate, he earns on the difference between the expiration price. This makes up for the loss he is incurring on the Bitcoins.

An options market ups the ante for the miners, the buyer of a put option at the higher strike price will have an option to earn the profits in case of a drop. However, if the price rises above the strike price, he will choose not to exercise his options and benefit from the new Bitcoins produced. Hence, by using options, the miners are protected against losses and also have an opportunity to earn from the moves, by exercising the option at will.

Digital Asset Management firms are also likely to buy futures and options to hedge their assets and increase liquidity in their firms. Traders are more likely to buy futures contracts because the funding rate is substantially lower than the premium on options. Join our mailing list to receive Cryptocurrency investing and trading recommendations to your mailbox.

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