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If you are exploring the world of cryptocurrency trading, you may come across the term ‘options trading’. This is a type of trading strategy that involves buying and selling options contracts, which give the holder the right (but not the obligation) to buy or sell a particular cryptocurrency at a predetermined price within a specified time frame.
Options trading can offer traders more flexibility and risk management than traditional cryptocurrency trading. However, it’s worth noting that options trading can be complex and requires a deep understanding of the market and trading strategies.
Best crypto options trading platforms
These are the best exchanges for trading crypto options:
1. Binance
Binance is a highly recognized and globally trusted digital currency exchange platform that offers a wide range of cryptocurrency trading products and services. One of the many products that the platform offers is crypto options. Currently, Binance provides options trading on some of the most popular cryptocurrencies, including Bitcoin, Ethereum, BNB, and XRP.
Binance Options is a well-designed and user-friendly trading platform that offers a valuable alternative to crypto derivatives like perpetual contracts. The options available on Binance Options are European-style options, meaning they cannot be exercised before their expiration date. These options provide flexibility and a wide range of trading strategies to users, thus making it an ideal platform for options traders.
Moreover, Binance Options also offers features like low trading fees, high liquidity, and an advanced trading interface that provides users with real-time market data, trade analysis tools, and much more. This platform is accessible through the Binance app, which is available for iOS and Android devices. With Binance Options, users can easily trade cryptocurrency options and maximize their profits with minimal risks.
Binance fees
Binance options trading provides a convenient way for users to speculate on the price movements of various cryptocurrencies. The platform charges a 0.03% maker and taker fee for options trading, which is competitive compared to other options trading platforms.
Max leverage
One of the main advantages of Binance options trading is the high leverage available, up to 125x leverage. This allows traders to magnify their gains (or losses) from price movements in the underlying assets.
Types of options available on Binance
Binance Options currently supports five cryptocurrencies for options trading: Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Ripple (XRP), and Dogecoin (DOGE). These assets offer traders a diverse range of trading options, with each asset having its own unique characteristics and price movements.
2. Bybit
Bybit is a highly popular cryptocurrency trading platform that allows users to trade options on BTC and ETH, buy and sell tokens, and leverage their positions up to 100x. This feature makes the platform attractive for those looking to maximize their profits.
Trades on Bybit are settled in USDC, a stablecoin that is widely used in the cryptocurrency space. The platform charges reasonable fees, with maker and taker fees starting at just 0.03%. Bybit is a great choice for anyone looking to trade cryptocurrency options, particularly those interested in the top two cryptos by market capitalization.
Bybit Fees
When trading options with Bybit, you will encounter three fees you must know. Firstly, there is the trading fee, which is charged to both parties of the trade. The trading fee starts at 0.03% and is calculated based on the value of the trade. Secondly, there is the delivery fee, which is only charged when you exercise an option. The delivery fee is set at 0.015% and is calculated based on the value of the underlying asset. Lastly, if your options go underwater and you experience a liquidation, you will be charged a liquidation fee of 0.2% by Bybit.
It is important to note that the fee for a Bybit options contract can never exceed 12.5% of the price. This means that even if the contract price increases significantly, the maximum fee you will be charged is 12.5% of the contract price. Overall, it is essential to understand the different fees associated with Bybit options trading to ensure that you can accurately calculate your costs and returns.
Max leverage
Bybit is a popular platform for trading cryptocurrency options that offer a range of leverages up to 100x.
Types of options available on Bybit
The platform offers two main types of options based on the two most popular cryptocurrencies: Bitcoin (BTC) and Ethereum (ETH).
How does settlement work?
The options trading process on Bybit is fairly straightforward. Trades are settled in USDC, one of the most widely used stablecoins in circulation. This means that traders can avoid the volatility associated with cryptocurrencies and have a stable base currency to work with. Bybit also supports various order types, including limit orders and market orders, allowing traders to manage their risk and maximize their profits.
3. Deribit
Deribit is a popular cryptocurrency trading platform that allows its users to trade Bitcoin and Ethereum options. An options contract gives the holder the right, but not the obligation, to buy or sell the underlying asset at a predetermined price and date.
On Deribit, traders can choose from various options contracts, each with a specific strike price and expiration date. The platform offers a basket of options, allowing traders to tailor their trades to their specific needs.
It’s important to note that options contracts on Deribit are settled in the cryptocurrency of the underlying asset itself, meaning that traders must have the necessary crypto in their account to settle the contract. Additionally, options are exercised automatically at the expiration date, which helps to simplify the trading process and reduce the risk of human error.
Deribit fees
The exchange has a unique fee structure that incentivizes traders to add liquidity to the platform by offering lower fees for makers and higher fees for takers.
For BTC options, makers are charged a fee of 0.03% of the underlying asset price or 0.0003 BTC per options contract, whereas takers are charged the same fee. The same fee structure applies for ETH options, with makers being charged 0.03% of the underlying asset price or 0.0003 ETH per options contract and takers also paying the same fee.
It’s important to note that option fees are limited to 12.5%, regardless of whether you are a maker or a taker. This ensures that fees remain fair and reasonable for all traders.
If you’re unfamiliar with the terms “maker” and “taker,” here’s a quick rundown: Makers are traders who add liquidity to the order book by placing limit orders that are not immediately filled. Takers are traders who remove liquidity from the order book by placing market orders that are immediately filled. By offering lower fees for makers, Deribit encourages traders to add liquidity to the platform, which helps to create a more liquid market for everyone.
Available options on Deribit
When it comes to options trading on Deribit, you can choose from call and put options for both BTC and ETH. This allows you to take advantage of the volatility of the cryptocurrency market and make profitable trades.
Deribit strike prices
One of the key features of Deribit is the predetermined set of strike prices for different assets. For Bitcoin, the strike prices are either in increments of $1,000 or $250, depending on the contract. Meanwhile, for Ethereum, the strike prices are in increments of $25 or $50. This makes it easier to make informed trades based on your investment goals.
Max leverage
Another advantage of trading on Deribit is the maximum leverage of up to 100x that is available. This means that you can amplify your potential gains significantly. However, it is important to remember that leverage can also amplify losses, so it is crucial to trade wisely and never invest more than you can afford to lose.
How does Deribit settlement work?
When it comes to settlement, Deribit options are all settled in the cryptocurrency of the underlying asset. This means that if you trade Bitcoin options, they will be settled in BTC, and if you trade Ethereum options, they will be settled in ETH. If your options are profitable, they will be exercised automatically at expiration, with the buyer’s account credited and the seller’s account debited for the transaction.
4. Bit.com
Bit.com is a cryptocurrency exchange that offers an array of options and futures trading services to its clients. The exchange is known for its low trading fees and is emerging as a popular choice for traders looking for low-cost trading options. Bit.com provides several supported options assets, including Bitcoin (BTC), Ethereum (ETH), and Bitcoin Cash (BCH), among others.
The exchange also offers a wide range of strike prices and expiration dates for its options, allowing traders to choose their preferred trading strategy. One of Bit.com’s unique features is its availability of both Bitcoin and Bitcoin Cash options trading, making it an excellent option for cryptocurrency enthusiasts who want to trade both cryptocurrencies. Overall, Bit.com is a reliable and user-friendly platform for traders seeking a secure and efficient way to trade cryptocurrency options and futures.
Bit.com offers options trades in two different markets: USD-M markets and Coin-M markets. The USD-M markets are settled in USD, while the Coin-M markets are settled in the underlying coin. This allows traders to choose the market that best suits their needs.
One of the advantages of the Bit.com platform is its low fees, which can be further reduced depending on your trade volume. This means you can potentially save money on fees compared to other options trading platforms.
At expiry, profitable options on Bit.com are executed automatically, and the profit is credited to your account. This means you don’t have to worry about manually executing trades or missing out on profits.
Bit.com also offers 10x leverage to options traders who want to increase the size of their positions using margin. This can potentially increase your profits, but it’s important to keep in mind that leverage also increases your risk. As with any trading platform, it’s important to do your research and understand the risks before using Bit.com for options trading.
Bit.com fees
Bit.com is a cryptocurrency trading platform that charges both maker and taker fees for trades. The fees are determined based on whether a trade is adding liquidity to the exchange (maker fee) or taking liquidity away (taker fee). The platform follows a tiered fee structure that depends on the trading volume of the user for the past 30 days.
Apart from the maker/taker fees, the platform also charges a delivery fee of 0.015% for all options except daily options. It is important to note that the option fees are capped at 12.5% of the option value, which means that the maximum amount that can be charged as an option fee is 12.5% of the total value of the option.
Overall, Bit.com’s fee structure is designed to be fair and transparent for all its users, ensuring they can make informed decisions about their trades while keeping the fees reasonable and competitive.
Types of options available on Bit.com
There are two types of options available for trading in the cryptocurrency market: coin-margined and USD-margined options.
Coin-margined options are settled in the coin of the underlying asset, and the platform supports a range of coins such as Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), Ripple (XRP), Cardano (ADA), Filecoin (FIL), and TON Crystal (TON).
Conversely, USD-margined options are settled in US dollars and support Bitcoin (BTC) and Ethereum (ETH) assets.
Whether you prefer to trade in coins or US dollars, Bit.com offers a range of options to trade easily.
Bit.com strike prices
The Bit.com platform offers traders a wide range of options. It lists predetermined strike prices and expiration dates, which users can select based on their preferences. For BTC options, the strike prices are available in increments of $1,000, while for ETH options, they come in $50 increments.
Bit.com expiration times
Traders can choose from several expiration dates, including daily, weekly, monthly, and quarterly. This flexibility allows them to adjust their options to better suit their trading strategies. Once an option expires, the platform automatically exercises it if it is “in the money,” which means it is profitable and credits the option buyer with the realized option value.
Max leverage
Bit.com also offers a maximum leverage of up to 10x. This feature enables traders to increase their exposure to the options they trade up to ten times their initial investment. However, high leverage can also increase the risk of loss. Thus, traders must use caution and implement risk management strategies when trading with leverage.
5. OKX
OKX is a cryptocurrency trading platform that provides traders with the option to trade in BTC and ETH options. These options come with a vast range of expiration windows and strike prices, enabling traders to choose the best-suited option for their trading strategy. It’s worth noting that OKX settles all options trades in the cryptocurrency of the underlying option asset.
Apart from crypto options, OKX also offers perpetual futures and other crypto trading types. However, it’s crucial to note that residents of the USA cannot trade on the platform. Nonetheless, OKX offers a demo account that is accessible worldwide. This demo account allows traders to test their trading strategies with crypto options paper trading. Overall, OKX is a reliable trading platform that offers a wide range of trading options for crypto traders.
OKX fees
The OKX platform provides a certain fee structure for its users who engage in trading activities. The fees are categorized into two types: maker fees and taker fees. Maker fees are charged to those traders who add liquidity to the exchange, whereas taker fees are charged to those who take liquidity. Maker fees start at 0.02% of the total transaction value, and taker fees start at 0.03% of the total transaction value.
The good news is that these fees are not fixed and can be reduced depending on various factors. If you have a higher monthly trading volume, you may be eligible for a lower fee. Similarly, if you have a higher total asset value on the exchange, you may also be eligible for a lower fee. Additionally, if you hold a significant amount of OKB coin, you may also qualify for a lower fee.
It’s important to note that option fees on OKX are capped at 12.5%. This means that regardless of how much you trade, the maximum fee you will be charged is 12.5% of the option value. This ensures that traders are not charged exorbitant fees and can trade with peace of mind.
OKX strike prices
The OKX platform offers a range of strike prices for trading options. For Bitcoin (BTC), strike prices are available in increments of $100, and for Ethereum (ETH), they are available in increments of $10.
OKX expiration times
OKX provides a variety of expiration dates. Traders can select from daily, bi-daily, weekly, bi-weekly, tri-weekly, monthly, bi-monthly, quarterly, and bi-quarterly expiration dates, depending on their preferences and trading strategies.
Max leverage
OKX allows traders to leverage their trades up to 100x, providing the opportunity for more significant profits. However, it’s important to note that higher leverage also means higher risk, so traders should exercise caution and use appropriate risk management strategies while trading on the platform.
How does settlement work?
When it comes to settlement, OKX ensures that options are settled in the coin of the option’s underlying asset. For instance, BTC options are settled in BTC, and ETH options are settled in ETH. This ensures that traders receive their payouts in the currency that they have chosen to trade in.
6. Dopex
Dopex is a cutting-edge options exchange that offers a range of exciting products and unique ways to earn yield. If you’re a trader who enjoys taking risks, Dopex lets you speculate on various options, products, and synthetic tokens.
While the anonymity of the founders, which is not uncommon in the crypto world, maybe a cause for concern for some potential investors, it’s worth noting that Dopex has been gaining popularity and traction in the market.
However, it’s important to note that the protocol exercises strict control over new features, and there is currently no means for the community to participate in governance. This could be a drawback for some traders who prefer more decentralized platforms. Despite this, Dopex remains an attractive option for those looking to trade crypto options in an innovative and secure environment.
Dopex fees
Dopex charges a percentage of the option premium, set at 30%. The good news is that there is no minimum order size. This means that traders can start with small orders without worrying about any restrictions.
Types of options available on Dopex
Dopex offers two categories of options: Single-Staking Option Vaults (SSOV) and Concentrated Liquidity Automated Market Maker (CLAMM). SSOV options are available weekly and monthly, while CLAMM options are available for 1, 2, 12, and 24 hour periods.
Dopex strike prices
One of the benefits of trading on Dopex is that it offers variable strike prices. This means that traders have more flexibility when choosing their strike prices.
Dopex expiration times
Dopex has set different expiration times for CLAMM and SSOV options. The CLAMM options expire in 1, 2, 12, and 24 hours, whereas the SSOV options expire weekly and monthly.
Max leverage
Dopex also offers a high leverage of up to 100x, meaning traders can magnify their profits. However, it is important to know that leverage can also magnify losses.
How does settlement work?
Options are settled in the coin of the option’s underlying asset. This means BTC options are settled in BTC, while ETH options are settled in ETH.
What are crypto options?
Crypto options are financial contracts that give traders the right, but not the obligation, to either buy or sell cryptocurrency on a specific future date at a predetermined price. They are a popular tool in the cryptocurrency market that enables traders to profit from price fluctuations, protect against losses, take leveraged positions, and more.
Crypto options operate similarly to traditional options, specifically tailored for cryptocurrency trading. They offer advanced trading strategies and increase the ways in which traders can potentially earn profits with cryptocurrency trading. They are known as “derivatives” because their value is derived from the underlying cryptocurrency asset. These options provide traders with the flexibility to speculate on the future price of cryptocurrencies without actually owning them.
In other words, crypto options enable traders to take long or short positions on cryptocurrencies, depending on their market outlook. These derivatives have become increasingly popular in recent years as more people look for ways to invest in cryptocurrencies and manage their risk exposure.
Crypto options come in two main types: call options and put options. Call options give the holder the right to buy the underlying cryptocurrency at a set price, while put options give the holder the right to sell the underlying cryptocurrency at a set price.
In addition, crypto options have various features that traders can use to customize their trading strategies. These features include expiration dates, strike prices, and the ability to trade on margin.
Overall, crypto options are a complex but powerful tool that can enhance a trader’s ability to generate profits in the cryptocurrency market. As with any financial instrument, it’s important to thoroughly research and understand the risks involved before trading crypto options.
How does crypto option trading work?
Crypto option trading is a financial instrument that allows traders to speculate on the future movements of cryptocurrencies like Bitcoin. Crypto options are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying cryptocurrency asset at a certain price (known as the “strike price”) and at a certain time in the future (known as the “expiration date”).
There are two types of crypto options: calls and puts. A call option gives the buyer the right to buy the underlying asset at the strike price on or before the expiration date. Conversely, a put option gives the buyer the right to sell the underlying asset at the strike price on or before the expiration date.
When purchasing a call option, the buyer is speculating that the price of the underlying asset will increase in the future. If the price of the underlying asset does indeed increase, the buyer can exercise their option and buy the asset at the lower strike price, selling it at a higher market price and making a profit. On the other hand, if the price of the underlying asset does not increase, the buyer can simply let the option expire and only lose the premium paid for the option.
Imagine you want to trade Bitcoin (BTC) but don’t want to own the underlying asset for a long time. This is where options trading can come in handy. Options trading is all about buying and selling the right to buy or sell an underlying asset at a certain price at a certain point in the future.
For example, let’s say you buy a BTC call option for $1,000 (the option premium) with a strike price of $20,000. BTC is trading for $25,000 at the expiration date, so you have the right to buy BTC at $20,000, even though it’s worth $25,000. Suppose you decide to exercise the option, then you can buy BTC for $20,000 and sell it for $25,000, making a profit of $5,000.
However, if you don’t want to exercise the option, you can sell it to someone else who does. This is where a crypto options selling platform comes in. You can use this platform to sell your options and make a profit without ever owning the underlying asset. In this example, you could sell your call option for $5,000, netting a profit of $4,000 after accounting for the $1,000 premium you paid when you bought the option.
Trading options like this can be an efficient way to profit from an asset’s price movements without actually owning it. The cost efficiencies of options trading make it a preferred method over trading the underlying asset itself, particularly for traders who want to limit their exposure to market volatility.
Crypto options Vs. crypto futures
When it comes to trading cryptocurrencies, it’s crucial to understand the differences between crypto options and crypto futures. While both are financial derivatives that allow for speculation on the future price movements of an underlying asset, they work in slightly different ways.
In a crypto options contract, the buyer is given the right, but not the obligation, to buy or sell the underlying asset at a specified price within a set time period. This means that the buyer can either execute the trade or let the contract expire without taking any further action.
On the other hand, a crypto futures contract is a binding agreement that requires the buyer or seller to purchase or sell the underlying asset at a specified price and date in the future, regardless of the market conditions at that time. This means that the buyer or seller is obligated to fulfill the terms of the contract, regardless of whether it is profitable or not.
In summary, the main difference between crypto options and crypto futures is that options provide the holder with the right, but not the obligation, to buy or sell the underlying asset, while futures require the buyer or seller to fulfill the terms of the contract.
Are crypto options risky?
Cryptocurrencies are known for their high volatility, which makes them riskier than many other asset classes. When trading crypto options, the risks can be even greater than those associated with simpler spot trades.
When you purchase a put or a call option, you could lose the entire option premium—the amount you paid to buy the option. This is because options trading involves predicting the future price of the underlying asset, and if your prediction is incorrect, you may not be able to recoup your initial investment.
In contrast, with spot trading, the asset price would need to fall all the way to zero to experience the same 100% loss on investment. While spot trading can also be risky due to the volatility of cryptocurrencies, it may be a more straightforward option for investors looking to minimize their overall risk exposure.
Crypto options trading Vs. traditional options trading
While the basic principles of trading options remain the same, there are some notable differences between traditional options for trading stocks and crypto options for trading cryptocurrencies.
One of the key differences between traditional and crypto options trading is the level of price volatility. Cryptocurrencies are known for their high volatility, which means that the price of a crypto option can fluctuate rapidly and significantly. This is in contrast to traditional options, which typically have lower levels of volatility.
Another difference is the level of risk involved. Due to the high volatility of cryptocurrencies, trading crypto options carries a higher level of risk than traditional options trading. It’s important to have a solid understanding of the market and to manage your risk appropriately.
When it comes to trading hours, traditional options are typically only available Monday through Friday, 9:30 a.m. to 4:00 p.m. Eastern Standard Time. Crypto options, on the other hand, are available 24/7, giving traders more flexibility in terms of when they can place trades.
Finally, it’s worth noting that exchanges for traditional and crypto options tend to focus on their respective markets. While some exchanges may offer both options, many will specialize in one or the other. This means traders may need to use different exchanges to access traditional and crypto options.
Why trade crypto options?
Cryptocurrency options trading has become a popular choice among traders owing to the various benefits it offers.
Price speculation
One of the primary reasons for trading crypto options is the opportunity to speculate on the price of digital currencies like Bitcoin (BTC) or Ethereum (ETH) through leveraged bets. This allows traders to potentially earn significant profits if the price movement of the underlying asset is in their favor.
Earn passive premiums
Another benefit of trading crypto options is the ability to earn passive premiums by selling options. When you sell an option, you receive an upfront premium that can be a source of income, even if the price of the underlying asset remains unchanged. This can be an attractive option for those looking for a steady source of income.
Hedging
Options trading is also a useful tool for hedging. For instance, if a trader holds a significant amount of BTC and is worried about a potential price drop, they can buy put options to hedge against the risk of loss. This way, if the price of BTC falls, the loss incurred on the BTC holdings will be offset by the profit earned from the put option.
Earn through volatility
Finally, crypto options trading can be a way to earn profits through volatility. Options prices tend to increase when the volatility of the underlying asset is high. Thus, traders can take advantage of the fluctuations in the price of digital currencies and use options to earn profits regardless of the direction of the price movement.
Styles and types of options
When it comes to trading crypto, there are options available for the right to buy or sell crypto in the future. These options are known as “call” options and “put” options. Call options give the holder the right to buy crypto at a predetermined price on or before the expiration date of the contract. On the other hand, put options give the holder the right to sell crypto at a predetermined price on or before the expiration date of the contract.
In addition, there are two types of call and put options – European and American. European options require the underlying asset, in this case, crypto, to be traded only on the exact day the contract expires. This means the holder cannot exercise the option until the expiration date. In contrast, American options allow the holder to exercise the option at any time before and during the day the contract expires.
It’s important to understand the differences between these options before deciding which one to choose, as they can impact your trading strategy and potential profits.
How strike prices work
Options are contracts that give the owner the right to buy or sell crypto at a certain price, known as the “strike price,” at some point in the future. In other words, options allow the owner to speculate on the future price of crypto.
Call options are contracts that give the owner the right to purchase crypto at a certain strike price in the future. They are generally used when the owner believes that the crypto price will increase in the future. When the price of the underlying crypto rises above the strike price, the owner can exercise their option and buy the crypto at the lower strike price. This allows the owner to profit from the difference between the strike price and the market price.
Put options, on the other hand, are contracts that give the owner the right to sell crypto for a certain strike price in the future. They are generally used when the owner believes that the price of crypto will decrease in the future. When the price of the underlying crypto falls below the strike price, the owner can exercise their option and sell the crypto at the higher strike price. This allows the owner to profit from the difference between the strike price and the market price.
Understanding how strike prices work is essential for anyone who wants to trade options and speculate on the future price of crypto.
How expiration works
Crypto options are a type of financial contract that allow traders to potentially trade underlying assets at a future date. Since these contracts involve future trades, they also have a specific date, known as the contract expiry date.
The expiry date of a crypto option is the date when the contract ends, and the trader must either exercise the option or let it expire. The contract can only be exercised on the exact expiry date in European options. In contrast, American options allow traders to exercise their contracts at any time before the expiry date.
Traders need to keep track of the expiry date of their crypto options, as failing to exercise or trade them before the deadline can result in losing the option’s value.
Examples of buying and selling calls
When it comes to trading options, buying and selling calls are two common strategies that traders often use. Buying a call option gives the trader the right, but not the obligation, to purchase an underlying asset like Bitcoin at a specific price, known as the strike price, on or before the expiration date of the option. In exchange for this right, the trader pays a premium upfront to the option seller. The premium amount is the price the trader pays to buy the option, and it represents the maximum loss the trader can incur if they decide not to exercise the option.
If the price of Bitcoin goes up by the expiration date, the trader can profit by exercising the option and buying the asset at the strike price, then selling it at the higher market price. The amount of profit the trader makes depends on how high the price of Bitcoin has risen above the strike price plus the option premium paid.
On the other hand, selling a call option means that the trader is obligated to sell the underlying asset at the strike price if the option buyer decides to exercise it before the expiration date. In exchange for this obligation, the option seller collects a premium upfront from the option buyer. The premium amount represents the maximum profit that the option seller can earn from the trade.
When selling a call option, the seller hopes that the price of the underlying asset will not rise above the strike price before the expiration date. If the price does not rise above the strike price, the option buyer will not exercise the option, and the seller will keep the premium as profit. However, if the price of the underlying asset rises above the strike price, the seller will be forced to sell the asset at the lower strike price, resulting in a loss.
Examples of buying and selling puts
Buying and selling puts can be a useful strategy for investors looking to profit from market movements. When you buy a put, you are essentially purchasing the right to sell an underlying asset, such as Bitcoin, at a predetermined price at some point in the future. This gives you the potential to profit if the price of the asset falls below the predetermined price since you can sell the asset at a higher price than what it is currently trading for.
However, to buy a put, you must first pay a premium, which means you start out at a loss. This premium represents the cost of the option and is determined by several factors, including the price of the underlying asset, the time until expiration, and the volatility of the market.
On the other hand, when you sell a put, you collect a premium upfront, but you also accept the obligation to buy the underlying asset from the option holder if they decide to exercise the option. This means that if the price of the asset falls below the predetermined price and the option holder decides to exercise their right to sell, you are obligated to purchase the asset from them at the predetermined price, regardless of the current market price.
How do you make money trading crypto options?
When it comes to making money by trading crypto options, your success is entirely based on the accuracy of your predictions about the future movements of the cryptocurrency market. Crypto options are financial contracts with a cost known as a “premium.” This premium must be paid to purchase the option. As a buyer of a crypto option, you make money when the option is traded (or exercised) for a higher price than the premium you paid for it.
On the other hand, if you are a seller of the option, you will make money if the option expires out of the money or is closed for a lower price than it was initially sold for, before the expiration date. Keep in mind that the risks can be high, and you should always conduct thorough research and consult with a financial advisor before making any investment decisions.
A profitable example
If you’re looking to make money trading crypto options, selling a Bitcoin put option could be one of the most profitable strategies out there. Here’s why:
By selling a Bitcoin put option with a strike price of $30,000 and an expiry date of September 21st, you’ll collect a premium upfront, meaning you’ll make some money immediately. This is a great way to generate income without having to do any further trading.
Now, let’s fast forward to September 21st. The price of Bitcoin has increased to $34,000, which is great news for you. The person who purchased the put option from you will not want to exercise it and sell their Bitcoin to you for $30,000, as they can sell it on the market for a higher price. This means the option will expire unused, and you’ll get to keep your collected premium without having to do any more trading.
In other words, by selling a put option, you’ve made money by selling the right to buy Bitcoin from you at a specific price. This is just one example of how trading crypto options can be profitable.
A losing example
Let’s consider a hypothetical situation where you have purchased a call option for Bitcoin at a strike price of $40,000, with an expiration date of October 9th. When you buy the call option, you have to pay a premium for it, which means that you start with a loss.
Now, let’s assume that on October 9th, when your call option expires, the price of Bitcoin has plummeted to $28,000. Unfortunately, in this case, your call option becomes worthless since it allows you to buy Bitcoin at a much higher price than the current market value. In other words, you cannot profit from the option since it is not useful to you now.
Consequently, you will not exercise the option, and you will lose the money you paid as the option premium. Therefore, it is important to carefully consider the market trends and analyze the potential outcomes before investing in call options or any other financial instrument.
Tips for choosing a crypto exchange for trading options
When considering a crypto exchange for trading options, it is important to take several factors into account to ensure that you choose a platform that meets your needs. Here are some key factors to consider:
- Options offered: Different crypto options exchanges support different crypto assets, so it is important to choose a platform that offers the options you are interested in trading. It is also worth considering whether the exchange offers options on both call and put contracts.
- Fees: Every trade on a crypto exchange comes with associated costs, so it is important to be aware of the fees charged by the exchange you choose. These may include trading fees, withdrawal fees, and deposit fees, among others. Some exchanges offer discounts on fees for high-volume traders, so this is something to keep in mind if you plan to trade frequently.
- KYC requirements: Know-Your-Customer (KYC) is a process used by crypto exchanges to verify the identity of their users. Some exchanges require a more extensive KYC process than others, so it is important to be aware of the requirements of your chosen exchange to ensure that you can meet them.
- Payment Options: Some exchanges only support deposits in crypto, while others allow deposits in fiat currency as well. It is important to consider which payment options are supported by the exchange you choose, as this can affect the ease and cost of making deposits and withdrawals.
- Software Integration: If you plan to use an API to make trades, it is important to choose an exchange that supports the level of automation you require. Some exchanges offer more extensive API support than others, so it is important to do your research to find a platform that meets your needs.
- Customer Support: When dealing with a considerable amount of money, it is essential to choose an exchange that provides excellent customer support. This may include 24/7 customer service, live chat support, and fast response times. It is worth researching the reputation of the exchange you are considering to ensure that they have a solid track record of providing timely and effective customer support.
Crypto options terminology
Here are some crypto option terminology you need to know:
In the money (ITM) | At the money (ATM) | Out of the money (OTM)
Options are financial contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price and time. In the context of crypto options, these underlying assets are cryptocurrencies such as Bitcoin, Ethereum, or Litecoin.
One important concept in options trading is whether an option is “in the money,” “at the money,” or “out of the money.”
An option is considered “in the money” if it would be profitable to exercise it right now. For a call option, the current market price of the underlying asset is higher than the strike price, while for a put option, the market price is lower than the strike price.
Conversely, an option is “out of the money” if it would not be profitable to exercise it right now. Finally, an option is “at the money” if the strike price is the same as the current market price of the underlying asset.
USD-denominated options
Another important distinction in crypto options trading is whether the option is settled in the cryptocurrency of the underlying asset or in USD. USD-denominated options are settled in US dollars, regardless of the cryptocurrency involved. This can be useful for traders who want to hedge their exposure to cryptocurrency prices or who prefer to trade in USD.
Covered call | Uncovered call
There are two types of positions when selling a call option: covered and uncovered. A “covered call” means that the seller already owns the underlying asset, so if the buyer exercises the option, the seller can deliver the asset without buying it on the open market.
An “uncovered call,” on the other hand, means that the seller does not own the underlying asset and would have to buy it on the open market if the buyer exercises the option.
Option margin | Unified margin | Portfolio margin
Option margin is the amount of collateral an options seller must hold in their account to sell an option. This ensures that the seller has enough funds to cover any potential losses if the option is exercised. There are two types of margin in options trading: unified margin and portfolio margin.
A unified margin is a simpler, fixed amount of collateral required for each options contract, while a portfolio margin takes into account the entire portfolio of the trader and calculates margin requirements based on the risk of the entire portfolio.
Can you trade crypto options on Coinbase?
Currently, Coinbase does not offer crypto options trading services because the company is concerned about the regulatory implications of such trading activities. However, Coinbase supports a range of other cryptocurrency investments, including buying and selling different cryptocurrencies, staking, and earning interest on cryptocurrencies.
Is there a crypto options trading app?
Several exchanges offer trading apps to make trading cryptocurrency options more convenient for users. For example, Bybit and Binance provide users with a mobile app that enables them to access crypto options trading directly from their phone or tablet.
This app offers a user-friendly interface, allowing traders to quickly and easily execute trades and manage their positions on the go. With the ability to track market trends and monitor price movements in real time, the Bybit app is a powerful tool for anyone looking to trade crypto options.
What is a good crypto options trading strategy?
Cryptocurrency options trading can be a profitable way to invest in the market, but it is important to have a good strategy in place. However, not all crypto options trading strategies are effective in all situations, and there is a risk of losing your entire options premium, which means a 100% loss.
Therefore, testing your strategies before investing real money is highly recommended. One way to practice your strategies without any financial risk is to use demo trading, a feature offered by OKX. With demo trading, you can simulate the experience of crypto options trading without using real money. This allows you to test your strategies risk-free and refine them until you feel confident enough to invest real money.
By taking advantage of demo trading, you can gain valuable experience and develop a solid strategy for crypto options trading that helps you minimize risk and maximize profits. So, if you are considering crypto options trading, it’s important to research, practice demo trading, and approach the market with a sound strategy.
What is the best crypto options trading platform?
If you’re looking for the best platform for crypto options trading, we have some recommendations for you. Our top picks are Binance, Bybit, Deribit, Bit.com, and OKX. Each of these platforms offers its own unique benefits and features that you can take advantage of based on your trading preferences.
Binance is a popular choice because it offers low trading fees and a user-friendly interface. Bybit, on the other hand, is known for its high-leverage options and advanced trading tools. Deribit is an excellent choice for those looking for a platform that specializes in Bitcoin and Ethereum options trading.
Bit.com is another great platform that offers a wide range of options and futures trading products. Finally, OKX is a great option for those who want to test their trading strategies before risking real money, as it offers a demo trading feature.
When choosing the best platform for your needs, consider factors such as fees, trading tools, leverage options, and supported currencies. By doing your research and trying out different platforms, you can find the one that suits you best and start trading with confidence.
Can I use crypto options for hedging?
Crypto options can be used as an effective hedging tool to manage risk in your portfolio. If you are exposed to a particular cryptocurrency, you can purchase or sell options to hedge against potential losses. For example, if you have a long position in Bitcoin and are concerned about a potential price drop, you can purchase put options to limit your downside risk.
Alternatively, if you are short on Bitcoin and are worried about a price increase, you can buy call options to mitigate your losses. By using crypto options for hedging, you can protect your investments and potentially improve your overall portfolio performance.
Can I leverage trade with crypto options?
Many exchanges offer leverage options that can help you increase your profits. Leverage allows you to borrow funds from the exchange to increase your buying power, giving you the ability to make larger trades than you would be able to with just your own funds.
Some exchanges even provide up to 100x leverage, enticing traders looking to make a big profit quickly. However, it’s important to remember that the more leverage you use, the greater your risk becomes. In fact, the smallest market movement against your position can wipe out your entire margin, resulting in a significant loss. As such, it’s crucial to carefully consider your risk tolerance and trading strategy before leveraging your trades.
Do you have to pay taxes when trading crypto options?
When it comes to trading crypto options, taxes are an important consideration. If you profit from options trading, you will be subject to capital gains tax. This means that you must report your profits to the relevant tax authorities and pay taxes on them. It’s important to note that crypto options are taxed based on capital gains, just like holding regular crypto is.
This means the tax rate you’ll pay will depend on how long you hold your crypto options before selling them and how much profit you make from the transaction. Additionally, it’s worth checking with your local tax authority to find out if there are any specific regulations or requirements that apply to crypto options trading in your area. Overall, staying informed about tax obligations is an important part of successful crypto options trading.
The bottom line
Options trading is a popular investment strategy that enables you to purchase or sell an underlying asset at a pre-determined price and time in the future. This allows you to speculate on the future direction of the asset’s price or to hedge your existing holdings against potential market fluctuations.
When it comes to cryptocurrency trading, options trading provides you with the flexibility to execute trades with greater precision and larger volumes than what you would be able to achieve with simple spot trading. With crypto options exchanges, you can take advantage of the inherent volatility of cryptocurrency markets and potentially earn higher profits while minimizing your risks.
Additionally, crypto options trading provides various strategies, including buying call options, selling put options, and more, each with its own set of advantages and risks.