What is Options Trading in Crypto Market ?

 Options trading is a term commonly used by stock market participants. This contract is written between the buyer and the seller in such a way that the two parties agree to make a certain deal in the future. In exchange for paying a certain amount, the buyer acquires the right to buy or sell the assets registered in the contract at the price specified in the contract and at the specified time. The seller also gives the buyer the right to buy or sell the property. Now, the buyer may not buy and sell the property at the specified time, in which case the property will be given to the seller and the buyer will lose the amount paid.

The concept of trading authority is one of the most complex concepts in the capital market, but you may be interested to know that we use this concept a lot in our daily lives; In fact, the main concept of trading option is to anticipate and evaluate future ambiguities in the present. Let us explain the concept of trading option in the simplest way with a few examples.

Options trading in crypto market is a big step for the crypto derivatives market and have already proven their worth.

 

The importance of option trades

Option trades are very important because they give traders more options and are a good way to hedge capital risk. Traders in option contracts can, like futures contracts, buy or sell a certain amount of a fixed capital at a specific time in the future at a predetermined price. However, in option trades, unlike futures contracts, the trader has this right and no longer has to buy or sell on the specified date.

It depends on whether the trader buys a Call Options or a Put Options. In short, the difference between the two is that the trader with the first help can get the option to buy bitcoin (or the desired capital) and with the second help the option to sell it. Because such contracts give you this right and are not required, many traders in volatile markets such as crypto prefer to buy and sell option contracts.

 

Call Option

Call options or call options give the buyer the right to purchase the relevant stock. These options are available at different applicable prices, subject to the relevant stock price. The expiration date can vary from one month to more than one year (Leaps option). Depending on the market, a Call option may be purchased or sold. If the Call option is purchased, the buyer has the right to purchase the relevant stock at the applicable price until the expiration date. The amount of the option is the maximum risk that a call buyer incurs. When the stock price of a Call option is higher than the applied price, this option generates a profit and at this time the Call can be executed or it can be compensated by selling a Call with the same applied price and expiration date. By running a call, you can earn 100 shares per option from the relevant stock with the stock price related to the market price (higher), a profit equal to the difference between the two prices. If the Call option is sold, the seller assigns the right to purchase the relevant shares to the option holder at the applicable price. By selling the Call option, the amount of the option will be credited to the trading account as a limited profit. This profit will be kept in the account if the valueless option expires. Therefore, in order for the Call option to be profitable to sell, the relevant stock price must remain lower than the application price. If the relevant stock price exceeds the option price, the option holder can execute it. In this case, the option holder has the right to purchase 100 shares for each option of the relevant shares at the price of applying the option. This means that the seller must buy the relevant stock at the current market price and sell the option to the option holder at a lower price, so the difference between the application price and the stock market price is lost. Therefore, the maximum risk in this case is unlimited, and because selling the Call option unprotected has a very high risk.

 

Put Option

Put option or options give the buyer the right to apply the relevant share at the price and sell it until the third Friday of the expiration month; Like the Call options, the Put option is available at different application prices depending on the stock price and with different expiration dates. The expiration date can vary from one month to more than one year. If the Put option is purchased, the buyer has the right to sell the relevant stock at the applicable price until the expiration date. The amount paid for each option is the maximum risk that a Put option incurs. The maximum profit is limited to when the stock price reaches zero. With stock prices falling, the Put option can be profitable in two ways. By running a sell option, you can sell 100 shares per option. Stocks are sold at a higher market price and then stocks are bought at a lower price to exit the trade. The second method is to compensate for the option. As the stock price falls, the amount of the option will increase and with the profit can be sold, the value of the selling option will decrease; so you can sell it at a loss or allow the option to expire without value.

By selling the option, the seller of the sale option assigns the right to sell the relevant shares to the option holder at the price applied. In most cases, it is anticipated that the sale of the Put option sold will expire without value and risk can be maintained. The amount received for each option is the maximum amount of profit that can be obtained by selling the Put option. With the fall of the relevant stock price, the holder of the Put option will be able to execute the option. Therefore, the option seller will be obliged to purchase 100 shares of the relevant shares for each option at the price applied by the option holder. The amount of loss that the option seller will incur depends on the rate at which the stock price falls.

Bitcoin options trading

We certainly cannot deny the dominance of bitcoin in the market. Although thousands of cryptocurrencies have been created around Bitcoin, Bitcoin still holds 65% of the market. The public perception is also higher than bitcoin and this coin is also more accepted. Bitcoin is the gateway for many people and institutions to trade in cryptocurrencies and their derivatives. But we are not saying that crypto option contracts no longer have a place in the market.

One of the main reasons for the growth and leadership of OKEx exchange is the variety of products offered. After the BTC/USD option contracts were in high demand, it then decided to add the ETH/USD option contracts in the market.

All of these derivatives help to make the market more diverse, attractive, thriving and interesting. This market has become more competitive with the constant entry of new people into the space of crypto derivatives. This can only be beneficial for the crypto space. The coming years will see the volume of transactions increase from billions of dollars to trillions of dollars, and eventually crypto will become a major contender.

 

Options contracts in cryptocurrency market are done in two ways

Options to buy and option to sell. The put option allows buyers to buy the underlying stock at an agreed price while the put option allows the buyer to sell a base stock at the agreed price. Dealerships provide powerful leverage for the seller and the buyer to trade or hold on to their assets.

In most cases, the option holder makes a profit when the price of the underlying asset exceeds the contract price. The holder of the put option also gains when the current price of the asset is less than the contract price. Yet, it is better to have a deeper look at how each contract works for each party.

 

“The Long Call” with a bullish feeling (ascending)

When the trader activates the buy option, he believes that the price of the underlying asset is rising. By buying an asset directly, traders expose themselves to the risks of falling asset prices, which will be far more detrimental to volatile assets.

But when a purchase option is concluded, the potential risk is only the loss of the amount of money paid for the contract deposit. However, the potential profit of the buyer is the difference between the current sale price (which should be higher than the agreed price) and the amount of the initial collateral deducted from the actual price. For example, if the agreed price is $ 100 and the deposit is $ 10 and the asset is sold at the actual price, the profit will be $ 10.

 

“The Short Put” options with a bullish feeling (ascending)

Another option for traders who believe that asset prices will rise is the option to sell. When using this option, traders agree to buy an underlying asset at a bargain price provided buyers use their discretion to sell. If the current price of the asset is higher than the contract price, the buyers refuse to sell the asset, in which case the seller will benefit from the deposit amount.

 

“The Long Put” options with a bearish feeling (descending)

If traders have an opinion on a bearish asset, they are likely to activate the buy option, which gives them the option to sell at a bargain price, and vice versa when they have to close a trade with a lower loss target (as in the Long Call situation above). Mentioned) will only cause the loss of the payment guarantee for the contract.

When the option to buy is used, buyers will benefit if the total current price of the deposit is less than the agreed price of the contract. For example, the agreed price is $100 and by paying $10 and the actual price is $90, then the transaction will end (profit and loss ratio) and the lower the price, the higher the profit.

 

“The Short Call” option with the bearish feeling (descending)

The sell option is an option for traders who anticipate a price reduction. By activating the put option, the trader agrees to sell an underlying asset at the agreed price of the contract if the buyer uses his option. (Like the short put situation mentioned above)

The purpose of this strategy is to earn the contract deposit amount when the buyer does not want to use his discretion. This happens when the cash price is lower than the agreed price. If the current price is higher than the agreed price, the seller must sell his property at a discount. This strategy, as described in the chart below, is widely used to cover part of the put option.

 

How to make a profit in ascending and descending markets?

While options can be used as a speculative investment, many successful financial managers use option contracts as an effective solution to reduce risk and increase their potential income. With a combination of the four types of optional contracts mentioned above and the two basic trading methods (long & short), they can create a wide range of sophisticated strategies that maximize revenue.

The real power of options is not in their individual use, but when they act as part of a larger strategy. When options are used in combination, they balance the potential investment risks with creating some kind of risk-taking potential, reducing losses, earning income and predictable profits.

As mentioned above, one of the most popular options is the “covered call” strategy option. In this strategy, investors are faced with a type of asset that is increasing in the long run but does not envisage a significant price increase for it in the near future. Traders use the put options to keep the asset profitable.

As a result, some income is earned in the form of a deposit. This is similar to what we have seen in the case of miners, who created a kind of cost-free risk coverage by selling their bitcoins in futures markets. Miners can now sell a $300 option at a bargain price of $10,000, which allows them to make a profit even if the price increases.

A similar strategy for long-term investments is the option of selling options through risk management. Unlike the “covered call” strategy, which limits the increase in the value of the investment if the asset is sold, the protective put strategy seeks to limit the losses caused by the decrease and increase of its value.

In this case, traders activate a buy options for their long-term investment to avoid potential losses by limiting the loss limit to the amount paid. If investors are exposed to the risk of investing in a bear market and anticipate a strong uptrend, they may be able to limit the downtrend with this $ 200 deposit and a $ 6,500 deal.

The “Covered calls” and “protective puts” strategy options are the source of the “Rabbit hole” strategy. There are strategies such as collar, straddle, strangle, butterfly, etc., which are categorized based on market sentiment – bullish, bearish, and neutral.

Given the emerging stages of the Bitcoin market for optional options based on the principle of buying and selling options, it is possible to gain the opportunity to make profitable trades.

The last word

There are currently a number of bitcoin trading options on the market that have various advantages and disadvantages, costs, geographical constraints, capital constraints, and user experiences. Some of the most popular bitcoin trading options include Deribit, LedgerX, IQ Option, Quedex, Bakkt, and most recently: OKEx.

Each includes a set of positive and negative points that must be evaluated against the specific needs of traders. Since OKEx is the first provider of platforms that allow traders to not only buy options contracts but also sell them, the exchange’s new platform is worth exploring. As mentioned in the strategies above, the contract sale option is a key element in the original and advanced strategies, which means that bitcoin options in OKEx are likely to become powerful new tools for traders.

They are also the first exchange to offer all the tools of “C2C”, “Spot”, “Swaps”, “Futures” and “Trading Options” together, making it a valuable experience for all trading strategies and Reduced risk. From a technical point of view, they offer a powerful anti-hacking system, clearing with passwords and a specific price at the time of clearing with full support. Overall, we continue to see improvements in the cryptocurrencies’ financial infrastructure, and traders who can use these tools effectively can improve their performance.