Everything You Need to Know About Crypto Options Trading - Crypto Option Trading
Everything You Need to Know About Crypto Options Trading
A crypto option is a type of derivative contract that gives a trader or investor the right to buy or sell an asset at a specified date and price. With options, the holder can predict price changes and take advantage of them.
Crypto buyers favor options trading because it is a relatively low-risk and low-cost solution to trading. When crypto traders are involved in buying and selling derivatives contracts, it is called "crypto options trading". There are two types of crypto options:
- Call: the right to buy an underlying asset
- Put: the right to sell an underlying asset
- American options: the right to exercise options within a specified timeframe.
- European options: the right to exercise options on a specific expiration date
- Is it possible to options trade crypto?
- How to crypto options Work?
- Which strategy is best for crypto trading?
- What should I learn for crypto trading?
How do crypto options work?
As we have already mentioned, there are four types of crypto options. The first major type of option is called a call option.
Call
Call option allows you to buy a digital asset at a fixed price. Let us take an imaginary coin as an example to understand this better.
For example, let's say you decide to buy Keeper Coins that are selling for $1,300. You believe that the price of Keeper Coins is going to increase in the next month, so you buy a call option for 10 Keeper Coins at the strike price of $1,500. Call option allows you to buy these coins at the strike price. You do not need to pay $1,500 x 10 = $15,000 for these coins. Exchange Imagine you bought 10 coins for $1,500.
You bought the option, and it's worth $100. After a month, your prediction was correct and the coins are selling for $1,700 each. You bought the right to buy 10 Keeper Coins for $1,500 each, for a total of $15,000. Therefore, your profit would be $17,000 (present value) minus $15,000 = $2,000. Subtract $100 for the options and your profit is $1,900.
Put
Put option is exactly the opposite of call option. It gives you the right to sell a digital asset at a specific price within a specified period of time. Let's take the example of Keeper Coin again.
After doing all the technical research, you believe that the price of Keeper Coin is about to drop. Next, you bought a put option, giving you the opportunity to sell at the strike price.
You sold a put option for 10 KeeperCoin at a strike price of $1,000 in 30 days. And you spent $100 on the put option. If the price of Keepercoin drops to $700 on the maturity date, your profit would be $300 per Keepercoin. Finally, you subtract the $100 you spent on the put option, and the profit is $2,900.
If the price of Keeper Coin rises to $1,000, the sale will be worthless. Here, you should let the option expire and retain the loss of 100.
American and European options
The call and put examples above are trading in the European manner. On the maturity date, the Keeper Coins options are either exercised or expire. Most exchanges make use of this method.
The American-style options, on the other hand, can be exercised at any time, even after the maturity date, and are used by some options trading platforms. The American way of trading options is not for the timid. It takes courage because if you wait a day or a week, you can be tempted to sell even though your profits are rising or decreasing. This raises the level of anxiousness.
Simple Trading Strategies for Crypto Options
The strategies to make money from crypto options trading are not complicated. So, here are two simple crypto-options trading strategies:
Bull Market
Call Options:
If the market is bearish and prices are showing an upward trend, then buying a call option is a better strategy. When you buy a call option, you book a profit if it goes up, and the risk is limited to the cost of the contract premium.
Bear Market
Put option:
Investors are always worried when the crypto market declines, but crypto traders can still make profits during the downward movement of the market. When a trader buys a put contract, they can exercise the sale at their predetermined price.
Choosing a Crypto Options Trading Platform
As stated earlier, choosing a crypto options trading platform is a labor intensive task. It takes a lot of research and man-hours to find an options trading platform that is right for you. Therefore, we have highlighted some indicators on what to look for in an options trading platform. shall we start?
Options Offered
Most crypto options-trading platforms support BTC trading, but there are plenty of tier 1 and 2 assets that are just as beneficial as bitcoin. If you are looking for a crypto options trading platform, check out the one that offers a lot of altcoin contracts. Also, if you are planning to engage with new altcoins then look for high liquidity.
Fees
Be it a trader or an investor, one cannot escape the fees charged by the trading platform. If the fees are too high, a profitable trade can quickly go to waste. So, if you are a trader who makes multiple trades in a day, compare the fees of different platforms and choose the one that is not heavy on your pocket. Remember, fees may seem nominal, but they can add up quickly.
Reputation
It goes without saying that when choosing a crypto options trading platform, a reputation check is a must. Look for customer reviews, google the platform and see if it has been hacked in the past. If that was the case, how did the platform mitigate the risk? Is the customer service satisfactory? You have to examine all the aspects closely as your funds are at stake here.
Payment Method
Another factor to consider is the payment method that a trading platform accepts. There are many crypto-option trading platforms that accept only cryptocurrencies as a form of payment. While this can be a harsh system for some traders, others may find it to be a time saver. If you want a more flexible payment system, look for a crypto-options trading platform that offers multiple payment options. Additionally, before choosing a platform, find out if a platform limits withdrawals.
KYC Requirements
Security is an important factor when trading. Some of the best crypto options trading platforms do complete KYC before you start trading. However, some traders prefer to trade anonymously. Choose a trading platform based on your trading strategy.
Customer Support
If you face any problem while doing business, you will have to rely on customer support to solve the problem. Even experienced traders need help from time to time. Hence, choose a platform with a reliable customer support system for more peace of mind.
Software Integration
The more you trade, the more tools you need. Choose a platform that offers advanced software integration and lots of features. For example, you need an advanced trading view that is constantly updated.
Best Crypto Options Trading Platforms (Make sure to update and localize your information for US residents / US market)
Deribit (Not accessible to US traders: Deribit is not licensed to operate in the United States and does not allow US users.) > DO GEMINI
Deribit is famous for its large trading volumes for BTC and ETH. It is ideal for institutional investors looking for a platform to trade crypto options. On this platform, traders can easily find contracts that align with their trading strategies and create tight spreads as the platform offers multiple strike prices and expiration dates.
Deribit follows the European style, which means that options are only executed on the expiry date. They are settled only in cash rather than the underlying asset. Lastly, the platform has excellent customer support and a number of advanced features.
Bit.com (Therefore, whether you are a US passport holder, US Green Card holder, or US resident, you cannot trade on Bit.com.) > CEX.io
It is an advanced platform with multiple features focused on helping investors of all skill levels. You can trade futures, margin options, spot and perpetual trading with just one account. This feature is convenient, economical and saves time.
The platform has an integrated margin (UM), which minimizes risk, and is one of the features that professional traders want. Fees are also reasonable, with maker fees starting at 0.0200 percent and taker fees starting at 0.0300 percent.
Binance US
Binance is the largest crypto exchange in the world, but few people know that it is one of the best platforms for trading crypto options. It has the widest selection of crypto assets with the highest asset liquidity.
Option traders can use a leverage of 125x when trading options, and to be the cherry on the trading cake, they can withdraw in less than 30 minutes. This makes it an easy platform to use and a practical option for options trading.
OKX (not available for users in the United States): DO KRAKEN
OKX is one of the best crypto trading platforms because traders can start using it right away. The platform features hundreds of assets and offers 100x leveraged options trading. In addition, it offers staking, low fees per transaction, and a savings account. This makes it a great option for both new and experienced traders.
and coinbase
Wrapping it up
Crypto-options trading is one of the most versatile ways to make money because, in traditional trading, you can only make money when the market goes up. However, with options trading, you can make money when the market is going down. Also, we must not forget that this is a risky undertaking, and you should do thorough research before starting.
Crypto Options Trading - Frequently Asked Questions
1) How do you become a day trader in crypto?
The easiest way to become a day trader in crypto is to open an account with a reputable trading platform, fund your account with fiat currency and start trading. You can use different trading strategies to make money, but always do your research before investing.
2) Is futures trading the same as options trading?
Futures are contracts that allow the holder to buy or sell a certain asset at a specified price at a specified future date. On the other hand, options give the trader the right, but not the obligation, to buy or sell a certain asset at a specified future date at a specific price.
3) Can You Make a Living Day Trading Crypto?
Yes, you can earn a living by day trading cryptocurrencies. This is one of the most profitable and easy ways to make money from the crypto space. Many traders learn to navigate the market in a day and they take advantage of market volatility to make huge profits.
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