As we reach January 29th, which is the expiration date of Bitcoin options worth $3.7 billion, speculations arise in the market. Recent bullish trend of the Bitcoin price has facilitated the bitcoin options market to expand.
Over the last few years Bitcoin has gained the attention of many financial markets as an investment commodity with rapid growth. The number of transactions conducted in Bitcoin market has risen dramatically since the introduction of Bitcoin. With the popularity of Bitcoin, various instruments have emerged to trade this cryptocurrency.
- Bitcoin option exchanges offer binary option facilities, where investors bet on yes/no scenario
- Monitoring the price of the option, the strike price, and its maturity is required to ensure that the most appropriate Bitcoin option is bought
- In Deribit platform, payment of any ensuing profits the trader makes at expiration will be in made in cash.
What are Bitcoin options?
In the traditional options market that allows the buyer of the option to purchase the underlying asset which is known as a call option or sell the underlying which is called as a put option. Bitcoin options too operate in a similar way. Here, premium is paid by the investor for his right but not the obligation to buy or sell an agreed amount of Bitcoins on an agreed date.
In simple terms, Bitcoin options are contracts that allows investors to buy or sell the Bitcoins at a specified price within a specific time period. These options grants investors with the opportunity to make profits by betting on the price movements of Bitcoin. Certain Bitcoin option exchanges offer binary option facilities, where investors bet on yes/no scenario. In such options, investors can bit on whether the price will rise or fall scenario. Also, whether or not the price will be above or below a specific price on a said day.
An important fact to remember before trading Bitcoin options is that they are super expensive. It is because Bitcoin is an asset with very high volatility, can even be said the most volatile asset trading in the market. Implied volatility is an important tool used in pricing an option. When the implied volatility of Bitcoin rises, so does the prices of Bitcoin options.
How Bitcoin options are traded?
Initially to trade Bitcoin options, trader would need to signup in any of the Bitcoin options trading platforms. Afterwards, funds need to be deposited in that particular platform to start trading. Once signed-up and funds are deposited, browse through the chosen platform to find a Bitcoin options trading dashboard.
With the help of the dashboard, traders would decide on options that suit his/her hedging strategy. Here, traders can purchase the call or put options based their denominated amounts. It is crucial to monitor the price of the option, the strike price, and its maturity in order to ensure that the most appropriate Bitcoin option is bought based on the determined strategy.
Where to trade Bitcoin options?
Platforms that are available to trade Bitcoin options are relatively low compared to platforms that are there for standard cryptocurrency exchanges. Out of these few platforms, leading Bitcoin option exchanges are Deribit, LedgerX, and QuedeX.
Deribit which was launched back in 2016 is an exchange from Amsterdam that focuses on crypto-centric futures and options. This platform provides users the ability to buy European-style cash-settled cryptocurrency options. Meaning, that the exercising of options only occur once the expiry date matures. Also, the payment of any ensuing profits the trader makes at expiration will be in made in cash.
LedgerX is a US based options trading platform which is regulated by US Commodities Futures Trading Commission (CFTC). According to their official website, ““The LedgerX management team comprises Goldman Sachs, MIT and CFTC alumni, who bring financial expertise, technical talent and regulatory experience to the firm.”
Before making an investment in Bitcoin options, it will be an added advantage to have previous experiences in the options market. These Bitcoin options gives the opportunity for investors to trade Bitcoins without having an actual Bitcoin wallet. By making proper decisions as to call or put, significant returns can be gained out of Bitcoin options.