• Crypto Lists
  • Bitcoin
  • Blockchain
  • Cryptocurrency
  • Altcoin
  • Advertise With Us
  • Join our Telegram Community
Newsletter
ItsBlockchain
  • Blockchain
  • Bitcoin
    crypto traders 2021

    Top 5 Crypto traders to follow on Twitter in 2021

    featured image

    Everything you need to know about Bitcoin IRA

    featured image

    How Bitcoin can be hacked?

    featured

    A starter guide to Bitcoin Options trading

    Featured Image

    With Bitcoin Mining Capitulation Coming to an End, Will Halving Pump Begin?

    featured image

    Technical Indicators suggests Bitcoin can crash to 7000$ in next few days

    featured image

    Why is Bitcoin a safe haven in a financial crisis

    featured image

    How to Make Money in Crypto When It Falls

    featured image

    Despite Resurrection of Old Bitcoiners, HODL Waves Indicate Bullish Accumulation

    Trending Tags

    • Altcoin
    • Crypto Lists
    • News
      bitcoin laser eyes

      Bitcoin Laser Eyes, What is it all about?

      Bitcoin Market’s Sentiments turned bullish after USA President’s recent press conference

      Bitcoin Market’s Sentiments turned bullish after USA President’s recent press conference

      featured image

      Breaking : Crypto Trading is now legal in South Korea

      RBI to allow crypto trading

      Supreme court of India decided to lift off RBI Banking BAN against Bitcoin

      featured image

      Steemit Joining TRON Ecosystem

      Reliance Jiocoin

      Reliance Jio is preparing for Jio Coin launch in 2020

      A $134 Million real estate has sold on ethereum blockchain

      A $134 Million real estate has sold on ethereum blockchain

      Hacking attacks on cryptocurrency exchanges

      Hacking Attacks on Cryptocurrency Exchanges are rising, Why?

      Bithumb Launches in India

      Bithumb Global Launches in India

    • Crypto Market
    • Guide
    • DEFI
    No Result
    View All Result
    • Blockchain
    • Bitcoin
      crypto traders 2021

      Top 5 Crypto traders to follow on Twitter in 2021

      featured image

      Everything you need to know about Bitcoin IRA

      featured image

      How Bitcoin can be hacked?

      featured

      A starter guide to Bitcoin Options trading

      Featured Image

      With Bitcoin Mining Capitulation Coming to an End, Will Halving Pump Begin?

      featured image

      Technical Indicators suggests Bitcoin can crash to 7000$ in next few days

      featured image

      Why is Bitcoin a safe haven in a financial crisis

      featured image

      How to Make Money in Crypto When It Falls

      featured image

      Despite Resurrection of Old Bitcoiners, HODL Waves Indicate Bullish Accumulation

      Trending Tags

      • Altcoin
      • Crypto Lists
      • News
        bitcoin laser eyes

        Bitcoin Laser Eyes, What is it all about?

        Bitcoin Market’s Sentiments turned bullish after USA President’s recent press conference

        Bitcoin Market’s Sentiments turned bullish after USA President’s recent press conference

        featured image

        Breaking : Crypto Trading is now legal in South Korea

        RBI to allow crypto trading

        Supreme court of India decided to lift off RBI Banking BAN against Bitcoin

        featured image

        Steemit Joining TRON Ecosystem

        Reliance Jiocoin

        Reliance Jio is preparing for Jio Coin launch in 2020

        A $134 Million real estate has sold on ethereum blockchain

        A $134 Million real estate has sold on ethereum blockchain

        Hacking attacks on cryptocurrency exchanges

        Hacking Attacks on Cryptocurrency Exchanges are rising, Why?

        Bithumb Launches in India

        Bithumb Global Launches in India

      • Crypto Market
      • Guide
      • DEFI
      No Result
      View All Result
      ItsBlockchain
      No Result
      View All Result
      Home bitcoin

      A starter guide to Bitcoin Options trading

      Nivesh Rustgi by Nivesh Rustgi
      February 3, 2021
      in bitcoin, Guide
      0 0
      0
      featured
      51
      SHARES
      5.8k
      VIEWS
      Share on FacebookShare on Twitter

      In this Guide, we will cover Bitcoin options trading, options trading platforms and how to trade bitcoin options on deribit.

      Options contract is an agreement between the seller and the buyer, which gives the buyer the right to exercise the conditions of the contract on a specified date, at a specified rate.

      It is similar to a futures contract, except that it is a right, not an obligation. An option is a contract that is usually a derivative of a futures or forwards. Hence, the losses in case be limited if the buyer of an option chooses not to exercise his rights. Nevertheless, the seller of an option stands at an unlimited risk position, as he is obliged to the will of the buyer.

      Types and Styles of Options

      Options contracts are usually of two types:

      • Call Option: It is an option to buy the underlying asset at a predetermined price on or before a specified date.

      • Put Option: It is an option to sell the underlying asset at a predetermined price on or before a specified date. 

      Then, there are usually two styles of options:

      • An American Style Option: Can be exercised at any date before expiry
      • A European Style Option: Can be exercised only at expiry
      European Style Contracts

      Currently, most of the options available in the market are European Style only. It includes exchanges like CME, Deribit, Okex and so on. Hence, the option to exercise these contracts are available only at expiry. 

      Bitcoin Options 

      Bitcoin [BTC] options are currently traded on CME, Deribit, LedgerX, IQ Option, Quedex, Bakkt and, Okex. Among these, CME, Bakkt, and others are regulated platforms in the US, with the CME group being the largest futures exchange in the world. 

      Moreover, while most exchanges offer buying of options only, Okex has enabled selling options as well. However, selling an option is a lot closer to futures in terms of risk. The sellers stand to make profit from the premiums paid by the buyers of unexercised options. 

      Ethereum Options

      Bitcoin options are usually the only derivatives contract offered on exchange. Nevertheless, lately the regulators including the CFTC have expressed positive sentiments around Ethereum being traded as a commodity.

      Ethereum futures contracts are traded across many exchanges including Binance, Huobi, Okex, and BitMEX as well. The options contracts on these futures are not widely available at the moment. 

      Deribit exchange is one of few exchanges which offers options on Ethereum. The ETH-USD on Deribit is composed of price discovery from Bitfinex, Gemini, Bitstamp, GDAX, Kraken and Itbit.

      Deribit Ethereum Options Contracts Specifications

      Moreover, Binance and some of the other derivatives exchange offer futures contracts on other crypto like XRP, Litecoin [LTC], Bitcoin Cash [BCH] and so on. In the future, if enough distribution is achieved and these contracts are available across more exchanges, we’re likely to see options being written on these cryptocurrencies as well.

      How to Trade Options on Deribit? 

      To understand how to trade options, one must understand that it is simply a trade deal decided for the future. The buyers and sellers of the contract make profit/loss on the difference in the strike price (the contract price) and the price at expiration. 

      Moreover, this is a lot similar to futures, and might fail to choose between the two. Hence, it is essential to understand how margin and premium works. 

      Understanding Margin and Premium Rate

      The writer or seller is an entity that sells these calls and put options. The seller of options has unlimited liability, in case the buyer exercises his options. Hence, the writer pays a margin to the broker or the clearing house in this case.

      The buyer of the option obtains a right rather than an obligation on his call and put option. To opt for this option, the buyer needs to pay a premium to the writer.

      For example, look at the order book of Deribit Exchange below, it gives the rate of buying Call and Put options (bid and ask column).

      Let’s say the option to buy a call (of 3 BTC) at a strike price of $4,000 (therefore, $12000 in total) is around $2,200. Hence, in case the price rises to $6000 at expiry, the buyer of the call option on 25th expiry will buy cheaper bitcoins (about $6000, $2000X3 cheaper than the expiration price) for a premium of around $2,200.Hence, he ends up making a profit of $4,800. 

      Start your options trading journey today

      Call and Put Option on Deribit Exchange

      How to Make Profit on Options? 

      To understand an options contract one must understand the premium and margins. The buyer of an option pays a premium for either selling or buying a certain amount of Bitcoin at a certain time, on a specified date.

      • The buyer of a call or put option pays only the premium
      • But, the seller of the put or call option pays the margin, which needs to be covered according to the strike price and market price. However, in case there is little difference between the strike price and expiration date price, the seller makes profit on the premiums.

      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.g. let’s’ say the premium for a call option is high, then it implies the traders are bullish. On the other hand, if the premium for a put option at a particular strike price is high, it means that traders are heavily betting on the price falling below it on expiration.

      Risk Management: Who are Likely to Buy and Exercise Options?

      Futures and options contracts were originally formed to protect or hedge the losses of companies depending on the asset they trade or produce. Nevertheless, in today’s market, these are used as speculative instruments which often come with high leverage as well.

      Leverage of 10x-100x implies that some of these derivatives contracts lets a trader bet on 100 Bitcoin using only 1 BTC. Nonetheless, the risks associated with the ‘leveraged’ contracts are equally high. It is basically borrowing money from liquidity providers to speculate on assets.

      Difference between positions of Miners and Speculators 

      Generally, a miner with an equivalent amount of assets, let’s say 100 BTC by the end of September is likely to lock in his Bitcoins at a fixed ceiling price to avoid losses from a downfall.

      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 100 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 100 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. 

      IBC-Transparent-Logo-(1)

      Subscribe To Our Newsletter

      Join our mailing list to receive Cryptocurrency investing and trading recommendations to your mailbox.

      You have Successfully Subscribed!

      Tags: featuredtrading
      Share51TweetPin

      Subscribe to get notified on latest posts.

      Unsubscribe

      Related Posts

      Handle crypto Trading Losses

      How to Handle Trading Losses

      by Ramaa Mohan
      February 21, 2021
      0

      Let's talk about how to handle trading losses. The cryptocurrency market, like any other market in the world, is volatile....

      crypto traders 2021

      Top 5 Crypto traders to follow on Twitter in 2021

      by Hitesh Malviya
      February 19, 2021
      0

      Top 5 Crypto Traders to follow on twitter Twitter is a good place to seek free crypto trading advice but...

      featured image

      Different types of cryptocurrency you should know about

      by Nivesh Rustgi
      February 15, 2021
      0

      In this article, we will discuss different types of cryptocurrency which you should know about. A crypto-currency is a digital...

      featured image

      Everything you need to know about Bitcoin IRA

      by Nivesh Rustgi
      February 12, 2021
      0

      In this article, We will discuss Bitcoin IRAs, Laws and regulations, Service providers and future of bitcoin IRAs. The tax...

      featured image

      How to margin trade bitcoin and altcoins successfully

      by Hitesh Malviya
      February 7, 2021
      0

      In this article, we will discuss everything you need to know about Altcoins & Bitcoin Margin Trading from the definition,...

      Load More

      About Us

      We share important articles on blockchain technology here. Our mission is to spread the awareness about blockchain technology to masses through content.

      • Trending
      • Comments
      • Latest
      Top 10 Cheap Cryptocurrencies with Huge Potential in 2021 | Best Penny Crypto Coins

      Top 10 Cheap Cryptocurrencies with Huge Potential in 2021 | Best Penny Crypto Coins

      February 22, 2021
      Top 10 Altcoins to buy on Uniswap – Part 1

      Top 10 Altcoins to buy on Uniswap – Part 1

      February 21, 2021
      non fungible token

      Non-fungible Token(NFT): The Next Big Thing in Crypto Market

      February 18, 2021
      crypto traders 2021

      Top 5 Crypto traders to follow on Twitter in 2021

      February 19, 2021
      TOP TEN altcoins to buy in february 2021

      Top Ten Altcoins You Should Buy in February 2021 – Part 2

      February 9, 2021
      featured image

      Top 10 Low market cap altcoins to invest in 2021

      February 24, 2021
      bitcoin laser eyes

      Bitcoin Laser Eyes, What is it all about?

      February 20, 2021
      A simple guide to understanding FTX Bull and Bear tokens

      A simple guide to understanding FTX Bull and Bear tokens

      February 24, 2021
      featured image

      Top 10 Low market cap altcoins to invest in 2021

      February 24, 2021
      featured image

      Top 10 Blockchain companies in the world

      February 22, 2021
      Handle crypto Trading Losses

      How to Handle Trading Losses

      February 21, 2021
      bitcoin laser eyes

      Bitcoin Laser Eyes, What is it all about?

      February 20, 2021
      Cofounders of Ethereum : The mystery revealed now

      Cofounders of Ethereum : The mystery revealed now

      February 20, 2021
      Top 10 Altcoins to buy on Uniswap – Part 1

      Top 10 Altcoins to buy on Uniswap – Part 1

      February 21, 2021
      • Top 10 Cheap Cryptocurrencies with Huge Potential in 2021 | Best Penny Crypto Coins

        Top 10 Cheap Cryptocurrencies with Huge Potential in 2021 | Best Penny Crypto Coins

        0 shares
        Share 0 Tweet 0
      • Top Ten Altcoins You Should Buy in February 2021 – Part 1

        0 shares
        Share 0 Tweet 0
      • Top Ten Altcoins You Should Buy in February 2021 – Part 2

        0 shares
        Share 0 Tweet 0
      • List of leading partners of Ripple, and How they use XRP?

        137 shares
        Share 137 Tweet 0
      • List of ChainLink Partnerships which skyrocketed the growth of LINK cryptocurrency

        55 shares
        Share 55 Tweet 0

      cointraffic

      ItsBlockchain

      We are India’s first and oldest Blockchain & Cryptocurrency publication platform started in 2016. We are a one-stop destination for technical analysis, cryptocurrency recommendations, and Blockchain technology resources.

      Buying Guides

      • Buy Bitcoins in India
      • Buy Bitcoins in China
      • Buy bitcoins in Russia
      • Buy Bitcoins in Japan
      • Buy Bitcoins in Turkey

      Important Links

      • Home
      • About US
      • Privacy Policy
      • Promote Your ICO
      • Submit post

      Follow Us

      Contact us

      support@itsblockchain.com

      © 2020 itsblockchain.com - Designed and maintained by Fanatic Coders

      No Result
      View All Result
      • About US
      • DEFI
      • Home
      • Newsletter
      • Privacy Policy
      • Promote Your ICO
      • Submit post

      © 2020 itsblockchain.com - Designed and maintained by Fanatic Coders

      Login to your account below

      Forgotten Password?

      Fill the forms bellow to register

      All fields are required. Log In

      Retrieve your password

      Please enter your username or email address to reset your password.

      Log In
      This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.