how to trade options on crypto: 5 Exchanges Where You Can Trade Crypto Options

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how to trade options on crypto

Each options contract has a predetermined date and strike price that can be picked out of a basket of available options on the platform. These strategies are commonly used on options trading platforms, such as the Exchange. Alternatively, for those looking for more insights on options, our article Managing Options With Greeks describes this vital risk management tool for options traders. This is a type of vertical spread strategy that involves the simultaneous buying and selling of options of the same type (puts or calls) with the same expiration date but a different strike price.

Derivatives trading markets are in very high demand and are therefore highly liquid. Research reveals that crypto derivatives reached $600 billion in daily volumes in 2020, alone. Derivatives continue to gain momentum and attract institutional investors and traders alike, keeping the market active and liquid. For example, if a trader purchases a derivative contract and the underlying asset’s price falls, he can offset the losses with gains from his derivatives. Underlying assets typically change in price, which means that the difference between the index price and the price of perpetual futures contracts is typically huge.

Available on both traditional derivatives exchanges and on crypto trading platforms, Bitcoin options have emerged as a popular investment product among advanced crypto traders. Buying a call or put options contract gives you the right to buy or sell an underlying asset. For most option trades, however, underlying assets such as BTC or ETH rarely change hands. In a long call spread strategy, a trader simultaneously buys calls at a specific strike price while also selling the same number of calls at a higher strike price.

Why Trade Crypto Options?

For example, a weekly trade of Bitcoin contracts with each contract amounting to $1 of Bitcoin priced at $10,000 would require 10,000 contracts to open a position worth 1 Bitcoin. This is a call option on Bitcoin expiring on October 30, 2022, at a strike price of 25,000. Most exchanges provide leverage options, with some even providing up to 100x leverage. Remember, though, the more margin you use, the smaller of a market move it will take to wipe you out.

how to trade options on crypto

Driven by institutions, but retail has joined the party, too,” he said. Derivatives can be used to protect one’s crypto portfolio from adverse market movements. Ethereum options are growing even faster, from $709 million in October 2020 to $11.38 billion in July 2022. Your call option is worthless because it gives you the opportunity to buy Bitcoin at $40,000. Options trades on Bybit are settled in USDC, the second-largest stablecoin in circulation. Before accessing the Exchange, please refer to the following links and ensure that you are not in any geo-restricted jurisdictions for Spot Trading and Margin Trading.

If the stock price goes down, you may be assigned and will have to buy the stock at the strike price, but you will still profit from the premium you received. It’s important to note that crypto options are different from crypto futures. Buying an option gives you the right but not the obligation to buy or sell the underlying asset, while futures require you to buy or sell the asset once you engage in the contract.

That’s a result of the crypto markets still being a lot smaller than traditional investment markets. So, it’s worth noting that options are not a completely-risk free method of trading crypto derivatives. The most popular types of derivatives in crypto are futures, options and perpetual contracts.

Step 5: Place your first Bitcoin options trade

It allows traders to have downside protection as the long put gains when the asset price drops. However, the trade-off is that the short call caps potential further gains if the asset price rises. A covered call involves buying an asset and shorting a call on that asset. The strategy is often employed when the asset’s price is not expected to move much. The short call allows for the receiving of some income (i.e., the option premium).

This typically involves filling out a questionnaire in which you demonstrate that you understand how options work and are comfortable with the risks involved in trading derivatives. According to Lennix Lai, director of Financial Markets at OKEx, the current options market is mostly dominated by institutional traders. However, he anticipates a rise in retail options trading over 2021 once more tailored products emerge. Another important thing to consider is selecting a reliable trading platform for crypto derivatives.

This is a bearish strategy because you are betting that the stock price will go down. If the stock price does go down, the put options you sold will expire worthless and you will keep the difference between the strike prices as profit. If the stock price goes up, you may lose money on the call options you bought, but you will still profit from the put options you sold. A bull call spread is an options strategy where you buy call options and sell them at a higher strike price.

Bybit’s advanced trading system is ever-reliable with No Overloads and a 99.99% availability track record since inception. It offers an advanced order system where traders can set TP/SL for entry orders. This online exchange has an API to integrate your current trading application. Investing in cryptocurrencies, decentralized finance (DeFi), and other initial coin offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed.

Trading Bitcoin options is generally riskier than buying and selling Bitcoin in the spot market. Derivatives consider the prices of underlying assets, helping investors minimize portfolio risks. The market also helps to generate market movement signals, providing hints concerning investment decisions and trading strategies. Crypto derivatives facilitate market liquidity, impacting the ease with which traders can open or close positions.

Available Options On Deribit

When the time comes for the contracts to be settled, one trader will need to pay up, depending on whether the price of Bitcoin has gone up or down. Digital currencies continue to disrupt the economy as they gain popularity as assets for investment and as mediums of exchange in financial transactions. Crypto derivatives are a good example of products that have shown rapid growth and continue to do so. And as the crypto market continues to grow, so does the variety of products available within the cryptocurrency space. Let’s say you purchase a call option for Bitcoin with a strike price of $40,000 and an expiration date of October 9th.

how to trade options on crypto

OKEx is a cryptocurrency exchange that provides advanced financial services to traders globally by using blockchain technology. This crypto exchange offers hundreds of tokens to help traders to optimize their crypto derivative strategies. Learn what drives the price of Bitcoin to get an idea of what type of options trading strategy is best suited for the cryptocurrency and for your risk/return profile. The more you learn about the Bitcoin market and Bitcoin options, the more likely you are going to trade options profitably. On Feb. 21, 2021, bitcoin options open interest – the amount of money held in unexpired options contracts – reached an all-time high of $13 billion. An “option” is a type of derivative contract that gives its purchaser the right – but not the obligation – to buy or sell an underlying asset at a set price at (or, in some cases, before) an expiration date.

Options Are More Complex Than Spot Trading

Once an option expires, if it’s “in the money” (profitable), the platform will exercise it automatically and credit the option buyer with the realized option value. A butterfly spread is an options strategy combining bull and bear spreads with a fixed risk and capped profit. Crypto derivative exchanges offer dashboards for trading history, recent trades, and order books. This list consists of paid and open-source tools with popular features and the latest download links. To open an options trading account, you need the same documents as for a standard spot trading account. Since bitcoin does not come in physical form, you can only settle in cash (i.e., in bitcoin) or if the options contract is based on Bitcoin futures, you could receive Bitcoin futures when the contract settles.

  • A trader can either bet on the price of Bitcoin increasing (going long) or decreasing (going short).
  • Complete the onboarding process, which typically involves a Know-Your-Customer (KYC) verification process.
  • Consult with a qualified professional before making any financial decisions.
  • It is important to search for the best crypto derivative exchange before you start trading.

This makes trading the options themselves the preferred method due to cost efficiencies when compared with trading the underlying asset. In a long butterfly spread using call options, a trader combines both a bull spread strategy and a bear spread strategy. Not only is the risk profile of your trade completely different, but there is a range of different aspects to consider when looking at which Bitcoin options contracts to buy or sell. But before you can start trading Bitcoin options, you need to sign up to an exchange that supports crypto derivatives. Buying crypto options can often offer investors a relatively low-cost and low-risk solution for trading digital assets compared to trading crypto futures or perpetual swaps. Like traditional options, crypto options unlock advanced trading strategies and greatly increase the ways you can potentially earn with crypto trading.

An options position can either be in the money, at the money, or out of the money. Should holdings fall below maintenance level (margin), insurance funds help traders to preserve their funds from ADL. A marketplace’s main function is price discovery— the process of constantly finding out the current price of a certain asset.

Crypto options exchanges give you the ability to trade with precision and make larger trades than you’d be able to make with simple spot trading. Crypto options are contracts that allow you to either buy or sell crypto on some future date for a price that’s agreed upon ahead of time. Options allow traders to make money on price movements, insure against losses, take leveraged positions, and more. OKX offers a wide variety of crypto trading types, including perpetual futures and, of course, crypto options.

Tips For Choosing A Crypto Exchange For Trading Options

OKX settles all options trades in the cryptocurrency of the underlying option asset. A trader may choose to use this strategy as a way of protecting their downside risk when holding an asset. This strategy functions similarly to an insurance policy, establishing a price floor in the event that the asset’s price falls sharply.

Likewise, those who chose to “go short” would pay the funding rate to cover the price difference should the perpetual futures contract price be lower than the index price. A trader can either bet on the price of Bitcoin increasing (going long) or decreasing (going short). In either case, the exchange platform will match the trader with someone who went the opposite direction in terms of betting. may not offer certain products, features and/or services on the App in certain jurisdictions due to potential or actual regulatory restrictions. The purpose of this website is solely to display information regarding the products and services available on the App. It is not intended to offer access to any of such products and services. You may obtain access to such products and services on the App. “Since inception in 2016, Deribit has seen well over a 1,000x growth in options.

On the contrary, if the price drops to $30,000 by the time the contract closes, the buyer will have incurred a loss of $10,000. Futures are a popular type of crypto derivative commonly used by institutional investors. Data from futures are typically used to predict future price movements and market sentiment. Under a unified account, you can trade different derivatives all on one place.

For example, when a trader successfully exits a bitcoin option trade on OKEx, they receive their profits in bitcoin at settlement. An iron condor is an options strategy where you sell call options and put options with different strike prices. This is a neutral strategy because you are betting that the stock price will stay within a certain range. If it does stay within the range, both the call options and put options you sold will expire worthless and you will keep the premiums as profit. If the stock price goes outside of the range, you may lose money on the options you sold, but you will still profit from the options you bought. A bear put spread is an options strategy where you buy put options and sell them at a lower strike price.

Mary Davis
My name is Mary Davis. I am successful broker. I want to share my experience with you through tutorials and webinars. For any questions of interest, please contact us by e-mail: [email protected]. +1 973-709-5130


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