Bitcoin Options – The Complete Guide

Bitcoin options offer a new and exciting way to take a stand on the famous cryptocurrencies. Read our one-page guide to learn what Bitcoin options are and how they work.

According to data from  Skew in June 2021 , Bitcoin (BTC) daily options volume has surpassed over $6 billion so far. As demand for the cryptocurrency grows with price volatility.


What are Bitcoin options?

Bitcoin options allow you to trade based on the volatility of the cryptocurrency without ever having to own the underlying asset. As Bitcoin is a notoriously volatile market – famous for its 303603% gain between 2013 and January 2021. It followed an  exponential institutional interest increase  throughout 2019 and 2020.

Read more about what are BTC options trading and the guidelines for trading in Bitcoin options

The vocabulary used in options trading is the same regardless of the specific market in which you trade, but it is still important to understand the key concepts before you trade in Bitcoin options.

Holding and writing options

In an option contract, there are two key terms: the ‘holder' or buyer and the ‘writer' or trader. This applies to both put and call options – meaning you can take a long or short situation with either type of choice.

Bitcoin call options

Buying Bitcoin call options gives you the right, but not the obligation, to buy a particular Bitcoin unit at a fixed value (the strike price) on or before the expiry date. You would buy a call options on the off chance that your expectation of the market price would rise.

On the off chance that your expectation was correct, and the market cost extended over the strike of the bitcoin options, you would buy the options at the predetermined cost. How far the base of bitcoin value rose past the strike cost, would affect how much benefit you would make from the exchange.

On the off chance that your expectation was off base, and the cost of bitcoin dropped earlier, you could leave the choices contract terminate useless, and simply lose the premium you paid to open the exchange.

If you had opted to buy a call bitcoin options contract earlier, you would make the commitment to sell a predetermined number of bitcoin, at the strike cost, at the hour of expiry. You would do as such in the event that you would accept the hidden market costs or see little unpredictability.

In any case, if the market cost rose and the buyer executed the put options, you would have to sell your Bitcoin and you would limit the benefit you could get from your current holding.

Bitcoin put options

Buying a bitcoin put options gives you the right, but not the obligation, to sell a certain amount of bitcoin at a fixed price, on or before the expiry date. You would buy bitcoin put choice on the off chance that you expect the market should drop in cost.

On the off chance that your expectation was correct, and the bitcoin price dropped below your chosen strike value, you could sell your bitcoin options at a more significant cost than the new market value. How far the bitcoin price dropped below the strike cost, would affect how much benefit you would make from the exchange.

In the event that your expectation was wrong, and the bitcoin price went up earlier, you could have the  options contract terminated and you would simply lose the premium.

Then again, on the off chance that you choose to put together a put bitcoin options, you would make the commitment to buy bitcoin at a particular price, on a particular date. You would do as such on the off chance that you would see the instrument cost rise, and were happy with taking responsibility for the BTC being priced not too far away.

Be that as it may, if the cost in the market drops and the buyer executes the put choice, you should buy bitcoin at a possibly higher price.

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The terms used to describe the factors that influence the price of an options – they determine whether you will pay more to open an options contract (or receive more in the case of writing options).

  • Delta measures how sensitive the price of an options is to a movement of one point in the underlying BTC price.
  • Gamma measures how much the delta of the bitcoin options moves for each one-point movement in the underlying bitcoin market.
  • Theta measures how much the price of an options decreases over time. An Bitcoin options with a high theta will be closer to expiry.
  • Vega measures the options sensitivity to the implied volatility in the underlying bitcoin market, and how much the option's premium will change for every 1% change in volatility. Since bitcoin is such a volatile asset class, vega has a significant impact on options pricing.
  • Rho indicates how sensitive the price of an options is to changes in interest rates.

Bitcoin options strategies

There are distinctive bitcoin options techniques that can be used based on your inspiration of trading – regardless of whether it is to guess at the cost of bitcoin, or fence against any danger to a current BTC holding.

For theoretical brokers, there is a range of alternative methods that can be used to exploit the unpredictability of choices. For example, a ride choices procedure involves at the same time buying and selling an equivalent number of Bitcoin puts and calls with a similar strike cost and a similar expiry date.

The idea is that the benefit of one position would offset the shortfall on the other, giving you a net advantage – this means you could exploit the unpredictability of Bitcoin, taking little account of the direction the market is moving. Nevertheless, if the shortfall of one bitcoin options is greater than the increase to the next, you would have an overall shortfall.

The most recognized options system for supporting a current holding is a secured call – this includes putting together a call alternative for a similar number of BTC that you effectively hold. On the off chance that market costs fall, the short call alternative would balance out some of the setbacks for your BTC holding. In the event that market costs expanded, at that point you would almost certainly need to sell your holding, but you would have earned the options premium.

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