As the Bitcoin market grows, the number of ways to trade the cryptocurrency continues to increase. Bitcoin options investment is another exciting derivative of the Bitcoin market that gives you the right to take a speculative position on the future possibilities of the market price.
The Bitcoin options is an excellent choice for traders and investors who know how the market works. Just like the Bitcoin futures derivative product, it often requires a contract between two parties; an investor and a trader. The contract gives them the right to sell or buy Bitcoin at a specific price and date.
What makes this Bitcoin derivative addition popular amongst traders as opposed to other forms of the derivative is the limited amount of risks attached. It is a relatively low-risk and low-cost option for many investors interested in digital trading assets. Considering how volatile the cryptocurrency market is, it is safe to say that this financial derivative is indeed a beautiful concept. It allows you to take better advantage of the market volatility, profiting off the unstable changes in prices without bearing the loss of holding the cryptocurrency itself. Learn more about the features attached to Bitcoin options and the advantages of the derivative in this post.
Bitcoin Options Explained
A Bitcoin option can be defined as a contract that gives you the right but not the obligation to buy or sell Bitcoin at a specific price called the “strike price” and a speculated time known as the expiry date. Options trading is mainly referred to as buying Bitcoin because buying an option (premium) comes at a lower cost than purchasing the asset. This means you can get a chance and leverage to take a speculative position on the market price movement by buying an option at a small cost called a premium.
The major highlight of the Bitcoin option chain derivative is that it allows you to easily trade on Bitcoin volatility without buying the asset or taking complete ownership. Furthermore, for investors and traders who understand how Bitcoin works, Bitcoin options are a good choice. Aside from Bitcoin’s extreme volatility, which results in enormous profit margins, losses are restricted to the premium paid to open the contracts. The limitless profit potential and capped losses are two of the most appealing qualities that make Bitcoin options trading very popular in the cryptocurrency market.
Features Of The Bitcoin Option Chain Investment
There are several features and terminologies that you will encounter in options trading, and you must get yourself familiar with these concepts. Here are some basic features of the Bitcoin option chain derivative.
Premium Or Down Payment
The premium, or down payment, is a small fee that the contract holder must pay to have the right to take a speculative position in the options trade. If, after the date expires, the holder does not exercise the trade, then such person would lose the down payment or premium paid during the trade. The premium is usually subtracted from the entire payoff, and the investor is given the remainder.
If the option owner decides to exercise the contract, this is the rate at which they can purchase or sell the Bitcoin. The strike price is set and does not fluctuate or cannot be changed for the duration of the contract’s validity. It’s vital to remember that the strike price isn’t the same as the market price, as the latter varies throughout the contract’s duration and the former is fixed.
As there is an expiry date for every contract, there is often one on options trading. It is often unchanged until the contract is validated. If the options are not exercised within the agreed date, then the options expire.
Settlement Of An Option
No securities are bought, sold, or exchanged when an options contract is written. When the holder exercises their right to trade, the contract is settled. The contract will automatically dissolve if the holder does not exercise their right until maturity, and no settlement will be required.
Advantages Of Bitcoin Option Chain Investment
Compared to other Bitcoin derivatives, options come with a broader range of advantages. From the advantages of low risks, and expenses or trading cost to higher leverage. There is indeed a lot more to benefit from Bitcoin option chain investment. Let us discuss each of these advantages below.
Because the potential loss (the premium) is known ahead of time, long option positions are less hazardous when compared to other derivatives. Let’s consider Future contracts as an example. They are often valued based on their underlying assets, so it’s impossible to predict how much money you’ll make or lose. The situation is entirely different with options; your losses are well known ahead of time and can be predetermined.
As we’ve earlier established, the premium fee for setting up an options contract is often smaller than other margins. For example, you can set up an options contract for a price as low as $50. On the other hand, a derivative such as futures would require that you put up an Initial margin of close to a thousand dollars on the contract.
There are many options contracts for traders to explore, and all of these options are listed with different strike prices and expiry dates. This means that there is a long list of premium options available for traders to choose from, and ultimately you have control over the amount of leverage you want to use.
For every trader or investor in the Bitcoin or cryptocurrency market, the primary goal is to make profits. With Bitcoin option chain, this end goal has become more achievable than it used to be. Despite how volatile the market is, the Bitcoin options provide more opportunities of making money than to lose money. However, it is essential to note that it is not a get-rich-quick scheme, as profitable as it might be. To maximize your gains, you need to have a lot of patience.