Guide to Bitcoin Options Trading

Bitcoins and options should not differ in terms of risk. While Bitcoin investments are widely seen as a huge gamble, options trading can be quite safe for those who know what they are doing. In our Bitcoin options trading guide, we discuss what happens when you combine the two.

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Bitcoin is the original cryptocurrency. In 2009, it was created by an unknown person or group called Siashi Nakamoto. Cryptocurrency is a special form of digital and electronically portable currency based on cryptographic protocols and algorithms.

The basic features of most cryptocurrencies are:

Their supply is not determined by a central bank, but by a publicly available algorithm.
Cryptocurrency transactions are executed directly between participants. In other words, they are decentralized and do not require intermediaries.
Transactions take place anonymously.
The reasons for the increase in cryptocurrencies, in this case Bitcoin, and in particular the Bitcoin options trade, can be broadly divided into financial, technological, socio-economic and psychological aspects.

Financial: Let’s start with the obvious reason: money. People have seen that early adopters of Bitcoin have become millionaires in less than a decade and want a piece of this action. It’s that simple.

Technical: With the rapid development of intelligence and smart contracts, fintech companies are striving to offer new and increasingly sophisticated peer-to-peer financial products. Their goal is for their technology to take over the role of financial intermediation and essentially eliminate the need for banks.

Socio-economic: Believe it or not, cryptocurrencies have a strong case of humanitarian use. The speed of transactions, low fees and anonymity of participants mean that the Bitcoin exchange can be a more stable and democratic option for many people than a bank. In countries where the economy is unstable or a large percentage of the population is left without a bank, cryptocurrencies can have a significant impact on people’s lives.

Psychological: The reputation of financial institutions (primarily banks) and financial markets has been significantly compromised since the 2007 and 2008 global financial crises. The undermining of public confidence in traditional finances, the “foreign exchange wars” waged by central banks during periods of weak economic growth, and geopolitical tensions have prompted many investors to transition to a fast-growing cryptocurrency market.

Bitcoin began to be bought and sold for US dollars with the advent of special trading platforms such as Mt. Gox in Tokyo, which allowed for an exponential increase in the number of Bitcoin transactions. In the years since, a number of popular services have emerged that accept BTC as payment. Some such notable examples are Microsoft, Newegg and airBaltic.

Cryptocurrencies are another way to buy real goods and services with gift cards. Since 2013, even Bitcoin ATMs have appeared. These real machines make it easier to buy and sell cryptocurrencies for traditional money.

Bitcoin options are derivative financial instruments that give their holders the right, but not the obligation, to deliver Bitcoin at a specified price, with an agreed expiration date / deadline. This price is called the strike price, and the expiration date is also called the expiration date. To buy the option, you have to pay a premium, which is usually cheaper than the cryptocurrency itself.

There are two types of options: call options and sell options. A call option is a contract between a buyer and a seller that gives them the right to purchase their assets at a fixed price. A put option gives you the right to sell an investment at a pre-determined price.

The crypto derivative trade has an ominous ring; it seems very complex and unknown. A look back at history shows that contracts such as options have been in place since at least 332 BC. In this first case, a Greek philosopher purchased the rights to harvest olives.

As far as complexity is concerned, it is true that options trading should not be taken lightly. You should study the field fairly thoroughly and remain informed of any events that may affect the price of the underlying asset that is the subject of the option contract.

Nevertheless, trading options options with the right skills and knowledge can be quite a penny with Bitcoin options trading.

To trade options, you need to know the terms “bear” and “bull”. Of course, we are not talking about actual animals; these terms came from the way they attack their opponents.

The bull leaves its horns in the air while the bear sweeps its paws. These actions have long been linked to fluctuations in financial markets. When you want to say that a market is growing and economically sound, you call it a bull market. If the market recedes, it is called a bear market.

If you get into Bitcoin options trading, you’ll probably come across the terms “bearish” and “bullish” as well. Option traders use these terms to quickly express their market sentiment. Market sentiment is simply the general attitude of investors towards a particular security or the entire financial market.

There are many tools specifically designed to measure market sentiment. Investors use them to create their own trading strategy. For example, some traders prefer to follow the prevailing consensus and sell when everyone else does. Others use this data to find undervalued securities and buy them cheaper.

When dealing with cryptocurrency options, this type of information is exceptionally valuable because the behavior of the cryptocurrency market can be very irregular – much more so than traditional markets. Traders tend to react more strongly to the rise and fall of their chosen virtual money than to other instruments.

There is no mystery behind it; people only react naturally to feelings of insecurity, which means something new. After all, with something as elusive as Bitcoin, Ether, or Litecoin, it’s natural to be at least a little worried about the things ahead.

Before you dive into the world of cryptographic possibilities, you need to do a little research and decide where you want to trade. Unfortunately, your choices will be limited as there are only a few cryptocurrency derivative platforms to choose from.

The most popular are Derbit, FTX, LedgerX, IQ Option and Quedex. We recommend LedgerX to U.S. traders as it is headquartered in New YorK City and regulated by the U.S. Commodity Futures Trading Commission (CFTC).

Option styles
Once you’ve selected a platform, you need to get used to a small but important detail about options trading. There are two options: European and American.

European-style options can only be exercised on the expiration date. However, you can buy or sell the contract itself at any time before the option expires. American style options can be exercised at any time before expiration.

This may seem like a small detail to you now, but knowing such differences is often the main factor that separates successful transactions from failures.

Trading strategies

In this section of our Bitcoin Options Trading Guide, we focus on getting to know some basic trading strategies.

Covered call
The covered call strategy involves retaining the BTC and at the same time selling a call option. Here, your goal would be to generate income in the form of a premium.

While we’re the object of the catch, you need to be aware of the term “hodl” so you don’t get confused when you see it. No, this is not an abbreviation; this cryptographic slang became popular in the community back in 2013 when a user of the Bitcointalk forum accidentally wrote “gaping” instead of “holding”. Today, every cryptographer writes the word “hodl” instead of “moon”.

Protective put
Bitcoin’s options defense sell strategy even requires BTC, but this time it buys one put option at a time. Many traders use this to protect themselves from risks. You should apply it if you feel bullish about your asset but are afraid that its price may drop suddenly.

Riding seat
As the name suggests, the transition strategy is tantamount to not being able to decide between two chairs and then choose both. In our circumstances, this means that both the put and call options must be purchased with the same strike price and expiration date.

This Bitcoin options trading strategy is used when the trader suspects that there will be a large change in the price of the asset but is not sure in which direction it will change. Converting trade results in a profit as long as the asset moves in both directions.

The rapid rise and popularity of the cryptocurrency market has opened up a number of dilemmas about the potential benefits and risks. While some believe that cryptocurrencies and the technology behind them are tectonically transforming the world of economics and finance, others say it’s only a matter of time before cryptocurrencies completely collapse.

With that in mind, it’s hard to say if trading Bitcoin options is a good idea. On the one hand, it is definitely not the safest tool you can invest in. On the other hand, this type of trading can be very lucrative if you know what you are doing and take precautions.

In summary, you have to decide for yourself whether the reward is worth the gamble.

What is the best options trading strategy?

One of the best options trading strategies we offer is the hedged buy strategy. It’s simple but effective. This only entails the conclusion of contracts for the shares he owns. Since you will be selling, you will receive an immediate fee.

Can you get rich by trading Bitcoin?

You may technically get rich by trading Bitcoin, but you should know that the chances of this happening are low. That’s not to say you can’t profit from it, but because of Bitcoin’s high volatility rate, losses are as common as gains.

Why is trading options a bad idea ??

Trading options are not necessarily a bad idea; in fact, it can be quite lucrative to have the necessary knowledge and diligently gather information for possible price fluctuations in the chosen asset. Nevertheless, trading is not risk-free as you can never be sure that your predictions will be correct.

How do I trade Bitcoin options?

Our Bitcoin options trading guide addresses this topic in detail. In short, you should first learn as much as you can about the topic and then choose the cryptocurrency derivative platform that works best for you.