How To Buy Options On Bitcoin
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All the terminology regarding bid/ask spreads, multi-leg spread trading, and the general mechanics of the market are the same as equity options. Just as with stock options cleared by the Options Clearing Corporation, the CME Clearing Corp acts as the counterparty to all transactions, guaranteeing the trades by requiring margin deposits. There is no counter-party risk.
Note: Unless you are comfortable with terms like calls, puts, delta, and implied volatility, it is better to gain a thorough understanding of financial options before investing in this type of bitcoin derivative.
To speculate on the price of bitcoin hitting $10,000 in the next three months, you could purchase bitcoin (BTC) and hold it for that time period, or you can purchase bitcoin options.
Typically, retail traders rely on leveraged futures positions which are highly susceptible to forced liquidations. However, trading Bitcoin options provide excellent opportunities for investors aiming to maximize gains while limiting their losses.
Using multiple call (buy) options can create a strategy capable of returns six times higher than the potential loss. Moreover, these can be used in bullish and bearish circumstances, depending on the investors' expectations.
The long butterfly strategy allows a trader to profit even if Bitcoin's price remains flat. However, it's important to remember that options have a set expiry date. This means the desired price outcome must happen during a specified period.
The Bitcoin options were set for the April 29 expiry, but this strategy can also be used on Ether (ETH) options or a different time frame. At the time of writing, Bitcoin was trading at $47,370 and although the costs will vary, their general efficiency should not be affected.
The suggested bullish strategy consists of buying 7.3 BTC call (buy) options with a $46,000 strike to benefit from a price increase. Meanwhile, selling 16 BTC call (buy) options at 50,000 creates a negative exposure above that level.
There is no way to know when the sentiment will change and trigger a Bitcoin bull run, but for traders who believe BTC will reach $28,000 by August, there is a low-risk options strategy that yields a decent return with limited risk.
The Iron Condor consists of selling the call and put options at the same expiry price and date. The above example has been set using the August 26 contracts, but it can be adapted for other timeframes.
To initiate the trade, the investor needs to short 3.4 contracts of the $26,000 call option and 3.5 contracts of the $26,000 put option. Then, the buyer needs to repeat the procedure for the $30,000 options, using the same expiry month.
Summary: The best way to trade Cryptocurrency Options is through a licensed and regulated trading platform that offers options & other derivative contracts. With this method, traders can deposit fiat currency or cryptocurrencies to safely trade a range of crypto derivatives and options.
To help traders do more due-diligence on crypto options trading platforms, we have put together a list of the Top 5 for you to compare. Our ranking methodology considers a wide range of factors including platform security, options & derivatives variety, liquidity, fees and the overall user experience:
Deribit is the best platform for crypto options due to its extensive range of trading options, high leverage, robust security, and risk management features catering to institutional and sophisticated investors.
Deribit is the go-to destination for institutional and sophisticated investors seeking a top-tier Crypto Options Platform due to its focus on futures and options trading, and the provision of an extensive range of trading options with high leverage. The platform is the largest and most popular crypto options exchange and currently accounts for over 90% of the open interest in BTC and ETH options with over $500 million in daily volume.
Bybit is a leading cryptocurrency derivatives trading platform and offers options contract