[REQ_ERR: 404] [KTrafficClient] Something is wrong. Enable debug mode to see the reason. How to buy bitcoin put options - juan520.com

How to buy bitcoin put options

Yes. For one thing, they are “European-style” options, which means they can only be exercised on the expiration date. Typically, options in the United States can be exercised at any point up to the expiration date. However, you can still buy or sell the contract itself prior to the expiration date.

In addition, stock-based options contracts are based on lots of 100. So one option contract gives you the right to buy or sell 100 shares of the underlying stock.

But the LedgerX Bitcoin options contract size is one Bitcoin. Even so, the high price of Bitcoin makes the cost of Bitcoin options much higher than what you typically see in options contracts based on stocks.

Options contracts on very large price moves can rise into the tens of thousands of dollars.

The Basics of Options: Calls and Puts, Buying and Writing 🛠️

Let’s dive a bit deeper into calls, puts, writers and buyers. All of these are the key components of options trading.

There are two types of options contracts – puts and calls. Calls give the buyer the right to buy an asset at a certain price – called the strike price.

Puts and calls allow investors to speculate on price movements and hedge their portfolios. To put it in plain language, the buyer makes money when the underlying asset price is higher than the strike price.

Now that we’ve gone over that again, let’s take a closer dive into how the most popular options trading strategies work.

The Long Call: Buying a Call Option 👍

Buying a call option means a trader believes the price of the underlying asset will go up. Although one could buy the asset itself, this will also put them directly in the line of the asset’s risk; volatile assets make this an especially risky task.

However, a trader looking to buy a call has a capped risk of the premium price they pay to buy the option. With that, the profit potential is derived from how much the spot price goes over the strike price plus the premium. For example, let’s say the strike price is $1,000 and the premium is $100. Should the spot price reach 1,200, then the profit will be $100.

In addition to buying a call, traders also have the option to sell, or write, a put option. Selling a put option requires traders to agree on a strike price, should the buyer exercise their right to buy or sell. Should the spot price go higher than the strike price, buyers won’t sell, and the writer will make a profit.

If traders are less aggressive (or bearish) on the asset, they might buy a put option which gives them the option to sell at the strike price. This way they won’t need to short the stock. The long call works the same way, offering limited risk.

Another option, should you think the price of an asset will go down, is to sell/write a call option. When doing this, an agreement is made between traders to sell the asset at the strike price should the buyer exercise their right to buy.

This strategy is similar to the short put, its aim is to accumulate the premium along with the option, as buyers decide not to exercise the option. This usually happens when the spot price is below the strike price. When the spot price is above the strike price, the writer sells the asset at a cheaper rate. Traders typically use this strategy within a covered call strategy.

Are There Options on Bitcoin Futures? 📝

Yes. Options on Bitcoin futures finally launched in January 2020 on the Chicago Mercantile Exchange (CME). Traders have been pleading for exchange-traded options on Bitcoin, and in the first quarter of this year, they arrived!

Options and futures are slightly different in that the owner has the right at the expiry date of the option to go long in the Bitcoin futures contract. The owner of a put option has the right to go short on the Bitcoin futures.

Similarly to Bitcoin options, these come at a high price, and are seriously expensive. Options on Bitcoin futures imply a significant amount of volatility.

🏅 Ready to start trading? After learning about options, the next step is to start trading with one of the top options trading platforms. Many offer a free demo account, so you can start practicing without any risk.

⚡ Can beginners use derivative exchanges?

Yes, certainly, beginners can use derivative exchanges. Still, it is better to get some experience with easier trades before moving on to derivatives.

Bitcoin Options Guide – The Bottom Line

In summary, Bitcoin options can be a great tool for speculating on the future value of Bitcoin. Whether that’s on a weekly, monthly, quarterly, or annual basis – these options contracts only require a premium upfront.

As such, you can potentially make large gains by risking a small amount. In turn, if your speculation is incorrect, the most you can lose is the premium itself.

On the flip side, Bitcoin options are hugely complex and there is a lot to understand before you take the plunge. This includes understanding the basics of calls and puts, strike prices, premiums, and the difference between European/American-style contracts.

Bitcoin Options Trading – Real Examples

Although I am going to discuss the best platforms to consider later on, I wanted to dedicate a section to some real-world examples so that you can get a 360-degree view of how a Bitcoin options trade really looks.

After all, you might feel somewhat intimidated when you first see the sheer amount of data that Bitcoin options trading platforms display.

So, in the screenshot above you will see a list of dates in the left-hand panel. This starts on November 25th (24 hours from today) right up to 24th September 2021 (10 months from today).

In my first example, I am clicking on the latter. In simple terms, this means that I need to predict where the price of Bitcoin will be on 24th September 2021. As you can see from the screenshot below, I am given a range of strike prices to choose from.

This includes:

  • $8,000
  • $16,000
  • $18,000
  • $20,000
  • $24,000
  • $32,000
  • $40,000

As I discussed earlier, the premium that you need to pay is heavily dependant on the strike price that you opt for. Think of it like this. What is more likely – Bitcoin being worth more than $8,000 in 10 months’ time, or being worth more than $40,000 in 10 months’ time?

It goes without saying that the former is significantly more likely – meaning that you will need to pay a much higher premium to access the market.

If you did purchase calls on the $8,000 strike price, this means that your premium will amount to 0.5895 BTC.

This might not mean a lot to you, so let me give an example of two potential outcomes of this trade:

  • To clarify, you are purchasing call options at a strike price of $8,000 at a premium of 0.5895 BTC
  • The contracts have an expiry date of 24th September 2021
  • To keep things simple, let’s say that you let the options run their course until the above date
  • When they do expire, Bitcoin is worth $20,000
  • So, that’s a $12,000 profit on one call option contract. But, we need to subtract the premium – which was priced in Bitcoin at 0.5895 BTC
  • In theory, this means that the premium amounts to 58.95% of your profit – leaving you 41.05%
  • Of $12,000 – that’s an all-in profit of $4,926

As you can see from the above, I had to quantify my profit in percentage terms. The reason for this is that while the premium was quoted in BTC, my profit was based on the amount of growth in dollar terms.

  • Now let’s imagine that my Bitcoin options closed when the digital currency was $7,500
  • This is just below my strike price of $8,000 – meaning that the options expired worthless
  • In turn, I lost a total of 0.5895 BTC – which is the premium that I initially paid to access the market.

Now, you would think that the above example illustrates a safe bet, so to speak. After all, at the time of writing this guide Bitcoin is worth over $18,000. This is why the premium was so high. However, there are no guarantees with Bitcoin as it can move up and down in a parabolic manner.

Now let’s look at a real-world example of an options trade with a more profitable upside. This time, we’ll stick with the same expiry date of September 2021 – but at a strike price of $32,000.

  • As you can see from the screenshot above, I am being quoted a premium of 0.1540 BTC
  • This is significantly less than the 0.5895 BTC premium I was quoted on the above strike price example of $8,000.
  • This makes sense, as the odds of Bitcoin surpassing $32,000 in the next 10 months are much higher.
  • Nevertheless, let’s say that you purchase 1 call option as you think Bitcoin will be worth more than $32,000 before September 2021
  • When the options expire, Bitcoin is worth $40,000
  • That’s a profit of $8,000 on your 1 contract – less the premium
  • In percentage terms, the premium amounts to 15.40% – so that wipes off $1,232 from our profit
  • All in all, we made $6,768

If, however, Bitcoin did not surpass the $32,000-mark, you would have lost your premium of 0.1540 BTC.

All of the examples I have given in this Bitcoin options guide thus far have focused on call options. With that in mind, I am now going to give you a real-world example of a put options trade that is available right now.

As per the screenshot above, this particular Bitcoin put options market has the following specifications.

  • The put options have an expiry date of 29th January 2021
  • The strike price is $28,000
  • The premium is 0.4620 BTC
  • To keep things simple, I’ll use the current BTC/USD exchange rate given by the platform – meaning that the premium amounts to $9,037

You are purchasing 1 put option, meaning that you think Bitcoin will be worth less than $28,000 when the contracts expire at the end of January 2021.

  • Let’s suppose that when the contracts expire, Bitcoin is priced at $11,000
  • As such, this is $17,000 less than the strike price of $28,000
  • But, we also need to subtract the premium of $9,037
  • This would leave you with a profit of $7,963

What time do bitcoin options expire?

Typically, bitcoin options expire on set monthly date in blocks of six consecutive months, with two extra expiries set for December. If the six months includes December, then there will only be one extra December contract.

When options contracts expire, it can have a huge impact on the spot price of bitcoin as investors close their positions and take new ones. For example, on March 26 2021, a record $6 billion worth of bitcoin options contracts expired, and the price subsequently rose following bullish market sentiment.

* Currently, FOREX.com does not offer bitcoin options. Cryptocurrency contracts are available through our affiliate FuturesOnline, additional information regarding the specific products can be found on the FuturesOnline website.

Please review the following Investor Advisory Notices relating to Virtual Currencies: NFA Investor Advisory – Futures on Virtual Currencies Including Bitcoin and the CFTC Customer Advisory: Understand the Risks of Virtual Currency Trading

How Do You Trade Bitcoin Options on LedgerX?

To trade Bitcoin options on LedgerX, you must be able to collateralize the trade. So to buy or sell put options, or to buy a call option, you need to deposit U.S. dollars. To sell a call option, you need to deposit Bitcoin.

LedgerX, to its credit, allows a full spectrum of Bitcoin options trading. You can both buy and sell puts and calls. The interface is fairly straightforward. On the main Omni trading screen, you can see any balances you have in your account at the top of the screen.

In a window below that information, you’ll see the current options contracts available organized by expiration date, most recent first. Clicking on a price brings up a window in which you can enter the number of contracts you’d like to buy or sell and how much it will cost you.

Then you can enter the quantity of contracts (the total price is calculated for you automatically), and if you’re happy with what you see, submit the order.

Clicking on the word “Bitcoin” at the top of the main trading window switches out the list of options trades for a window in which you can buy or sell Bitcoin. But you can only buy or sell in increments of a full bitcoin.

How Bitcoin Options Differ from Other Options? 🤔

First and foremost, these options are what we would call European-style options. That means that you can’t exercise them before the expiry date. However, you can buy or sell the contract ahead of the expiry date.

Options contracts on stocks are based in the 100s, so you will have the right to buy or sell 100 shares of a stock – obviously, you can’t buy or sell 100 bitcoins. Options differ from stocks in many ways, especially since options contracts can reach tens of thousands of dollars. On top of that, Bitcoin’s high price means that these options contracts are even more expensive than the regular ones.

💡 Considering alternatives? If you’re looking for something a bit more cost efficient, stock trading might be the way to go. Take a look at our report on the leading online stock brokers to get started.

How do Bitcoin options work and should you trade them?

In terms of core function, Bitcoin options on Binance work as described above, with a few key notes[2]:

  • Expiration date: The available expiration dates for trading Bitcoin options on Binance are: 5m, 10m, 30m, 1hr, 4hr, 8hr, 12hr, 1d.
  • Underlying asset: Since the underlying asset is BTC, therefore the trading quantity is defined in BTC.
  • Premium: The premium is paid in USDT, and is deducted from the Binance Futures wallet balance.
  • Options: The options on Binance are American options.

In order to buy options on Binance, you will need a Binance Futures account, which can be easily activated. Once a Binance Futures account is created, you will need to transfer funds into your Futures Wallet from your Exchange Wallet, after which you can begin buying options.

Note: The Binance Options account is tied to the Binance Futures account, so it is important to exercise caution with options trading if you have open futures positions.

Visit Binance Now

Should you trade them?

It depends. Usually, options are used for risk management. So, in the world of cryptocurrency, in this case Bitcoin, options could benefit miners for example, since by buying puts they can cover their losses in case the price of Bitcoin goes down. If you have invested in Bitcoin in one way or another, you can find an options strategy that could help protect your investment.

Ohterwise, if you want to do speculative trading, then buying options is a safe way to start since you are not obligated to buy or sell, therefore, your losses are limited to the premiums you pay. In a way, the experience you gain is paid in premium fees.

Deribit – Best All-Round Bitcoin Options Trading Platform

The real-world screenshot examples I gave above were taken from Deribit. This platform is focused exclusively on cryptocurrency derivatives and offers both Bitcoin futures and options. I like Deribit for several reasons.

In terms of its Bitcoin options markets, the platform offers heaps of contract durations. This runs from daily, weekly, monthly, quarterly, and right up to 10-months. As such, Deribit is great if you want to purchase longer-term options.

Additionally, each of the aforementioned contract durations comes with heaps of strike prices. In the example I gave earlier on 10-month contracts, this varied from $8,000 to $40,000 – which gives you plenty of flexibility to deploy an options trade that meets your requirements.

In terms of minimums, you can purchase from just 0.1 BTC of an options contract. As such, if the premium on your chosen market has a USD-value of $4,000 – you would need to outlay $400. You can, however, also apply leverage to your options trade – meaning that your financial outlay can be reduced by a considerable amount.

There is plenty of liquidity at Deribit, too – so you should never have any issues entering and exiting the market. However, I should make it clear that Deribit also comes with its flaws. At the forefront of this is that the platform only hosts European-style options.

As I mentioned earlier, this means that you need to wait for the contracts to expire before you can realize your profit or loss. In other words, you can’t offload your calls or puts before they expire. Additionally, Deribit does not accept fiat currency deposits. Instead, you need to fund your account with Bitcoin.

If you don’t have any Bitcoin to hand, you will first need to buy some and then transfer it over to your Deribit account. In terms of fees, you will initially pay a commission of 0.03% of the underlying contract value. When the contracts expire, you then pay a settlement fee of 0.015%.

Finally, Deribit is not regulated. After all, it allows you to trade cryptocurrency derivatives with leverage. The platform does, however, note that it keeps 99% of its Bitcoin holdings in cold storage. The balance is kept in hot wallets to facilitate withdrawal requests.

Trade on Deribit

Bitcoin Options – European vs American

Much like in the case of futures contracts, Bitcoin options come in two key forms – European or American.

If you purchase European-style Bitcoin options, then you have no flexibility in closing the position early. Instead, you need to wait until the options expire. As you can imagine, this is a huge hindrance from a risk management perspective.

  • For example, you are unable to limit your potential losses by closing a position before the contract expires worthless.
  • Additionally, you are unable to lock in your profits if your European-style contracts surpass the required strike price before expiry.
  • It is for this reason that I would suggest sticking with American options.
  • This is because you can exit your Bitcoin options trade at any time between the point at which you place it and the date on which the contracts expire.

On the other hand, I should make it clear that the premium on American-style Bitcoin options is going to be higher than its European counterpart. Once again, this is because you have the luxury of being able to offload the contracts before they expire!

Leave a Reply

Your email address will not be published.