Many investors, including cryptocurrency, unaware of the existence of the options on the digital currency. However, they can be a great way to play price changes, limiting risks. Here’s what you need to know about cryptocurrency options.
How cryptocurrency options
Technically cryptocurrency options are designed the same as any other. The main difference is related to the lack of regulation of the cryptocurrency space. At the moment, many leading financial institutions believe digital currencies are new, untested and unstable. As a result, the trade CryptoStream — including options — remains largely outside investment and financial mainstream.
And yet cryptocurrency options do exist. And they give investors a new, potentially lucrative way to participate in the cryptocurrency market.
The advantages of option trading
A call option gives the investor the right to buy or sell cryptocurrency at a predetermined price within a specific period. It is important that the option does not oblige you to buy or sell, and gives you the opportunity to make a transaction at any time prior to the expiration date.
Traditional financial markets options are used to limit the risks and make a profit. Buyers of options hope that the price of the asset will rise or fall by the deadline. It is important that the potential loss is limited to the amount of premium paid.
How to work cryptocurrency options
Options trading is different from trading in cryptocurrencies. In the ordinary course of trade an investor can buy or sell coins and tokens at any time. It is obvious that he hopes to sell the cryptocurrency more expensive than bought.
Options this is not the case. They operate within a limited, predetermined period of time. And the price of the underlying asset already fixed.
Depending on the position, the investor hopes that the bitcoin will rise or fall in price against a fixed price. This must occur before the expiry of the option.
Now that you know the basics, let’s move on to some important notions and concepts from the world of options trading that you need to know.
A call option
A call option gives the holder the right to purchase cryptocurrency at a predetermined price before the deadline.
Buying a call, the investor hopes that the bitcoin will rise in price over a given period of time. If that happens, he can buy it at the price of the option (which in this case will be below market) and immediately sell on the exchange at a higher cost.
A put option
Unlike a call option, a put gives the owner the right to sell cryptocurrency at a predetermined price within a certain period of time.
In this case, the investor hopes that the cryptocurrency will become cheaper. If that happens, he will be able to sell it at a price much above the market, making a profit.
The future of cryptocurrency options
It is important to note that some exchanges already offer scriptoption. However, the sector of derivatives linked to digital currencies, is still at an early stage of development.
The growth of interest from influential financial institutions such as Goldman Sachs (the Bank is considering creating a cryptocurrency securities), you can expect increased availability and prevalence of scriptoptions.
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