How to buy and sell Bitcoin options

Bitcoin options contracts are a type of derivatives contract that allows investors to speculate on Bitcoin (BTC) price movements without owning Bitcoin itself. Bitcoin derivatives trading and investing in Bitcoin options are other routes that investors use to leverage the volatility of the cryptocurrency market. 

Understanding Bitcoin options

In investing, a derivative is a product or contract with a value determined by an underlying asset. Cryptocurrency derivatives include futures, options and perpetual contracts. This basic Bitcoin options trading guide focuses solely on Bitcoin options, how investors trade them and some of the risks and strategies.

Here, a Bitcoin options contract derives its value from Bitcoin. Investors engage in speculating or “hedging” on the price volatility of Bitcoin. A Bitcoin options contract allows a trader to buy or sell Bitcoin at a previously agreed time and date.

In contrast to futures, an investor is not obligated to buy or sell an asset at the contract expiry date if they decide otherwise. For instance, if the price of Bitcoin falls, an investor might choose not to buy at the contract price because that’s now higher than the actual value of the crypto. However, each options contract has a price, called a premium, and this must be paid regardless of whether or not the investor goes ahead and the trade takes place. Trading platforms may also charge service fees in addition to the premium.

Types of Bitcoin options

There are Bitcoin call and put options, as well as American and European options.

Call options — Allow a trader to purchase Bitcoin on a pre-agreed date Put options — Allow a trader to sell Bitcoin on a pre-agreed dateAmerican options — Can be executed any time before the contract expiry dateEuropean options — Allow a holder to exercise the option only at the expiration date.

Bitcoin options contracts are, in essence, promises to trade Bitcoin in the future. An option has an expiry date, which is when the contract is executed if the investor goes ahead. Or, American options, as noted, can be executed before the contract expiry date.

Options can be…

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