Bitcoin options trading is a part of crypto options trading is a fancy investment and trading trend in the crypto market. Futures and options are terms used in trading through contracts, be it stocks, the forex market, or any other financial markets. Just like other financial markets, cryptocurrencies are the new financial instruments that emerged over the last decade.
Cryptocurrency is a digital or imaginary currency that does not have a physical identity in the real world. Since Bitcoin was the first cryptocurrency to decentralize in the market in 2009, it is well-versed and reputed among people who are familiar with financial instruments.
Moreover, the blockchain technology of bitcoin makes it popular as it maintains the anonymity of the users, and fast BTC transactions make it stand out in the segment.
Bitcoin options are derivatives that are traded through contracts of buying and selling. Options trading has become more popular among derivatives like Swaps, Futures, futures, and perpetual futures. Any financial instrument’s derivatives have less volatility than actual financial instruments.
What is it?
Firstly, we need to know about options trading and then apply the concept to bitcoin. Bitcoin options trading Platform enables traders to buy or sell an underlying asset at a specific price and on a particular date or time.
Unlike futures, options have no obligations to perform the task of buying and selling. In simpler words, options trading is the agreement between two speculators on a price of an asset. Where one speculates the price drop and the other speculates the price hike, the difference is paid by the person who speculated it wrong.
This trade happens without actually owning the underlying asset. Here, in this case, the traders will speculate the price of bitcoin at a specific time and date, and the wrong speculator will pay the difference in price for the other party.
How does it work?
- Open an account in a trading platform: Look for the options offered, check the brokerage fees if feasible for you, and look for reputed trading platforms.
- Look for the bitcoin options contract available in the trading platforms and get into the contract you wish for.
- Do your research and choose your contract wisely before signing up for the contract.
- Bid for the price that you are comfortable with.
- Weekly analysis of the performance of cryptocurrency helps you to gauge the risk.
- Covered calls: covered calls are a strategy to sell securities without actually owning them to generate money. The call option will have a strike price and an expiration date that you specify. Even if the security price falls, you still profit from the premium.
- Naked puts: One can sell securities even without actually buying them is known as a naked put. If the securities price increases, you profit from the premium you paid for the securities, and the put option gets void.
- Bull call spread: The call option is the term used for the right to purchase. You’ll buy the securities by betting on the price hikes in a bull call spread.
- Bear put spread: Put Option is the term used for the right to sell. This is opposite to a Bull call spread concept, as you bet that the securities price will decrease.
- Iron condor: It is an options selling strategy with varying strike prices. Strike prices are within a range; regardless of price hikes and drops, you’ll keep your profits from the premiums.
Risk factors and disadvantages
- Highly volatile: Several factors contribute to bitcoin options trading, like world events, market trends, etc.
- Lack of authoritarian model: Since cryptocurrency is independent in nature and lack of an authoritarian model or governing body makes it less trustworthy.
- Taxation laws that bother: Some countries do not recognize cryptocurrency as a legal source of income generation. Hence they are subjected to the high tax rate on even small amounts, which makes trading even less profitable.
- There is always room for hackers and cybercrime in this advanced technological world. There are a few crypto scams that have been recorded in the past, which discourage aspiring traders.
- The high market price of bitcoin makes it difficult for mass traders to invest in it, restricting it to high-net-worth individuals.
- Lack of awareness of cryptocurrency is one of the factors that demotivates traders.
- Bitcoin is the most popular cryptocurrency in the market right now.
- It has the largest market capitalization of 323.72 billion USD, making it a high-volume cryptocurrency in the market for trading. High volumes reduce the risk and volatility as there is a minimal rush for buying and selling.
- The technology that bitcoin has currently made it a highly advanced cryptocurrency in the market.
- Bitcoin is being accepted by some big corporate giants like Tesla, Microsoft, and BMW, which encourages traders to invest in bitcoin, further making bitcoin options trading more trustworthy.
- Due to the high popularity of bitcoin, it is highly accessible for traders all around the globe, making it easy to participate in trading.
Who is best suited for this trading?
As long as a person is ready for the risks, he can participate in options trading. Older people who have earned sufficient for their livelihood can look for options trading. Companies and Banks with big capital can invest in options trading to maintain their liquidity. These are the institutions that encourage people to practice new methods of investment, making them trustworthy.
Finally, well-settled adults with good savings and assets with diversified portfolios can try out options trading as they can afford the risk. Any unplanned trading and overlooking risk factors for profits will adversely affect the trader’s confidence.
Bitcoin options trading is a good income generation method if you plan for it to make your savings count for every trade you do. Trends in the market need to be constantly followed and analyzed to survive in the competition.
Any financial instruments in the world are subject to market risk and so is the case with cryptocurrency. Stock prices increase and decrease as a change in demand for the stocks likewise the value or market price of any cryptocurrency including bitcoin changes with the demand.