Bitcoin options enable traders to bet on the Bitcoin price with high leverage.
Bitcoin options are traded on specialized Bitcoin options exchanges that offer different functionalities and terms.
So, we created this guide to help you find which Bitcoin options exchange is best for you.
Let’s dive right into it!
What are Bitcoin Options?
Options are a type of derivative, which means they are based on an underlying asset, such as commodities, stocks or cryptocurrencies.
Depending on the type of option contract held, buyers will be given the opportunity to buy, or sell the underlying asset at a given value, known as the strike price within a specific time period.
There are two basic types of options, these are ‘call’ and put’ options. Call option holders have the opportunity to buy an asset at a fixed price within a certain time window, whereas put options have the opportunity to sell at a fixed price during a certain time window.
When investing in Bitcoin options, investors pay a premium for the chance to buy or sell Bitcoin at a set price in future, essentially providing a clever way to long or short BTC, giving owners an opportunity to make gains in a declining market, and multiply their profits in a bull market.
As with all options, Bitcoin options holders must exercise their option by the contract expiration date, after which the option position will be closed.
For example, if we are bullish on Bitcoin climbing over the length of the option contract, we would buy a call option with a strike price lower than the expected value of BTC.
If at the end of the contract, the strike price is lower than the market value of Bitcoin, we would then exercise the option, and buy the agreed amount of Bitcoin at the strike price, which can then be sold at a profit.
Best Bitcoin Options Exchanges Compared
|Options Exchange||Fees||Key Feature||Trade|
|Deribit||0.04% trading fee||High liquidity|
|LedgerX||$10 withdrawal fee||Regulated in the US|
|IQ Option||Spread||Simple to use|
|Quedex||0.03% taker fee||Low fees|
Best Crypto and Bitcoin Options Exchanges
When it comes to variety, Bitcoin options exchanges are far less numerous than standard cryptocurrency exchanges, giving option traders fewer platforms to choose from.
Because of this, there is a very small handful of Bitcoin option trading platforms that are leading the pack right now, the most prominent of which are briefly discussed below.
Deribit is a Netherlands-based derivatives exchange that was launched in 2016 by industry experts John Jansen, and Sebastian Smyczýnski.
- Large range of options contracts available
- Relaxed verification requirements
- Low trading fees
- No fiat currency support
- Outdated user-interface
- Limited customer support options
Deribit offers European style Bitcoin and Ethereum options, which essentially means they can only be exercised at expiration, not before. Beyond this, Deribit also offers a range of BTC and ETH futures, including perpetuals and fixed expiry variants.
Like most exchanges, Deribit uses a maker-taker model for its fees, offering reduced fees for market makers. For Bitcoin (BTC) and Ethereum (ETH) options, Deribit charge 0.04% of the underlying asset value per contract. Deribit also charges an additional 0.02% delivery fee, charged when the option is settled.
Deribit’s trading platform is open to users in a vast array of countries, including those in the US. Deribit is also one of the few Bitcoin options trading platforms with relaxed KYC requirements and does not enforce mandatory KYC on all accounts.
Using the platform is relatively straightforward, with the exchange being neatly separated into futures and options sections. Users can buy or sell options contracts in as little as three clicks, by selecting an expiry date, entering a quantity and selecting the buy or sell option in the limit order screen.
Security-wise, Deribit falls roughly in-line with the industry standard, storing around 95% of user funds in cold storage, and running a bug bounty program to ensure the platform remains free of vulnerabilities.
As it stands, LedgerX is the only US regulated Bitcoin options exchange and offers physically settled BTC derivatives. Beyond its already impressive accolades, LedgerX is also one of the very few Bitcoin options exchanges to offer Bitcoin binary options.
- Regulated Bitcoin options exchange
- Institutional-grade security
- Bitcoin binary options available
- Restricted availability
- Extensive KYC requirements
- Only Bitcoin futures and options available
For its options, LedgerX allows its users to buy options with a range of strike prices and expiry dates, with both call and put options available. Recently, LedgerX also introduced a Dec 2020 option with a $50,000 strike price.
LedgerX also has plans to unveil a physically backed Bitcoin futures product sometime in 2019, these will be offered to its retail customers on its Omni platform after obtaining its designated contract maker (DCM) license. The platform also plans to add Ethereum derivatives after obtaining CFTC approval.
To maintain operations, LedgerX charges a small fee on each contract sold, beyond this, LedgerX does not charge any trading fees but do charge a flat fee for both Bitcoin and USD withdrawals (around $10).
To open an account on LedgerX, you need to be a US, Singapore, or NFA registered individual or entity. Unfortunately, LedgerX is not available to users outside of these jurisdictions, and as such, places a major focus on institutional traders.
IQ Option was launched in 2013, first licensed in 2014, and is one of the only regulated platforms to offer bitcoin options trading.
- Available in over 150 countries
- Huge variety of supported financial instruments
- Fully legally compliant
- No support for Australia, USA, Canada and Belgium
- Crypto options only available to professional clients
- Expensive withdrawal fees
Unlike many of the other options exchanges on this list, IQ Option allows users to buy, trade and sell a large variety of other financial instruments, including stocks, forex, exchange traded funds (ETFs) and cryptocurrencies.
In terms of options, IQ Option offers 33 different varieties, including binary, FX and cryptocurrency options. At IQ Option, all deposits and withdrawals are made in fiat currencies, as all contract profits are automatically settled in fiat.
For most financial instruments, IQ Option does not charge any fees but instead makes money on the spread. However, when purchasing options on IQ Option requires the user to pay a one-off cost, which depends on the option and the number of contracts purchased. Beyond this, IQ Option also charge up to $31 for bank withdrawals,
IQ Option also differs from most other Bitcoin options exchanges since it only offers its digital options to what it describes as “professional clients”. To qualify as a professional client, you must represent a credit institution, commodity dealer, regulated financial institution or other authorized entity.
Since IQ Option is a fully licensed entity, it complies with all required KYC and AML regulations. Because of this, you will need to complete identity and address verification to use the platform and may need to verify your credit/debit card if using these funding options.
Quedex is a Gibraltar based cryptocurrency futures, options and derivatives exchange founded in 2014. Quedex is the first company to receive a Distributed Ledger Technology (DLT) license from the Gibraltar Financial Services Commission (GFSC).
- Gibraltar based licensed derivatives exchange
- Highly secured with PGP based communications and multi-signature cold storage of funds
- Auction-based Bankruptcy prevention system
- Lack of liquidity for retail traders
- Stringent KYC verification system
- No fiat deposits or withdrawals
The platform offers a large variety of Bitcoin options with a range of strike prices. In addition, Quedex fees are some of the lowest on the market, charging just 0.03% for any taker trade on futures and options, while offering a 0.02% reward to market makers.
However, Quedex does currently suffer a lack of liquidity for some options, though this is slowly changing as more and more traders are beginning to trust the exchange after its DLT license acquisition.
Currently, KYC verification for Quedex users is handled by an external company called Coinfirm.io. This makes the mandatory KYC process at Quedex somewhat more time consuming than their competitors.
Quedex has numerous security systems in place to ensure the maximum safety of trader funds. One such security feature is the session passphrase, which is required for users to log back into the platform after a certain time of inactivity.
Beyond this, every Bitcoin spend is protected by 3 of 5 multi-signature wallets. The signees are all part of the company, with each having access only to their own private key.
Special mention: Skew
Skew is a leading derivatives analytics platform that provides traders with relevant cryptocurrency data analytics and informative data-backed graphs.
- Also provides decentralized finance data.
- 30 Day volume data from 6 different exchanges.
- No registration needed to access graphs.
- Purely analytical platform — no trading functionality
- Only futures and options supported
- Statistics only shown in US dollars
Skew provides charts for Bitcoin and Ethereum derivatives such as options, futures, correlation spreads, and perpetual swaps. Additionally, Skew provides data analytics graphs for stablecoins such as TUSD, USDT and several others.
Skew is not a trading platform and does not allow any cryptocurrency exchanges, hence it does not collect any personal information its users, but still provides a wealth of information to help options traders make better investment decisions.
Skew is developed and co-founded by two experienced derivative traders, Emmanuel Goh, and Tim Noat who launched the platform with the goal of demystifying Bitcoin and Ethereum derivatives.
Benefits of Bitcoin and Crypto Options
Being a more advanced trading tool does bring a number of benefits that make Bitcoin and crypto options an appealing choice for many traders. Though it may take some time to fully understand, there are plenty of reasons why options should be considered as part of any carefully constructed portfolio, including;
Enables you to speculate with more capital than you own
Just like in crypto margin trading, one of the major benefits of options is their ability to allow you to speculate with more capital than you actually have. This works because options allow you to profit on changes in the underlying asset value, rather than the cost of your position.
For example, rather than buying Bitcoin for its spot price, you can instead by 1 Bitcoin option contract, which allows you to profit from the difference in the strike price vs spot price of BTC.
Your risk is limited to the capital used to buy the options
Unlike some other derivatives, when buying a Bitcoin option, the maximum you can lose is the cost of the option premium. This means that no matter how far out of the money you go, you can never lose more than what you paid for the option.
Because of this, with Bitcoin options, you never run the risk of getting into debt or entering a deficit on your chosen trading platform. This essentially enforces the rule of “never investing more than you can afford to lose”, making it a useful investment medium for less experienced traders.
Enables you to speculate on price declines
As previously mentioned, options contracts come in two main varieties — calls and puts. By buying a put option in a declining market you will be able to essentially short BTC, earning a potentially chunky profit if BTC falls below the strike price.
With Bitcoin binary options, this is reduced to a simple prediction whether Bitcoin will fall to a lower value than its current price. If you are correct, you win a specific payout amount, while risking only the cost of your option premium.
Enables you to hedge your portfolio at a low cost
As with any investment, hedging your risks is always a good idea. With Bitcoin options, this is particularly useful when you already own Bitcoin at the spot price. Buying put positions can allow you to cheaply hedge against a declining market, protecting you from any sudden volatility or crashes.
In addition, since options contracts are typically low cost, relative to the underlying asset price, they remain one of the most cost-effective ways of hedging against your existing investments. As such, hedging with options is one of the most common strategies used by experienced investors.
Costs and Risks of Bitcoin Options
Although Bitcoin options can provide excellent investment opportunities, they also come with a unique set of risks and drawbacks, that may make them unsuitable for some investors.
This is particularly true when using options for speculative purposes, rather than using them to reduce or eliminate your risks in another position. With that in mind, here are some of the most common pitfalls to watch out for when trading options.
Risk of loss of entire capital
Unlike other assets, many Bitcoin options don’t give you a way to cut your losses early. This means if your Bitcoin option expires out of the money, you will lose your entire initial investment known as the option premium. If you purchased a large number of contracts, this can be a considerable loss.
This is particularly important when investing in significantly out of the money options, which, while potentially highly profitable, are very likely to expire worthlessly.
Purchase fees need to be paid to the exchange
For most exchange platforms, a per contract fee is charged when buying options. This fee is usually a small fraction of the underlying asset value or can be a fixed fee for certain options.
Beyond this, many Bitcoin options platforms also charge an additional settlement fee, which tends to range between 0.005% to 0.1%. However, since these are charged on underlying asset value, rather than your profit, these fees can consume a significant chunk of your profits.
Because the Bitcoin options space is still relatively small and has only a few well-known exchange platforms, there can be liquidity issues.
Unlike standard spot trading exchanges, Bitcoin options exchanges tend to suffer from low daily trade volume and poor liquidity. This is especially true for high-value options, with only certain expiries and strikes having sufficient liquidity.
This poor liquidity can lead to slippage when opening or closing a position, with the option being traded at a rate lower than expected due to a delayed match.
Key Terms in Bitcoin Options Trading
As a concept, Bitcoin options trading can be relatively difficult to grasp, particularly for new traders due to the technical vocabulary that is often used to describe it. Because of this, if you intended to get involved in options trading, or just want to brush up on your investment jargon, then these are the key terms you will want to understand.
If you are bullish on the price of Bitcoin, then you would consider opening a call option, as this will allow you to buy BTC at the strike price, even if the market value is higher. In essence, Bitcoin call options allow you to speculate on the future growth of Bitcoin.
For example, if you buy a call option with a strike price of $10,000 and a 6-month expiration date, you will then be able to buy BTC at $10,000 in 6 months, even if the market value is much higher. You could then go on to sell this 1 BTC at a profit.
If you are looking to short Bitcoin, and believe that its price will go down over the option contract term, then you would want to open a put contract. This will essentially allow you to sell Bitcoin at the strike price, even if the market value is much lower.
In essence, put options allow you to speculate on the decline in an asset’s value. After buying a put option, the more BTC goes down before expiry, the more your option is worth.
For example, if you buy a put option with a strike price of $5,000 and Bitcoin trades below this price at maturity, you will be in the money and will make a profit on the difference in value between the spot price and strike price.
One of the most important terms to consider when purchasing a Bitcoin option is its strike price. In short, the strike price is the price a Bitcoin option holder can buy (call option), or sell (put option) an underlying asset when the option is exercised.
For example, if you have a Bitcoin call option that is “in the money”, then you be able to buy the agreed amount of BTC at the strike price. Conversely, if your Bitcoin put option is “in the money”, you will be able to sell the agreed amount of BTC at the strike price.
An option’s maturity date is also known as its expiration date. This is the last date by which the option must be exercised before automatically expiring. After the maturity date, the seller will no longer have any obligation to the buyer, and the buyer will be unable to exercise his or her option.
Typically options will have a fixed expiration date, this might be 1 day, 1 week or any length of time. If your option is out of the money when expiring, you will lose the amount you paid for the option.
Bitcoin Options Trading Tips
When it comes to investments, Bitcoin options can be considered a somewhat advanced trading tool, and as such, are best utilized by experienced investors.
Despite this, if you are looking to get to grips with Bitcoin options, here are two helpful tips to help keep you safe when navigating this asset class.
Pick a trustworthy bitcoin options exchange
As with any investment, it is extremely important to ensure that you are dealing with a reputable platform. Unfortunately, in the world of cryptocurrencies, not every platform is as it appears, so it is wise to do a little digging if anything seems suspicious.
Thankfully, there are a number of simple indicators that can be used to better determine whether a platform is trustworthy or not.
These include being in operation for an extended period of time, being regulatory compliant and maintaining an excellent track record for customer satisfaction.
Do not trade with more capital than you can afford to lose
Although trading Bitcoin options can be a lucrative investment modality, it does come with its risks, and these risks can be quite costly if certain precautions are not taken.
In many cases, Bitcoin options are simply used as a relatively inexpensive way to hedge risk against your spot positions. Because of this, options should usually online constitute a small part of your portfolio, and hugely out of the money options should be avoided where possible.
Above all else, do not trade more than you can afford to lose and stay safe when trading options.