How to Trade Bitcoin Options (Basics, Strategies, Risks, and Exchanges)

By

Last Updated on

Advertiser Disclosure

As Bitcoin continues to mature as a store of value and currency, it was just a matter of time until Bitcoin options started to emerge. 

The first exchange to popularize BTC options was Deribit, however, it’s now far from being the only platform where they can be traded.

Since the Bitcoin options market is still very nascent, there are plenty of inefficiencies that savy cryptocurrency traders can exploit. 

This article outlines the basics of what options are, how they work in the Bitcoin world, some actionable BTC options strategies, and where to trade them.

Introduction to Bitcoin Options 

Options are a type of derivative contract that give its owner the right to buy or sell an asset at a specific price (the “strike” price) until a determined date (the “expiry” date).

The precise date they were first used is unknown, but they were already in use in Ancient Greece and then actively traded on a dedicated exchange that was launched in the 17th century in Japan.

Although options were initially designed to enable farmers to protect themselves against adverse price developments in the goods they were producing, today they are a multi-trillion dollar market that are part of the very backbone of the global financial sector. 

While the exact size of the options market is unknown, it forms a big portion of the $500 Global Trillion derivatives market

Bitcoin’s option market is certainly still magnitudes smaller, but it’s also seeing parabolic growth.

bitcoin options volume

At the time of writing the Bitcoin options market regularly clocks in over $100m in daily trading volume, and is set to see further growth with firms like the CME joining the game.

Types of Options: Puts and Calls

There are two types of options: calls and puts.

Call options give their owner the right to buy Bitcoin at a specified price. Puts are mostly used by traders betting on a price rise in BTC, or hedgers protecting themselves for the possibility of it.

bitcoin deribit call options

Call options are said to be “out of the money” if the Bitcoin price is lower than the strike price. They are “in the money” if the Bitcoin price is higher than the strike price. If at the expiry the option is “out of the money”, it expires worthless.

Put options give their owner the right to sell Bitcoin at a specified price. They are generally used by speculators expecting the price of Bitcoin to fall, or wanting to hedge against the possibility of a price decline.

bitcoin deribit put options

Put options are said to be “out of the money” if Bitcoin price is higher than the strike price. They are “in the money” if the Bitcoin price is lower than the strike price. If at the expiry the option is “out of the money”, it expires worthless.

In addition to the option’s intrinsic value (“in the money” or “out of the money”), efficient markets usually pay a premium on top of that value for what “could happen”. 

This is called the “Time Value” and is larger the further the option is from its expiry date.

Options trading strategies

As you have already realized by now, options are highly sophisticated derivatives contracts. This opens the door to a wide range of strategies to trade them. 

While there are endless options trading strategies, here we’ll cover the 3 most popular ones, to get you started.

Covered Call

A covered call strategy consists in holding the underlying asset, while simultaneously selling a call option. Investors do this to earn a yield on their holdings from the options premium.

This could be an interesting strategy for a Bitcoin holder that believes the BTC price will stay mostly flat for the time being, but doesn’t want to sell his holdings.

Protective Put

A protective put strategy consists in holding the underlying asset, while simultaneously purchasing a put option. Investors use this strategy as “insurance” if they believe the asset could see some downside.

A Bitcoin investor could use this strategy if price has gone up significantly in a short time. This way, the Bitcoin holder would be protected in the case of a sharp price drop, but would still capitalize if BTC kept running higher.

Straddle

Straddles are an options strategy that doesn’t bet on the market going a particular direction. Instead, traders are betting on Bitcoin volatility, in either direction.

In a straddles trade, the speculator purchases call and put options with the same strike price. This will result in a profit as long as the asset moves far from said strike price.

Bitcoin investors can use this strategy if they expect BTC to make a big move, like during an important event or period of low volatility, but are unsure which direction the move will happen.

Where To Trade BTC Options?

Options are still a very new derivatives product in the Bitcoin economy. Hence, there are still significantly less avenues to trade it than the more adopted Bitcoin Futures contracts.

At the time of writing, by far the most popular Bitcoin Options exchange is Deribit.

deribit bitcoin options

Deribit currently offers 6 different expiry dates with 20 different strike prices for each. The simple user interface and low trading fees (0.04% per options trade), make Deribit a great options exchange for beginners.

More sophisticated options traders might want to have a look at FTX, which recently also launched Bitcoin Options. On the contrary to Deribit, FTX does not have a pre-set options orderbook and traders can instead manually design their own option. 

ftx bitcoin options request quote

To do so, simply head over to the “Options” tab on the exchange, and fill out the form with your desired strike price and expiry date. After just 10 seconds, the exchange will present you a bid and ask price, which you can chose to fill or not. 

The exchange’s 0.05% trading fee makes it a bit more expensive than Deribit though.

Finally, it’s also important to note that exchange juggernaut CME recently also launched Bitcoin Options. That said, with a minimum trade size of 5 BTC, most retail traders will likely be more comfortable using Deribit or FTX.

pascal thellmann

Pascal Thellmann is an algorithmic trader mostly focused on market making. You can get in touch with Pascal on LinkedIn or Twitter.

Comments

  1. Here are lots of ups and downs in the cryptocurrency market. Thanks for sharing information on a daily basis. I work for cryptocurrency so it is a really helpful post for me.

    Reply
  2. It’s not my first time to pay a visit this site,
    i am visiting this web page dailly and get good facts from here all the time.

    Reply
  3. Hey! I know this is kind of off topic but I was wondering if you knew where I
    could find a captcha plugin for my comment form?
    I’m using the same blog platform as yours and I’m having problems finding one?

    Thanks a lot!

    P.S. If you have a minute, would love your feedback on my new website
    re-design. You can find it by searching for «royal cbd» —
    no sweat if you can’t.

    Keep up the good work!

    Reply
  4. Finally, I saw a good article for a long time. thanks for sharing this updated information with us. as a software development company, we have to assist our clients with an updated blog like yours. I hope my clients will happy to read your articles.

    Reply
  5. Thank you! sharing New Updates, I really enjoy reading the news of Cryptocurrency and the Stock Market. I want to be an investor so , I read the market on a daily basis. your blog helps to know the perspective of the crypto and forex market.

    Reply
  6. Hello! This is my first visit to your blog! We are
    a team of volunteers and starting a new initiative in a community in the
    same niche. Your blog provided us beneficial information to
    work on. You have done a outstanding job!

    Reply
  7. Wonderful article! This is the kind of info that are meant to be shared across the internet.
    Shame on the seek engines for not positioning this post higher!

    Come on over and consult with my web site . Thanks =) dildok3

    Reply
  8. Wonderful article! This is the kind of info that are meant to be shared across the internet.
    Shame on the seek engines for not positioning this post higher!
    Come on over and consult with my web site .
    Thanks =) dildok3

    Reply
  9. First off I want to say awesome blog! I had a quick question which I’d like to
    ask if you do not mind. I was interested to know how you center yourself and clear your thoughts prior to writing.
    I have had difficulty clearing my thoughts in getting my thoughts out there.
    I truly do enjoy writing however it just seems like the first 10 to 15 minutes are generally wasted
    just trying to figure out how to begin. Any ideas or tips?
    Thank you!

    Reply
  10. Hello there! I know this is kind of off topic but I was wondering if you knew where I could get
    a captcha plugin for my comment form? I’m using the same
    blog platform as yours and I’m having problems finding one?
    Thanks a lot!

    Reply
  11. You could definitely see your expertise within the article you write.
    The world hopes for even more passionate writers such as you who
    are not afraid to say how they believe. At all times go after your
    heart.

    Reply
  12. Our listing consists exclusively of dependable licensed gambling websites.
    To do this, we experienced our evaluate group (which
    includes 100% Aussie- primarily based players ) to go on the
    market and do the leg work for you! With the amount of players on the market which can be nonetheless looking in to on-line on line casino
    gambling, it’s unattainable to express just how huge and standard
    on-line casino real cash Aussie gambling will change into within the approaching years.
    The gamers sit around a standard trying poker
    desk that has a Tv screen constructed into the
    middle of the table. Aussie players have different approaches when looking for on-line casinos.
    Next, and more obviously, you cannot win something in any respect until you place
    your cash where your mouth is and obtain in on some
    on-line casinos actual cash motion! With
    the huge bonus deals that online on line casino actual cash
    Australian players have got access to, there’s actually a more direct approach to get a jump start when playing
    online! You’ll be able to get pleasure from these bonuses by taking part in in these prime Australian on-line casinos.
    Aussie authorities make every part doable to prohibit overseas casinos and poker portals accept gamers
    from Australia because of their concern of small transparency and oversight. http://orqwurpoiqwurtbv.com

    Reply
  13. Hmm it seems like your site ate my first comment (it was extremely long) so
    I guess I’ll just sum it up what I had written and
    say, I’m thoroughly enjoying your blog. I too am an aspiring blog writer but I’m
    still new to everything. Do you have any tips for first-time blog writers?
    I’d definitely appreciate it.

    Reply
  14. Hi there! I know this is somewhat off topic but I was wondering
    if you knew where I could find a captcha plugin for my comment form?
    I’m using the same blog platform as yours and I’m having problems finding one?
    Thanks a lot!

    Feel free to surf to my blog post: CBD for dogs

    Reply
  15. Link exchange is nothing else except it is only placing the other person’s web site link on your page at proper
    place and other person will also do similar in favor of
    you.

    Reply
  16. Woah! I’m really digging the template/theme of this website.
    It’s simple, yet effective. A lot of times it’s very difficult to get
    that “perfect balance” between superb usability and visual
    appeal. I must say you have done a fantastic job with this.
    In addition, the blog loads extremely quick for me on Internet explorer.

    Outstanding Blog!

    My webpage cbd oil for sleep

    Reply
  17. wonderful post, very informative. I wonder why the opposite specialists of this sector
    don’t understand this. You should continue your writing. I’m confident, you’ve a huge readers’ base already!

    Reply
  18. Thanks for a marvelous posting! I actually enjoyed reading it, you may be a great author.
    I will be sure to bookmark your blog and definitely will
    come back in the foreseeable future. I want to encourage you to definitely
    continue your great writing, have a nice afternoon!

    Reply

Leave a Comment