Crypto Options Trading: A Beginner's Guide

$2.24 TRILLION! This is the cryptocurrency market capitalization worldwide. It shows the growing interest and acceptance of cryptocurrencies around all sectors. That's why offering more complex ways to trade than just buying and selling coins is an important thing. Out of many, options trading is becoming a major attraction in this industry. In this blog, we will learn about what is crypto options, how they work, and the famous strategies. It may contain some risk but we all should know, 'The biggest risk of all is not taking one'.

What are Crypto Options?

Crypto options are a type of financial contract that gives you the right, but not the obligation to buy or sell a cryptocurrency at a specific price before or on a certain date. These are similar to options in the stock market, but instead of stocks, they are based on cryptocurrencies like Bitcoin, Ethereum, or other altcoins. Cryptopreneurs can add this options trading option to their platform by incorporating it with an advanced crypto exchange development company.

It comes in two different types,

➤ Call Options: These give you the right to buy a cryptocurrency at a set price before the option expires.
➤ Put Options: These give you the right to sell a cryptocurrency at a set price before the option expires.

Different from futures contracts, where you must buy or sell the asset when the contract ends, options give you the choice to go through with the trade or not, depending on how the market is moving.

Top Trading Strategies for Crypto Options

Options trading offers many different strategies that you can use based on what’s happening in the market and how much risk you want to take. Let me mention some popular strategies that beginners can start with,

1. Covered Call Strategy: 
In this strategy, you own the cryptocurrency (e.g., Bitcoin) and sell a call option on it. This is a safe strategy designed to earn extra income from the option’s premium while keeping your crypto holdings.

2. Protective Put Strategy: 
If you want to protect your current crypto investments from possible losses, the protective put strategy can help. You buy a put option as insurance, so if the price of your crypto drops, you are covered.

3. Straddle Strategy: 
Straddle means buying both a call and a put option at the same price. It’s good for times when you expect big price changes in the market but aren’t sure whether the price will go up or down. You can make money if the price moves a lot in either direction.

4. Iron Condor Strategy: 
This is a more advanced strategy where you sell two options and buy two options to limit possible losses. It works best when the market is stable. The goal is to profit from the premiums collected from the options you sell while reducing your risk.

5. Butterfly Spread: 
In this strategy, you buy a call option at a lower price, sell two call options at a middle price, and buy another call option at a higher price. This strategy is useful when you expect little price movement and want to profit from a market that stays calm.

6. Bull Call Spread: 
If you think the market is going up, this strategy can work well. You sell a call option at a greater price than when you bought it. This limits both your potential profit and your loss.

Why You Should Prefer Trading Crypto Options?

Options trading provides a lot of benefits that can improve your cryptocurrency strategy. Risk management is the main thing. Other than spot trading, where you can suffer bigger losses if the market turns against you, options allow you to protect yourself by providing a cushion against bad market movements. Furthermore, options require a lower capital investment compared to futures contracts, making them accessible to a bigger range of investors.

Options also bring leverage, enabling you to control a substantial amount of cryptocurrency with a smaller initial investment, which can lead to larger profits, though it also turns up risk. They allow for market-neutral strategies, such as straddles or strangles, that let you profit regardless of whether the price is rising, falling, or remaining stable. Another benefit is the potential for income generation. Selling options, like call options on your crypto holdings, can generate additional revenue through premiums, even if the options are never exercised.

Crypto Options vs Futures Trading