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Everything You Need to Know About Crypto Options Trading

Published
November 10, 2022
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    Crypto options are a type of derivative contract that gives a trader or an investor the right to buy or sell an asset at a determined date and price. With options, the holder can predict price alterations and take advantage of them.  

    Crypto buyers favor options trading because it is a relatively low-risk and low-cost solution during trading. When crypto traders are involved in buying and selling derivative contracts, it is called “crypto options trading”. There are two types of crypto options:  

    • Call: the right to buy an underlying asset
    • Put: the right to sell an underlying asset
    • American options: the right to exercise options within a specified timeframe.
    • European options: the right to exercise options on a specific expiration date

    To get involved in crypto options trading, you need to choose a crypto options exchange. Today, choosing a crypto options trading platform is a challenging task because new platforms are being launched every day. But don’t worry, we have done all the legwork to fill you in on some of the best platforms right in this guide. Let’s cover some basics of crypto options trading first. 

    How Do Crypto Options Work?

    As we’ve already mentioned, there are four types of crypto options. The first major type of option is called a call option. 

    Call

    A call option allows you to buy a digital asset at a certain price. Let’s take an imaginary coin as an example to understand this better.

    For example, let’s assume that you decided to buy KeeperCoins which are selling for $1,300. You believe that the price of KeeperCoins is going to increase next month, so you purchased a call option for 10 KeeperCoins at a strike price of $1,500. The call option allows you to buy these coins at the strike price. You don’t have to pay $1,500 x 10 = $15,000 for these coins. The exchange imagines that you bought 10 coins for $1,500.

    You bought the options, and it costs $100. After a month, your prediction was right and the coins are selling at $1,700 each. You bought the right to buy 10 KeeperCoins for $1,500 each, a total of $15,000. Hence, your profit would be $17,000 (current price) minus $15,000 = $2,000. Deduct $100 for the options and your profit is $1,900. 

    Put

    The put option is the exact opposite of the call option. It gives you the right to sell a digital asset within a given period at a specific price. Let’s take the example of KeeperCoins again. 

    After doing all the technical research, you believe that the price of KeeperCoins is going to drop. Following this, you purchased a put option, giving you an opportunity to sell at the strike price. 

    You sold the put option of 10 KeeperCoins at a strike price of $1,000 in 30 days. And you spent $100 on the put option. If the price of KeeperCoins falls to $700 on the maturity date, your profit will be $300 per KeeperCoin. Finally, you deduct the $100 you spent on the put option, and the profit is $2,900. 

    If the price of the KeeperCoin rose by $1,000, selling would turn out to be worthless. Here, you should let the option expire and sustain a loss of $100. 

    European and American Options

    The above call and put examples are European-style trades. The KeeperCoins options are either exercised or expired on the maturity date. A majority of exchanges leverage this system.

    However, some options trading platforms use American-style options, where options can be exercised at any time, even past the maturity date. The American style of options trading is not for the faint of heart. It requires bravery as you will be tempted to sell even though your profits are increasing or evaporating if you wait for a day or a week. This makes it a high-anxiety affair. 

    Simple Trading Strategies for Crypto Options

    Strategies to make money from crypto options trading don’t have to be complex. So, here are two simple crypto-options trading strategies: 

    Bull markets

    Call options:

    If the market is bearish and the prices are witnessing an upward trajectory, then buying a call option is a better strategy. When you buy a call option, you book a profit if the soar, and the risk is limited to the cost of the contract premium. 

    Bear markets    

    Put options:

    Investors are always worried when the crypto market goes down, but crypto traders can still make a profit during a downward trajectory of the market. When a trader buys a put contract, they can exercise a sell at their predetermined price. 

    Choosing a Crypto Options Trading Platform

    As said earlier, choosing a crypto options trading platform is a labor-intensive task. It requires a lot of research and man-hours to find an options trading platform that suits you. Therefore, we have highlighted a few pointers as to what to look for in an options trading platform. Shall we start?

    Options Offered

    The majority of crypto options-trading platforms support BTC trading, but there are a lot of tier 1 and 2 assets that are just as rewarding as Bitcoin. If you are looking for a crypto options trading platform, look for one that offers a lot of altcoin contracts. Other than that, look for high liquidity if you are planning to get involved with new altcoins. 

    Fees

    Be it a trader or an investor, nobody can escape the fees charged by trading platforms. A profitable trade can turn sour quickly if the fees are too high. Therefore, if you are a trader that makes several trades in a day, compare the fees of different platforms and choose the one that doesn’t burn a hole in your pocket. Remember, the fees might seem nominal, but they can quickly add up. 

    Reputation

    It goes without saying that when choosing a crypto options trading platform, a reputation check is a must. Look for customer reviews, Google the platform, and see if it has been hacked in the past. If it was, how did the platform mitigate the risk? Is the customer service satisfactory? You’ll have to minutely examine all aspects because your funds are at stake here.

    Payment Methods

    Another factor to consider is the payment method a trading platform accepts. There are several crypto-options trading platforms that accept only cryptocurrency as payment. While this may be a rigid system for some traders, others might find it time-saving. If you want a more flexible payment system, look for a crypto-options trading platform that offers multiple payment options. Additionally, before choosing a platform, find out whether a platform limits withdrawals or not. 

    KYC Requirements

    Safety is a critical factor while trading. Some of the best crypto options trading platforms perform a thorough KYC before you begin trading. However, some traders prefer trading anonymously. Choose a trading platform based on your trading strategy.

    Customer Support

    If you run into a problem while trading, you have to rely on customer support to resolve the issue. Even seasoned traders need assistance every once in a while. Therefore, choose a platform with a reliable customer support system for greater peace of mind. 

    Software Integration

    The more you trade, the more tools you need. Select a platform that offers advanced software integrations and plenty of features. For instance, you need an advanced trading view that is constantly updated. 

    The Best Crypto Options Trading Platforms (make sure to update & localize your info for US residents/US market)

    Deribit (Not accessible to U.S. traders: Deribit is not licensed to operate in the United States and doesn't allow U.S. users.) > DO GEMINI

    Deribit is famous for its large trade volumes for BTC and ETH. This makes it ideal for institutional investors who are looking for a platform to trade crypto options. On this platform, traders can easily find contracts that align with their trading strategies and create tight spreads because the platform offers several strike prices and expiration dates.  

    Deribit follows the European style, which means options are only executed on the expiration date. They are settled in cash only, instead of the underlying asset. Lastly, the platform has excellent customer support and numerous advanced features.  

    Bit.com (Therefore, regardless of if you are a US passport holder, US Green Card holder, or US resident, you cannot trade on Bit.com.) > CEX.io

    It is an advanced platform with several features focused on helping investors of all skills levels. You can trade in futures, margin options, spot, and perpetual trades with just one account. This feature is convenient, cost-effective, and saves time. 

    The platform has a Unified Margin (UM), which minimizes risk, and this is one of the features professional traders seek. The fees are also reasonable, with maker fees starting at 0.0200 percent and taker fees starting at 0.0300 percent. 

    Binance US

    Binance is the largest crypto exchange in the world, but little do people know that it is also one of the best platforms for trading crypto options. It has the widest selection of crypto assets with the highest asset liquidity. 

    Options traders can use a leverage of 125x while trading options, and to put the cherry on the trading cake, they can withdraw the money in under 30 minutes. This makes it an easier platform to use and a practical choice for options trading. 

    OKX (Not available to users in the United States): DO KRAKEN

    OKX is one of the best crypto trading platforms because traders can start using it immediately. The platform has hundreds of assets and offers up to 100x leveraged options trading. Other than that, it offers staking, low fees per transaction, and a savings account. This makes it a great option for both new and experienced traders.

    AND COINBASE

    Wrapping it Up

    Crypto-options trading is one of the most versatile ways to make money because, in traditional trading, you can only make money when the market goes up. However, with options trading, you can make money when the market is going down. Also, we should not forget that it is a risky venture, and you should do thorough research before starting.

    Crypto Options Trading - FAQs

    1) How do you become a day trader in crypto?

    The easiest way to become a day trader in crypto is to open an account with a reputable trading platform, fund your account with fiat currency, and start trading. You can use different trading strategies to make money, but always do your research before investing.

    2) Is Futures Trading the same as Options Trading?

    Futures are contracts that allow the holder to buy or sell a certain asset on a specified future date at a specific price. On the other hand, options give the right, but not the obligation, to the trader to buy or sell a certain asset on a specified future date at a specific price.

    3) Can you make a living day trading crypto?

    Yes, you can make a living from day trading crypto. It is one of the most profitable and easiest ways to make money from the crypto space. Many traders learn how to move in and out of the market in a day, and they take advantage of the volatility of the market to make big profits.
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