An Introduction to Cryptocurrency Options and How They Work

Investing in the cryptocurrency market with crypto options eliminates investors' need to own any cryptocurrency. As a result, profiting from market volatility while protecting yourself from its worst effects might be possible with these tools. This post will dive into crypto options and how they work.

What are Crypto Options?

Call and put options are the two simplest types of options.

Any time before the call option's expiry, the option's owner may exercise his or her right to buy the crypto option at the strike price.

Those who use put options can sell the crypto at a predetermined price within a particular window.

Crypto options enable buyers to pay extra for the future right to buy or sell cryptocurrency at a predetermined price. These options expire at a certain point in the future. To put it another way, this strategy is an alternative to going long or short on cryptocurrency. It allows investors to make money even in a down market and considerably larger returns in a bull market.

Crypto options are comparable to regular options in that the option holder retains the right to terminate their investment in the underlying asset prior to the date the option contract expires. If a trader wants to exit a position early, they can sell their assets at a price currently being offered on the market.

Another way to engage in options is by Dual Investment. Dual Investment enables users to buy or sell a cryptocurrency at a set price and date in the future, all while earning a high-interest rate independent of market fluctuations.

Call Options

In order to better understand how call options work, let's look at a simple example. For example, let's look at Bitcoin, which sells for $18,900 per coin.

If you believe that the price of Bitcoin will rise in the next month, you may buy a call option for 10 Bitcoins with a strike price of $19,000 and an expiration date of one month. In this situation, you could have just won the privilege to spend $19,000 on Bitcoin within 30 days. The purchase of the option is executed via a stock exchange. So, let's say this option costs you $100. 

Let's pretend for a moment that your Bitcoin prediction turns out to be accurate. Users may buy one Bitcoin at the time of the occurrence for $23,000. The total price you paid was $190,000. This buys you the right to 10 Bitcoins, which are now worth $230,000. You might expect to pay $19,000 for each Bitcoin. Your profit on the 10 Bitcoin options contract is thus $40,000 minus the initial payment of $100. This is where your earnings come from. The exchange will add $40,000 to your account.

This is why there are several "call" options to choose from. If the Bitcoin price rises over the strike price, you will have a profitable option.

Settlement for options and futures contracts in the crypto derivatives market is often executed in cash. You wouldn’t actually pay $190,000 for 10 Bitcoins. To make their profit, they'll act as if you bought 10 Bitcoins at an average price of $19,000 a piece and then sold them immediately at the market price of $23,000. The exchange will then add the profit to your account. In reality, you will never be the legal owner of the bitcoins.

You would not want to exercise the option if the price of a Bitcoin on the expiry date was $18,000, for example. If one Bitcoin costs $18,000, 10 would be too much to spend. By using Bitcoin options contracts, your exposure to loss is limited. If you choose not to execute the option before its expiration, the only cost to you is the original $100.

Put Options

You may wish to buy a "put" option if you anticipate a drop in Bitcoin's price. Buying this option enables you to sell the token at a predetermined price within a set period of time.

For example, you might spend $100 on a put option that gives you the right to sell 10 BTC at a strike price of $19,000 any time during the following 30 days. You will make a profit of $50,000 ($500 per Bitcoin minus the $100 you spent on the option) if the price of Bitcoin is $18,500 when the option expires. 

If the price of a Bitcoin rose over the option's specified strike price of $19,000, the option would expire, and you would no longer be able to sell Bitcoins for that amount. If you did not utilize your option before it expired, you would have lost $100 (the option's purchase price).

How to Use Crypto Options

You can invest in options by using an exchange that allows users to trade crypto options. One exchange is Trofi, a regulated crypto investment platform. Users of Trofi can trade their crypto assets, earn daily interest on them, and lock them up to get higher interest rates. In addition, users can earn a daily compounded annual percentage yield (APY) on stablecoins and other crypto assets. In essence, customers will be able to borrow money against their crypto assets. In conjunction with Trofi's supply of structured products, they will be able to get more substantial returns.

The primary focus of Trofi will be introducing cutting-edge financial products to the market. These products will aid clients in re-creating investment risk and reward profiles tailored to their individual risk preferences.

As an example, Trofi’s dual investment strategy “Earn+” provides a higher return than the standard Earn strategy. In addition, by conducting in-depth research, Trofi will be able to provide customers with risk management solutions that will make it possible for them to comprehend their risk exposure, as well as prospective risks and rewards.

Conclusion

It is possible to invest in the market for cryptocurrencies such as Bitcoin and Ethereum without actually holding any coins or tokens. This is made possible via crypto derivatives such as options and futures. They might let you profit from movements in the market while simultaneously lowering the dangers associated with such swings.