As an alternative source of income, many are exploring the crypto world. Bitcoin options trading is one of them. This article will explore the potential possibilities to exploit the crypto market and make a substantial profit.
As per the experts, the price of Bitcoin is sure to surge; many in the past had missed making most of the opportunity presented then. With the economic turmoil gripping the world, people are seeking alternatives to ensure they can lead comfortable lives.
Bitcoin was an obscured name in the past, and only a few had heard it. Out of those, nearly half of them had any knowledge about Bitcoin or crypto. However, everyone in the world is aware of it due to the popularity of Bitcoin and cryptocurrencies during the pandemic period.
Even those who had no idea what cryptocurrency or Bitcoin is have started showing interest in them. Unfortunately, many lost a substantial amount of money due to scams that are quite common in cryptocurrency.
Although the crypto world is very lucrative due to its inherent volatility and liquid nature, and those who lost their wealth in a crypto scam still wish to make the most of it by trading in the crypto world, they are left with two options either have a sound knowledge of cryptos or have a little knowledge and still make substantial money.
Bitcoin allows derivative instruments like options trading. These can be traded on Wall Street since October 2017. As a result, it has started gaining popularity amongst both crypto traders and stock traders.
Stock traders are interested as they have another source of opportunity of having a highly volatile financial asset and exploiting it.
Reasons to Buy a Bitcoin Put Option?
Before we delve into the reasons for you as a trader to buy Bitcoin options and trade them, we need to understand what options trading is.
Bitcoin options trading is a contract between two parties, the buyer and the seller. They both enter into a contract that ends at a predetermined date in the future called the “Expiry date,” and a predetermined price called the “Strike price.” Since both the buyer and the seller are interested in making a profit, they speculate the future price of the “Underlying asset,” in this case, Bitcoin, where one will speculate that the price will go up. In contrast, the other party speculates the price will go down.
The buyer enters into the contract with the seller by paying a token fee called “Premium.”
Two scenarios are bound to happen at the end of the contract. Either the “Spot Price” is the underlying asset’s value on the “Expiry date” will exceed the “Strike price” or will go below the “Strike price.”
At the end of the “Expiry date,” if the buyer makes a profit, the buyer buys the contract. However, if the buyer loses, the buyer exercises the option of paying off the “Premium” instead of buying the entire contract.
The buyer in a Bitcoin options trading is not obliged to buy or purchase the contract.
You must understand that the buyer and the seller are not actually dealing with the underlying asset but rather the “price” of the underlying asset. Both are speculating the future price trend of the underlying asset based on research.
Difference between Bitcoin and Bitcoin Options
Although there is no difference between Bitcoin and Bitcoin options, the only difference is how they are traded.
Bitcoin is traded across exchanges globally. While trading, one needs to get registered on a cryptocurrency exchange where one gets a crypto wallet. This crypto wallet is a digital address from which you can send your cryptos to another to their crypto wallet or digital wallet.
Before you can trade Bitcoin, you need to buy them through the exchange with your fiat money. Depending upon the crypto exchange, you can buy or purchase Bitcoin using a credit/debit card, wire transfer, bank transfer, etc. So when you buy Bitcoins, you owe them.
You can buy Bitcoins either in fractions or as a whole; it boils down to how you wish to invest in it for trading in the future.
On the other hand, Bitcoin Options are contracts where you, as a buyer or a seller, do not trade Bitcoin, but instead on the price of the Bitcoin. This is because nobody owns these coins in reality.
You can trade either in crypto exchanges or over-the-counter (OTC) on Wall Street.
Depending upon the exchange, you can enter into a contract by paying the “Premium” through various payment facilities.
While entering into a Bitcoin Options, you must buy them in lot size. You do not have the option of buying these contracts in fractions like you can purchase a Bitcoin.
Generally, each contract expires after three months.
The Advantages Of Leverage
You can enter into multiple contracts since Bitcoin options trading allows you to invest a little and increase your profit potential. Thus, you do not need to invest in Bitcoin and watch the price appreciation.
Are Bitcoin Options a Wise Financial Decision?
It all depends on your point of view and how financially strong you are. Both have their advantages and disadvantages.
If you were to invest in Bitcoin directly, your account is likely targeted by social engineering or misplacing your digital wallet address. But at the same time, you can also sell off your Bitcoins when the price really surges high, Bitcoin has broken its all-time high record of $67,000, and experts do believe that it will be soon that it will also break this record.
If you go for Bitcoin options, then you don’t have to worry about your Bitcoin holdings, but at the same time, when the price really surges, you cannot make the intended profits. If money is the deciding factor for you, then proceeding with options trading is a good choice to make a substantial amount of money in a short time.
If you have enough money, you can explore the options of purchasing the underlying asset and investing in an options trading contract.
Since you, as an investor or a trader, will put your hard-earned money, you should only invest the amount you are prepared to lose.