Bitcoin options: financial tools in the crypto world

Cryptocurrencies is the very special kind of assets not like to securities. But investors more and more often use traditional financial tools to work with crypto. BTC futures appeared in 2017, at the boom period of the crypto market. Bitcoin options have been added in 2019. In May 2020, Bitcoin options open interest crossed the $800-million mark. Let’s find out why Bitcoin options are important and what the growing popularity of them indicates.

Options as a financial tool

Market options belong to derivative financial instruments (or derivatives). Options play an important role for the exchange trading: with them, traders hedge their exchange rate risks and get profit.

Option is a bilateral financial contract between a holder and a seller. The former is not required to buy or sell the asset if they choose not to. And the buyer is under a strict obligation to perform the contract on the holder’s demand (an example with more details). There are two basic types of the derivative:

  • Call Option Contracts. Holder can buy Bitcoin at a specified price within a specified time.
  • Put Options. It gives the purchaser of the option the right to sell Bitcoin at a specified price. It’s profitable if the market price is lower.

Traders use “call” to make money on rice in the price of BTC and “put” when there are indications of a drop.

Emergence of options in the crypto world

Options are a high-level financial instrument so it’s more difficult to integrate it, in comparison with other derivatives. Nowadays, not every cryptocurrency exchange support options and some portals have recently begun to do it. The leader with the largest amount of Bitcoin option contracts is Deribit crypto exchange; activity is also observed on OKEx and CME. FTX launched options in January of 2020.

Binance has integrated “american options” in the middle of the spring (user can only be a buyer). If the exchanger launched usual options as it has been announced, Derbit would be involved in a serious competition.

Options are very useful for the crypto world especially for its foundation, miners. Derivatives give an opportunity to fix the price of mined Bitcoins and protect its owners against market volatility: it’s greater in comparison to traditional markets. But this tool is quite difficult to use and only experienced traders can do it correctly. Equite.io allows you to evaluate the trader’s experience and infer if they can do operations with option contacts.