Crypto Options Trading And How To Gain Profit

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  • Crypto Options Trading And How To Gain Profit – Options traders can make money by writing or buying options. Irrespective of the market’s direction of movement, options offer the possibility of profitability during these tumultuous periods. Options can be traded in expectation of market appreciation or depreciation, making this conceivable. An options strategy can benefit from price movement in assets like stocks, currencies, and commodities as long as those prices change.

What Is Options Trading Crypto?

As a derivative, options are based on underlying securities like commodities, equities, or virtual currencies.

The two main categories are “call” and “put” options. Call option owners can purchase an asset at a preset price within a predetermined window of time.

Put options have the potential to be sold at a set price within a specific time frame. Traders pay a premium for the possibility of buying or selling Bitcoin at a predetermined price in the future when purchasing Bitcoin options.

Also read: A Complete Guide To Learn To Trade Cryptocurrency For Beginners

This is essentially an additional technique to buy or sell Bitcoin that allows investors to profit in a bad market and earn even more significant gains in a bull market.

Similar to ordinary options, Bitcoin option holders have until the contract’s expiration date to exercise their option before closing the position. Trader can liquidate their stake at the current market price if they desire to close out their position early.

Crypto Options Trading: Call And Put

Calls and puts are the two different forms of options contracts.

Call Options

You can either purchase call options or trade call options when it comes to calling options.

Buying Call Options

When you purchase a call option, no matter the market price before or at the contract’s maturity, you buy an underlying asset at a specific predetermined price.

You can buy a call option when you speculate on the financial market if you think the market price at the contract’s expiry will be greater than the strike price. In other words, you believe that the value of the options will rise and that the more it grows, the more money you will make.

Buying Call Options: Example

For instance, Shaw buys an Ethereum call option with a week-long expiration and a premium of 25 USDT and a $3,000 strike price. He may close his trade before the validity period expires when the price of ETH drops from $3,000 to $3,200, and his gross margin will be $175 [i.e., ($3,200-$3,000-$25)/market price at execution strike price – premium].

Selling Call Options

On the other hand, a trader will sell a call option (also known as a naked call) if they believe the underlying security price will remain stable or decline.

Selling Call Options: Example

According to the example above, you will receive the 25 USDT premium if the price at expiration does not reach or fall below the strike price of $3,000 and the buyer does not execute the contract.

No of the market price before or at the contract’s expiration, a call option permits you to purchase the underlying asset at a specific price.

Put Options

Whatever the market price at contract expiration or before, put options enable you to sell the underlying asset at a fixed price.

Buying Put Options

Put options can be purchased or sold, just like calls. When you buy a put option, irrespective of the price at the expiration time, you are selling the underlying asset at a fixed price.

A user could enter a put option contract to guarantee the item retains a significant value when attempting to secure the benefits from minting or investing. If a speculator thinks the price of the underlying investment market will be less than the strike price, they could buy a put option to profit by selling it back at a lower price than they paid for it.

Buying Put Options: Example

Consider Chris, who owned 100 BTC at a time when the cost of one BTC was $48 000. She purchased a put option from her cryptocurrency exchange, anticipating a price decline, allowing her to sell her asset after two weeks at a strike price of $45,000. Chris used her right when the cost of BTC reached $40,000 and made $5,000 as a result.

Also read: Crypto Trading Strategies For Beginners And Advanced

Selling Put Options

However, a trader will sell a put option (also known as a naked put) when they anticipate an increase in the underlying security price.

Selling Put Options: Example

The trader who sells Chris the option, in the identical case as earlier, predicts that the price of BTC will increase. The option will expire worthlessly, and the seller will pocket the premium if the price of 1 BTC rises to more than $48 000, for example, $50 000, on the expiration date.

How Do Crypto Options Work?

Options are agreements between two parties: a trader and an exchange. The expiration date and special price are set in the contract order that the options seller places on the cryptocurrency exchange. The business then matches a buyer with the order.

The surcharge price is based on the time left on a contract before it expires, the unpredictability of the underlying asset, the market price of the underlying asset, and interest rates to maintain fairness.

Introduction To Option Profitability

If the underlying asset—say, let’s a stock—rises over the strike price before expiration, the buyer of a call option stands to benefit. If the price decreases below the strike price before the option expires, the buyer of the put gets a profit. At the expiration or when the option position is terminated, the difference between the stock price and the option strike price determines the precise amount of profit. If the underlying stock remains below the strike price, the call option writer will profit. The trader makes money if the price remains above the strike price after selling a put option. The profitability of an option writer is restricted to the premium they are paid for writing the option (which is the cost to the option buyer). Option sellers and writers both use the term.

Option Buying Vs Writing

Between purchasing and writing options, there are important distinctions. While the option writer must execute the option, the buyer has the right to do so. Time decay is advantageous to the option writer and detrimental to the buyer.

If the option trade is successful, the option buyer can earn a sizable return on their investment. This is because a stock price may considerably fluctuate from the strike price. Because of this, option buyers frequently have more (or limitless) profit potential. In contrast, option writers’ profit potential is somewhat constrained and depends on their premiums.

If the option deal is successful, the return to the option writer is relatively lower. This is such that the writer’s return is always capped at the premium regardless of how much the stock fluctuates. Why then do options? Option writers can trade out of liquid options, obtain upfront premium income, and be eligible to receive the total premium regardless of whether the option expires in the money.

Assessment Of Risk Tolerance

Here is a quick test to discover if you would be better off as an option buyer or writer based on your risk tolerance. Let’s imagine you have the choice to buy or sell ten call option contracts at the cost of $0.50 per call. The average underlying asset for each contract is 100 shares, so ten contracts would cost $500 ($0.50 x 100 x 10 contracts).

The most significant loss you can sustain is $500 if you purchase ten call option contracts. Though theoretically endless, your potential profit is infinite. What, then, is the catch? There is a low likelihood that the trade will be lucrative. While this change varies depending on the call option’s implied volatility and the amount of time left before expiration, let’s pretend it is 25%.

On the other hand, if you write ten call option contracts, your loss is theoretically unlimited, and your maximum profit is equal to the premium income, or $500. However, the chances of the options trade being profitable are 75% in your favour.

Would you then gamble $500 knowing there is a 75% chance you will lose your money and a 25% chance you will profit? Or would you instead make a maximum profit of $500 while knowing there is a 75% chance you would keep all or a portion of the money and a 25% chance you will lose it?

Your risk tolerance and whether you would be better off as an option writer or buyer will depend on the answers to those questions.

Remember that these are general statistics that pertain to all options; there may be instances when it is more advantageous to be an option writer or a buyer of a particular asset. Using the appropriate method at the proper time may change these probabilities drastically.

Motives For Trading Options

Investors and traders engage in options trading to speculate on possible price changes of an underlying asset or to cover available positions.

Leverage is the primary advantage of using options. For instance, let’s assume that a trader has $900 to invest and wants to get the best return possible. Shortly, the investor hopes for XYZ Inc. Suppose XYZ is currently trading at $90. The most shares of XYZ that may purchase is ten. But XYZ also offers three-month calls with a $95 strike price for a fee of $3. The investor now buys three call option contracts rather than shares. The price of three call options (3 contracts x 100 shares x $3) is $900.

Suppose XYZ is trading at $103, and the call options are trading at $8 just before the call options expire. At this moment, the investor sells the call options. Here is a comparison of each case’s return on investment.

  • Direct acquisition of XYZ shares for $90: Profit = $13 per share x 10 shares = $130; return on investment equals 14.4% ($130 / $900).
  • Purchasing three call options at $95: Profit = $8 x 100 x 3 contracts = $2,400 less the $900 premium paid = $1500, or a return of 166.7% ($1,500 / $900).

Option Trading Tips

To give your trade time to succeed, as an option buyer, your goal should be to buy options with the most extended expiration. On the other hand, to reduce your responsibility when writing options, choose the one with the shortest end.

To balance the point mentioned above, buying options at the lowest price may increase your chances of making a profitable trade. Even though the likelihood of an exemplary transaction is slim, given the low implied volatility of such cheap options, the option may still be underpriced. Therefore, the potential reward might be substantial if the trade is booming. Due to the possibility of a more significant loss (higher premium paid) if the transaction does not succeed, purchasing options with lower implied volatility may be preferable to buying those with a very high degree of implied volatility.

Recognize the stock’s sector of ownership. For instance, when the clinical trial findings of a significant medicine are released, biotech stocks frequently trade with binary outcomes. Based on whether one is optimistic or bearish on the store, one can buy deeply out-of-the-money calls or puts to bet on these outcomes. Writing calls or puts on biotech stocks around such occurrences would be exceedingly dangerous unless the implied volatility was so significant that the premium income received made up for the risk. Similarly, buying out-of-the-money calls heavily or puts on low-volatility sectors like utilities and telecoms makes little sense.

Use options to trade one-time events like business spinoffs, restructurings, and recurring events like earnings announcements. Around such occurrences, stocks can behave very volatilely, providing an opportunity for the astute options trader to profit. For instance, if a company that has been significantly down managed to beat decreased expectations and then rises, buying inexpensive out-of-the-money calls before the earnings announcement might be a winning strategy.


The more sophisticated techniques, such as put writing and call writing, should only be employed by knowledgeable investors with a sufficient risk appetite. Investors with a lesser risk appetite should adhere to fundamental methods, such as buying calls or puts. Option strategies offer a variety of paths to profitability since they can be customised to fit each investor’s specific risk tolerance and return requirements.