What you need to know about crypto options

Some time ago, I asked the professional community their reasons for options trading. The feedback was surprisingly variable. I want to share some of my respondents' thoughts in this article. And also, I will explain why the popularity of crypto options will grow boomingly in the nearest future.

"Options provide maximum leverage."

Options trading (especially out-of-the-money) provides much higher leverage than any linear instrument (including futures or contracts for differences).

"I can hold exposure and do not risk getting a margin call."

Your risk equals the premium you've paid when buying an option. If there is turmoil in the volatile cryptocurrency market, you can calmly keep your position.

"Before starting trading at the new market, I look at options prices and get much useful information."

A robust analysis of option prices could give you a key to understanding different market scenarios and uating risks. In options pricing, like in the mirror, you can see the reflection of price forecast, power of buyers and sellers, liquidity concerns, and inventory difficulties.

"I like to get an asymmetric payoff."

Option delta shows how changing your option price depends on the cryptocurrency price. Every time option price increases more if the market moves your way, then falls if your view is wrong. In options trading, such an effect of increasing delta calls "convexity."

"I feel like I belong to the elite when trading options."

At first sight, options trading looks sophisticated. But in fact, the barrier to entry isn't so high. Just a basic knowledge of a risk-reward analysis will help you to trade crypto options successfully.

"Short put should become the main instrument for institutional investors."

There is no more risk in a short put than when you rely on the mind of your fund manager. Delta increases if the market price hasn't broken through the strike/target price and reduces if it has broken.

"It's a great bargain. I change the time for the real money."

You are collecting premiums for the uncertainty within a specified period. Crypto options trading helps you enhance your existing position or enter a new one at a lucrative price.

"I am a portfolio manager. My job is to use all available instruments to get the best results for my investors. Options are just a part of my strategy."

Crypto options are appropriate not only for speculative trading. They may become a part of a long-term investment strategy to build an optimal portfolio. You'll probably get a higher return if you use risk limitation and enhancement strategies instead of simple linear ones.

"I don't enjoy futures trading. On the expiry date, you have one winner and one loser. If you make a profit, somebody gets a loss. Or vice versa. That's why I like options trading."

Right! When trading options, you can simultaneously trade many parameters. A situation where a buyer of a call earns money due to the exercise option, and the seller also earns money due to delta hedging with less realized volatility than embedded volatility on the trade date, is not so rare. Also, some options traders bet on embedded carry, time structure, etc.

As a result, crypto options trading feels like something other than direct competition. Instead, there's a kind of traders' collaboration.

Options trading can add one more dimension to the risk-reward model. You start seeing a 3D picture instead of a flat image and get the possibility to optimize risks and maximize profit.

And finally, it doesn't make sense to reject the advantages of diversified strategies in the challenging market of crypto assets.


Once one of the most prominent players in the derivatives market, Warren Buffet warned, "Derivatives are mass destruction weapons." What can I add here? Just be armed!