Introduction to Crypto Options

Options are a nascent market in crypto, with only approximately 5% of the global share of derivatives volumes. It’s a market growing at rates of about 100% annually but relatively unknown to the vast majority of crypto derivatives traders, who still prefer Perpetuals due to their perceived simplicity and high leverage, with liquidity also playing a key role.

Demystifying Options Trading

But what if I told you that options are not as complex as they appear to be and that a trader can get much higher leverage when trading with less and better-managed risk? No liquidations, no anxiety from watching your PnL turn negative as markets move against your position.

Sounds too good to be true? Read on.

When new traders hear volatility, gamma, theta, and all the jargon that comes with options, their first reaction might be to run for the exits. Assuming fair pricing, you can start with options by focusing on its simple concepts: price, strike, and expiration date. If you’re a perps trader, you’re likely familiar with these concepts.

Understanding Option Basics

As a refresher, think of premium as the one-time price you need to pay to put on a trade. When trading perps or CFDs, you might be paying a funding cost if you keep the position open.

With options you pay a price fixed at the start, no more and no less. The option type determines direction. If you are bullish, you buy a “call” (type) option. If you are bearish, you buy a “put”. Just remember: Call=Buy and Put=Sell, except you’re buying or selling at the so-called strike price only if it’s convenient for you to do so. Thus the name “option”.

Cash-Settled PowerTrade Options

PowerTrade options are cash-settled. This means you don’t get the asset when you exercise the option. Instead, you get the cash difference between your chosen strike price and the market price at the expiration date. Think of it as perpetual that starts earning profit once the strike price is reached, except there is no negative PnL.

Why Choose Options Over Perpetuals?

In volatile markets, perps traders can incur significant losses, forced liquidations, account bankruptcies, or even be victims of socialized losses. Options remove these. If you’re long an option, you are not subject to liquidations. Your max loss is capped at the premium (price) paid for the option.

For perps traders, adverse markets can result in major losses even before liquidation occurs. This is not the case with options. Options also give significant leverage, particularly in volatile markets.

Advanced Trading Strategies with Options

Options also allow for more sophisticated trading strategies, such as call spreads, where you take a view on the price hitting an upper range but not going beyond a specific higher price. These strategies come with payoffs in the 1:100 and above. We will be exploring these in future posts.

Options vs Perpetuals

So there you have it. Options are like perpetuals on steroids.

They provide very high leverage and keep trading anxiety at bay by eliminating liquidation even during massive price wicks, which is often the case in crypto markets, not to mention the anxiety from watching your PnL turn negative during adverse market conditions even when there is no liquidation.

Start exploring the potential of options trading today on PowerTrade.

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