Why Trade Bitcoin Options vs the Spot Market?
There’s a common question that’s been asked by crypto enthusiasts – why trade bitcoin options vs the spot market? Bitcoin has had an excellent 2021 and is extremely close to global adoption. With prices going up to almost USD 50,000 it is apparent that Bitcoin is on the bull run of its lifetime. This means buying Bitcoin should be the way to be exposed to this bull run and profit, right?
Well, yes and no. While it is true that Bitcoin has had a pretty great 2021, the fact of the matter is that Bitcoin is an extremely volatile asset. Though there has been an increase in the rate of stability over the years, Bitcoin is still extremely volatile. Even in the current run, Bitcoin has made significant upward and downward price movements (thousand dollars in a matter of 48 hours has been extremely common).
Depending on your motives, it might be better to trade Bitcoin options rather than buying Bitcoin outright from the spot market. Here’s why.
Hedge Against Volatility
One of the best methods to hedge against the inherent volatility of Bitcoin is Bitcoin options trade. You can choose optimal crypto trading strategies such as the covered call or married put when your technical indicators or signals indicate a significant price movement while holding a long position on your Bitcoin. Options act as a wonderful insurance policy against potential future price movements, and when utilized correctly, can be the difference between you saving or losing thousands of dollars.
Hedging strategies, such as Delta hedging and Gamma hedging can be accomplished by trading Bitcoin options and can help you keep volatility in check.
Ease of Access
If you’re just looking to profit from the price movements and not looking to HODL Bitcoin, you don’t need to shell out USD 50,000 to participate in the price movements. Instead, Bitcoin options are available at a fraction of its price, and like with all levered financial instruments, allows you to participate in the profits arising from price movements.
If you’re not a big believer in Bitcoin and are sure that the prices are about to tank, you can also choose to enter a short position through Bitcoin options without having to borrow Bitcoin to actually short it.
Abode to speculators
Apart from acting as a hedge against volatility and cost-effectiveness, trading Bitcoin options can be the perfect instrument for speculators. Speculators can take advantage of the volatility and profit immensely, provided they strategize appropriately. If you have been following the happenings in the crypto world, chances are, you might have come across the story of a pseudonymous trader(s) who profited a massive USD 318,600 by trading in Bitcoin options.
Bitcoin Options Trading as a substitute to spot market
If you currently hold some Bitcoin, and you fear a crash, you can choose to buy a put option to see if your fears hold merits. If Bitcoin crashes, you will still be able to exit your position, at your discretion, but instead of losing a few thousand dollars, your losses will be limited to the cost of buying options.
Conversely, if you believe that the bull run is shifting to another gear but are not really sure enough to bet on it yet, you can put your feelers out and buy a call option. If you’re right about the increase in value, you will be able to buy Bitcoin at the strike price, and if you’re wrong, your losses are limited to the cost of buying Bitcoin options.
Passive Income on Your Holdings
If you truly believe in the potential of Bitcoin and are a long-time HODLER, selling Bitcoin options can be a great way to earn passive income. With strategies such as covered call, you will be able to farm premium on the options sold. As DeFi gains popularity and yield farming becomes extremely commonplace, you cannot just afford to HODL and hope for the best. You’re missing out on what is essentially free money.
Whether you believe, doubt, or have a neutral opinion on Bitcoins, you can trade Bitcoin options and profit at a fraction of the cost when compared to the spot market. However, it is essential to understand the fundamentals of trading crypto options before beginning to trade Bitcoin options. Our tutorial can be a good starting place to learn how to trade Bitcoin options.
