What is Bitcoin options trading?
An option is a financial contract between two parties: the holder and the seller. The former receives the right, but not the obligation, to buy or sell a quantity of the underlying asset, Bitcoin, at an exercise price (strike price) on a given date (expiration date).
The seller undertakes to buy or sell the asset at the option holder’s request. The latter pays the seller a sum of money, the so-called premium, at the time of the purchase of the contract. The rights and obligations of the holder and the seller differ considerably. The former has the right to choose whether or not to exercise the option. The seller, on the other hand, is obliged to comply with the terms of the contract at the holder’s request.
Bitcoin binary options trading does not require so-called “mining”, so there is no need to mine the electronic currency on special powerful equipment. There is also no need to buy the asset itself. In the early days of cryptocurrencies there was nothing difficult in buying them because they cost relatively pennies, but today you need to spend more than $30,000 for 1 Bitcoin, and not all traders can afford it. In the case of Bitcoin binary options trading, all you need to do is predict in which direction Bitcoin quotes will move at any given time relative to the current one. Because the asset is not bought but only bid, the risks are much lower and that will suit most traders looking to profit from a new financial instrument.
Technically, Bitcoin trading hours does not differ from trading other assets. You need to choose Bitcoin as a basis, set the expiration date, determine the rate, make a prediction about the growth or decline of the asset’s value and buy the corresponding contract. When the expiration time comes, if the forecast is correct, you will only need to take your profit, which is given in the currency of your account.
The main types of Bitcoin binary options
There is a big peculiarity of Bitcoin options trading tool that can be difficult for a beginning trader to understand –
How is choosing Bitcoin trading hours should be done when the market moves down? By selling naturally, thus entering a short position. If the market price moves up, we buy by opening a long position.
When dealing with Bitcoin binary options trading, to buy an underlying asset, we need to buy a call option, and to sell, we need to buy a put option. In other words, we are constantly buying.
Knowing this, it is necessary to distinguish two main types of options:
- Call or call option: if the underlying asset is expected to grow;
- Put or sell option – if the underlying asset is expected to fall.
It follows that there are always 4 players in the options market:
- Buyers of call options
- Sellers of call options
- Put option buyers
- Put option sellers
Bitcoin trading hours
To succeed in Bitcoin options trading, you need a proven trading strategy for Bitcoin trading at first it should be choosing of most profitable bitcoin trading hours. Financial analysts believe that BTC is a good way to invest, given the global uptrend the currency has been on since its inception. This is also one of the reasons why traders around the world are increasingly turning to this asset.
There are many strategies for Bitcoin options trading. Four basic approaches can be distinguished.
Long call in Bitcoin trading hours: when buying a call option, the investor expects the price of the underlying asset to rise above the strike on the expiration date of the contract. He can then buy the asset at a discount to the market price and thus make money on the difference. If the price falls below the strike, the buyer only risks the premium paid for the option.
Long put in Bitcoin trading hours: is a kind of alternative to a short position in the spot market. The buyer of a put option expects to make money assuming that the price of the bitcoin option falls below the strike at expiration. In such a scenario, the investor can sell the asset at a higher market price.
In addition, through a put option, an investor can limit the downside risk of the asset for which a long position is open. The strategy of “protective puts” can be used by miners, whose activities are undesirable, a significant and prolonged decline in the price of the mined cryptocurrency. With the help of such tools, miners can provide a profitable or at least break-even activity.
Short call. The investor acts as the seller of the contract, expecting the price of the bitcoin option to fall below the strike on the expiration date. However, the higher the price of the asset, the more losses the writer bears. Therefore, the seller’s risk per contract is unlimited and the profit potential is limited by the call put premium.
Put short. The seller of such an option is confident in the premium, and is firmly convinced that the price of Bitcoin options will be above the strike.
Combinations of these basic strategies can form the basis for more sophisticated approaches to Bitcoin trading hours, such as:
- protective put: buying a put option for an available asset;
- covered (guaranteed) call option: the investor sells a call option on a Bitcoin option already held or to be purchased simultaneously with the sale of the option; the strategy reduces the risk of holding the asset because the drop in its price is partially offset by the premium;
- straddle – a kind of volatility bet, involving the purchase of a call option and a put option on the same asset with the same expiration date and the same strike price;
- strangle – almost the same as straddle, differing only in the strike price.
|Advantages of trading Bitcoin options||Disadvantages of trading Bitcoin options|
|the flexibility of use in speculative trading||the complexity of understanding the mechanism of work, especially for beginners in the market|
|сan be used in any trend – upward, downward, sideways||the volatility of the option premium, which depends on the proximity of the expiration date and the dynamics of prices on the spot market|
|a good tool for hedging risks||complexity of trading strategies|
|the ability to use a variety of combinations and Bitcoin binary options trading strategies||low liquidity|
How to start a forex bitcoin options trading?
When trading Bitcoin options, every investor uses fundamental and technical analysis in order to be more productive in trading. We consider the following indicators below:
- Relative Strength Index (RSI) trading Bitcoin options – is a price following oscillator that ranges between 0 and 100. A method for analyzing RSI is to look for divergence in which the security is making a new high but the RSI is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the RSI then turns down and falls below its most recent trough, it is a confirmation of the impending reversal.
- Bollinger Bands for trading Bitcoin options calculates a simple arithmetic average of prices, specified by the input Price, from each of the most recent number of bars specified by the input Length. This indicator also calculates the standard deviation in those prices for the same number of bars. An upper band is plotted a specified number of standard deviations above this average and a lower band is plotted a specified number of standard deviations below the average. The average is not plotted.
- Intraday Momentum Index (IMI) trading Bitcoin options – is an oscillator which is constructed by averaging N day’s worth of upward price changes (close is greater than open) to N day’s worth of downward price changes (close is less than open). Sell signals are issued when the index crosses above the overbought level of 70% and buy signals are issued buy signals are issued when the index crosses below the oversold level of 30%.
Bitcoin trading hours – how does it work?
For Bitcoin binary options trading, the first thing you should do is to choose a good and reliable broker, which will give you the opportunity to work with Bitcoin binary options, like FXPro or IQ Option. And now let’s talk about the peculiarities of Bitcoin trading hours:
- Turbo binary option is not suitable for working with Bitcoin, because there is no such dynamics of price changes and it is extremely difficult to predict the price movement in such short intervals, in this case it is better to use a classic binary option ;
- You should carefully study the principles of technical analysis to predict price movements in Bitcoin trading hours;
- It makes sense to use Bollinger Bands, Fibonacci grid, moving averages and other popular tools of technical analysis;
- As with other assets, you will need to develop your own strategy for trading bitcoin options, you should take into account the characteristics of the asset and the nature of the trader;
- Do not forget about the need for financial planning, clearly measuring the cost of options based on the size of the game bank;
- Bitcoins are most often exchanged for dollars, so the volatility of this currency pair will be stronger than others;
- Bitcoin options trading is available 24/7, but it is worth considering that the main financial information providers do not work on weekends, because it is important to make sure that the broker has an external source of objective quotes in 24/7 Mode, so as not to play randomly with the rate, set at random;
- The bitcoin rate on forex and on your broker will be different and this is normal.
Ayrex is one of the world’s largest asset management investment companies, which offers a wide range of instruments for Bitcoin binary options trading. The holding’s services are represented in more than 100 countries around the world.