How Bitcoin Options Work

Many people have already heard about different ways to multiply Bitcoins: mining, cloud mining, blockchain-based games, Bitcoin faucets, and crypto exchanges. Cryptocurrency can also be obtained by using call options and put options.

Option contracts are contracts that give buyers the right to buy or sell bitcoins, ethereums, and other cryptocurrencies at a certain price. Thanks to this trading instrument, it is traded on exchanges. Options allow you to trade stocks and bitcoins with high leverage, so they are a good way to speculate.

Various underlying assets (UA) form the basis for options and futures, including stocks, indices, and cryptocurrencies. Risk hedging and speculative trading also involve the use of options. Traders often use contracts to buy assets or cryptocurrencies cheaply if their value rises above the strike price.

The main advantage of options is their asymmetry. When buying an option, there is a risk of losing a small amount. In another case, you can make a huge profit. Investing a large amount of money can pay off well. Thanks to one profitable trade, the entire amount lost in many losing trades is covered.

Types of options

There are two types of options: call options and put options. With a call option, contract holders can buy a certain amount of underlying assets or cryptocurrency from sellers at the strike price and on a predetermined date.

Unlike a call option, a put option allows contract buyers to sell the underlying assets or cryptocurrency at a set price. The price may exceed the market price at expiration, from which traders derive a profit.

How Bitcoin options work

The price of the cryptocurrency is set in advance. The seller must follow the contract and sell the cryptocurrency at the agreed price, and the buyer is obliged to pay the amount due. When purchasing a contract, the holder must pay the seller a certain amount or premium.

There are some differences between the rights of holders and buyers. The holder can choose to exercise the option or refuse to do so. The seller's main responsibility is to fulfill the terms of the contract according to the holder's requirements.

The types of underlying assets, expiration dates, and strike prices must be fixed at the time the contract is created. The parameters cannot be changed. Options are often compared to futures. They are financial instruments and derivatives.