Originally intended as a kind of digital cash for purchasing goods and services without resorting to fiat currency, cryptocurrency nowadays more resembles a commodity. More precisely, each digital asset, from the original Bitcoin to altcoins like Ethereum and Litecoin and even the so-called ‘meme coins’ such as Dogecoin, functions as a commodity in an exchange market characterised by high price volatility.
Thanks to the availability of full-featured crypto exchange apps that enable convenient access to the crypto market for an increasing number of individuals around the world, crypto trading is more popular than ever. These new traders are less interested in having cryptocurrency for its own sake than in having their coins appreciate in value and cashing in at a later date. For the majority of crypto traders, crypto’s volatility is the whole point. The dramatic price swings in a relatively short time compared to traditional investment instruments can result in fantastic profits for traders who play their cards right.
As the cryptocurrency market increasingly resembles the commodity market, more sophisticated trading tools for cryptocurrency emerge based on the latter. The latest to arrive on the scene are crypto options.
Experienced traders will already be familiar with options trading. Options are derivative instruments in which the buyer reserves the right to buy (Call) or sell (Put) the underlying asset at a predetermined price (known as the strike price) and within a specified time frame, effectively trading on what they think the asset will be worth in the future rather than holding the asset itself with the hope of selling it on down the line. So what makes crypto options special?
StormGain, a reputable crypto exchange that has debuted a range of innovative crypto instruments, recently rolled out crypto options on their platform. Now, rather than simply being able to trade cryptocurrencies, StormGain users will be able to place Call and Put option orders based on the potential future price of the cryptocurrency. This means trading on the price changes of a digital asset without having to actually own or hold the asset itself. Crypto options are perfect if your main interest in cryptocurrency is to profit from price volatility rather than collect digital tokens.
Why crypto and options trading are a perfect match
The prices of crypto options are more affordable than buying the coins outright but also benefit from higher volatility, allowing for much higher returns on your investment. For example, even a relatively small movement on the price of Bitcoin will affect the value of the option purchase by much higher multiples (as options typically reserve the right to buy/sell in the hundreds). At the time of writing, Bitcoin is trading at around $38K. If the price were to go up to $40K, someone who bought a Bitcoin would gain $2000 in profit, but someone who bought 100 options could gain $200000. At the same time, should the future price of BTC not go your way, it is not possible to lose more than your initial investment in buying the option, because you are not obligated to exercise your option, only pay the initial price for them.
Options are great for a variety of trading strategies, such as using long Calls (for a bullish approach) or Puts (when you predict a bear market) to maximize your profits. More cautious investors can even take both kinds of options on the same underlying asset (known as straddling) or hedge by taking a Put option on their holdings, which compensates for a potential depreciation of the asset.
So we can see that options trading leans into all the advantages of trading cryptocurrency. When you want to take advantage of volatility, it’s cheaper and easier to trade on the price changes of different coins. On the other hand, one of the main risks of cryptocurrency holding (an unexpected dip in price) can be offset by hedging with options.
For crypto fans, who obsessively follow the wide range of digital assets, their movements, and the accompanying influencers, options provide the opportunity to intensify the game they are already playing – which coins will go up and when? What will be the next big thing? Crypto options open a wealth of more sophisticated trading strategies that let you use your knowledge of the crypto market to make even more profit from speculation.
Stock option trading is occasionally criticised for being risky, but this is a charge often leveled at ‘write’ options for Calls. These are when you sell the Call (the right to purchase) to someone else for a premium. If the price of the asset goes up, that forces you to sell at a potentially unlimited loss. But StormGain’s crypto options are of the less risky ‘hold’ variety, meaning that any potential losses cannot exceed the initial investment. As such, the old adage of trading, to never invest more than you can afford to lose, still holds true.
Where to trade crypto options
To trade crypto options, you simply need to choose a platform that offers them, usually as part of a suite of other digital assets. The best platforms for trading digital assets are specialised crypto exchanges. StormGain, which offers crypto options along with favorable rates on a wide variety of cryptocurrency purchases and exchanges, crypto wallets with up to 12% APR interest, indices, and tokenized assets, maybe a good choice, especially as it features a free demo account that can be used to experiment with trading strategies before investing.
To trade options on StormGain, simply log into the web platform or download the app, register with a few clicks, and select the cryptocurrency asset. Under each, you’ll see an ‘options’ tab with the details of the strike price and expiry date for each one. Whichever platform you choose, make sure that it offers a good range of bonuses and instruments. Remember, options are best used as only part of a robust portfolio!