Are Bitcoin Trading Options Less Expensive Than Futures?
Cryptocurrency Expert - Tyler
Trading Bitcoin options can be a good way of accessing leverage while minimising the danger of liquidation posed by futures contracts, but buyers must pay attention on premiums.
The most basic Bitcoin (BTC) option contracts include the purchasing of a call that allows the buyer the right to purchase the asset at a fixed price on a fixed date. For this right, the purchaser merely pays an upfront price, known as a premium, to the contract seller.
While this is a perfect way to hedge while avoiding the possibility of liquidation that comes with investing in futures contracts, it comes at an expense. The option premium will increase during turbulent markets, meaning a greater increase in price is needed to profit.
Bitcoin's daily volatility reportedly stands at 5.4%, which is far more than the S&P 500's 1.7%. This volatility allows for greater opportunity but also come with more risk.
The chances of this trade are determined from the Black & Paddy formula, and Deribit Exchange introduces these as 'delta.' In short, these are the percentage-based odds for each hit. A $54,000 strike on March 26 has a 48% probability of happening on the basis of an option pricing model that seems fair. On the other hand, the $58,000 call alternative has an implicit 37% chance.
With about 20 days remaining before the end of March 2021, the chances of the Bitcoin investment price closing the month over $60,000 appear probable given today's price activity. Considering that this call option is selling for BTC 0.0548 each, it costs $2,790 as Bitcoin trading price is at $50,900.
In order to make this call option viable, the Bitcoin buying price must be $60,800. Had this buyer chosen for a prudent 3x leverage potential position, the price to buy Bitcoin at $60,800 would have yielded a $1,485 boost.
It is important to note, that Contracts for Differences (CFD’s) are currently banned in the UK for retail investors, however, if you are looking to buy and sell Bitcoin and other Cryptoassets, register an account with BC Bitcoin, the UK’s most trusted Bitcoin Broker.