Sometimes markets get highly volatile. As a result, traders, especially unexperienced and new traders get confused and overwhelmed. In fact, for unexperienced traders, sharp changing in price directions create more challenges than opportunities. If, you are one of the traders that get confused when market prices swing quickly then this article could help you. In this article we are going to talk about Bitcoin options as a solution when market gets volatile.
Bitcoin Options created in 2017. In fact, it makes both institutional and retail investors to be able to buy and sell options contracts on Bitcoin or other cryptocurrencies to hedge their risk positions and make leveraged trades.
When the crypto, especially Bitcoin market is volatile, Bitcoin traders have two options. The first is to hedge large risk positions and the second is to bet on a volatility.
For instance, if a trader leveraged long on basket of crypto assets could put an option to buy Bitcoin at the price of $10000 with six months expiry date. This strategy could significantly hedge the losses. In fact, it saves the trader when the market collapse and Bitcoin drop below $10000.
In this case, if the market continues to grow up, then the trader will benefit from this rally and the session will simply expire. It means that the trader only loses what he paid for the option position and wouldn’t have heavier losses.
On the other hand, an experienced options trader could use options on Bitcoin in order to bet on market volatility. In fact, the trader use Bitcoin options as a solution.
For instance, trader could use something called “strangle” tactic. In this tactic the trader bet on the market only if he is sure that market price will increase.
A strangle is an option strategy, which include buying a put option and call option on the same primary asset with two different strike prices. This strategy works effectively, when you are sure that market will have sharp movement, but you are not sure about the direction.