What is Bitcoin Option?

A Bitcoin option is a form of financial derivatives that grants, but is not obligatory,  the right to buy or sell Bitcoin at a certain price until a set date .

futures;  is an agreement to buy or sell an asset of value on a certain date and for a pre-agreed price. When a futures contract is implemented , trading takes place at the previously agreed price, regardless of the actual market price on the date of the contract.

The Bitcoin options contract, which is in derivatives of futures, has a slightly different structure than futures. In this blog, we will talk about the innovations, advantages and disadvantages of the Bitcoin options contract. 

First of all, if we talk about the types of option contracts in terms of transaction type and maturity;

There are two types of option contracts in terms of trade type;

1.Call  options: The increase in the price of the call option,
2. Put options: With a put option, you expect the price to fall.
A call option gives you the right to buy the asset of value at a certain price. A put option allows you to sell the asset of value at a certain price, but neither option holds you liable for your predictions.

There are 2 types of options contracts according to the ability to trade on the expiry date; 

1.American  type options: In this type of trading, you can exercise your options at any time before the expiry date.
2. European type options: These options can only be used on the day of the expiry date or shortly before the expiry date.

What is the Working Logic of the Option Contract?

The option contract, which is one of the trading derivatives, allows investors to take investment positions from different frameworks. With an option contract, you can predict whether the price will go up or down. If the exercise price in the option contract is foreseen to be less than the market price on the specified date, an option contract can be made under it. If it thinks that the strike price will remain below the market, it can cancel the transaction because it will be to the detriment of the execution of the contract. However, at this point , a special commission fee is included in the platform where the transaction is carried out.

What are the Advantages and Disadvantages of an Options Contract?

Options can be used for speculation, but are usually used as a risk management strategy called hedging (hedging: The effective and accurate use of instruments in the financial markets to protect against investment risk, securing an investor’s investment against possible adverse price movements. In order to reduce the risks that may be encountered to a certain value, the investor can buy futures contracts with the expectation that prices will rise in the future by taking a long position with the help of futures contracts or sell futures contracts with the expectation that prices will decrease in the future by taking a short position.) is preferred for. Investors try to protect their investments from factors that may have a negative impact when hedging. In this way, it offers investors investment positions in different directions in speculative trading. It offers the possibility of profit in bearish, bullish or horizontal market trends. It is possible to make multiple trades at the same time.

If we look at the disadvantages, the working mechanisms and premium calculations do not have an easily understandable structure. It is more complicated than traditional methods. Options markets often have low liquidity and the premium fees of contracts change very often. As the expiry date approaches, premium fees decrease.