Crypto Options Trading by OKX

Crypto options are a type of derivative trading product where traders buy or sell an underlying crypto asset at a predetermined future price and date. Unlike crypto futures, however, traders are not obligated to fulfil the options contract on the settlement date.

How does crypto options trading work?

The main components of a crypto options contract include:

Underlying Asset An underlying asset is the asset the derivative contract is based upon. For example, in the case of bitcoin derivatives, the underlying asset would be bitcoin.

Strike Price (Exercise Price) The price at which the trader can buy or sell the underlying asset when exercising the call or put option.

Expiration Date The date the options contract expires.

Settlement Terms The way in which the options contract is settled, whether it be in cash or crypto.

Option Premium The amount traders pay for the options contract. The cost of option premiums depends on the time left on the options contract, market volatility, interest rates and the current price of the underlying asset.

Contract Types There are two contract types – American and European. American options can be exercised any time before their expiration date, while European options can only be exercised on the expiration date. OKX follows the European style.

Crypto options trading: call vs put

There are two types of crypto options contracts: calls and puts. Call options give traders the option to buy an underlying asset at its strike price on or before the expiration date, regardless of the market price. On the other hand, put options give traders the option to sell an underlying asset at its strike price on or before the expiration date, regardless of the market price.

Buying Call Options:

If you anticipate market prices to be higher than the strike price on or before the expiration date, you may buy a call option. For example, if a trader buys an ethereum call option with a strike price of $2000 and premium of $100, and the market price of ethereum rises to $2800, they may choose to exercise the call option to gain a profit of $700 (Market Price at Execution - Strike Price - Premium = $2800 - $2000 - $100).

Selling Call Options:

If you anticipate market prices to be lower than the strike price by the expiration date, you may sell a call option. A trader who is bullish on the underlying asset may buy your call option for a premium. While payoff from the options premium is guaranteed, there is unlimited risk as market prices can theoretically rise to infinity. Following the example above, say a trader buys an ethereum call option with a strike price of $2000 and premium of $100. If the market price of ethereum rises to $2800, the trader will likely exercise the call option to buy ethereum at the pre-agreed $2000 to gain a profit of $700. In this case, the call option seller will lose out on the potential profits gained despite receiving $100 in option premiums. On the other hand, if the market price of ethereum falls to $1000, the trader will likely not exercise the call option to cut back on losses. As such, the call option seller will earn a profit of $100.

Buying Put Options:

If you anticipate market prices to be lower than the strike price by the expiration date, you may buy a put option. For example, if a trader buys an ethereum put option with a strike price of $4000 and premium of $100, and the market price of ethereum falls to $3000, they may choose to exercise the put option to sell their ethereum at $4000 regardless of current market prices, thereby profiting an extra $1000.

Selling Put Options:

If you anticipate market prices to be higher than the strike price on or before the expiration date, you may sell a put option. A trader who is bearish on the underlying asset may buy your put option for a premium. Following the example above, if the market price of ethereum rises to $5000, the trader will likely not exercise the put option. As such, the put option seller will earn a profit of $100 from the premium. Conversely, if the market price of ethereum falls to $3000, the trader will likely exercise their right to sell ethereum at $4000. Since you are still obligated to buy ethereum at the strike price of $4000, you will lose out on the potential to buy ethereum at its market price of $3000.

Why trade crypto options?

Crypto options provide traders with opportunities to expand their portfolios exponentially and hedge current investments. While futures are more cost-effective as there are no premiums to be paid, crypto options offer lower risk.

Access to Crypto Markets

Investors can trade crypto options without ever having to own the underlying currency of the options contract.

Minimize Risk and Loss

Hedging reduces the risk of unfavorable price movements of an asset.

Amplify Profits with Leverage Trading

Investors can use leverage to amplify their potential profits without upfront capital.

Trade crypto options on OKX

Crypto options allow traders to engage with the crypto market in a flexible and low-risk way. OKX offers options contracts for top cryptocurrencies like Bitcoin (BTC), Ethereum (ETH) and Solana (SOL). Read OKX’s beginner-friendly guide to learn

High Volume and Liquidity

OKX processes over $12 billion in volume daily in the derivatives market alone.

Broad Offerings

OKX offers options contracts with a wide variety of strike prices and expiration dates.

Transparent Price Discovery System

OKX allows options buyers and sellers to quote freely. This enhances trade freedom and allows traded prices to reflect market trends accurately.

Beginner-friendly: OKX Simple Options

OKX offers a unique ‘Simple Options’ interface that helps beginners get started with trading crypto options.

Risks of crypto options trading

Similar to crypto futures, there are risks involved when trading with leverage as the potential loss could be amplified. Specific to options trading, the risk for options buyers is limited to the premiums paid since buyers can choose to let the options contracts expire. On the other hand, the risk for options sellers depends on the price market prices at execution.

Can you trade bitcoin options?

Yes, OKX offers bitcoin options trading contracts alongside two other options contracts for popular cryptocurrencies with a wide variety of strike prices and expiration dates. This includes Ethereum (ETH) and Solana (SOL).

What are crypto derivatives?

Crypto derivatives, like traditional derivatives, are contracts that derive their value from an underlying asset. In the case of bitcoin derivatives, for example, the value of the underlying asset would be the price of bitcoin.

What is the difference between futures and options?

Futures contracts require contract holders to buy or sell the asset on the pre-determined future date, also known as a settlement date. Options, on the other hand, give contract holders the option to not fulfill the contract if market conditions are not in their favor.

What is the difference between options and margin trading?

Margin trading allows you to trade with borrowed funds while options trading gives you the right, but not the obligation, to buy or sell an asset at a predetermined future date and price.

What is the difference between options and perpetual swaps?

Options contracts have an expiration date while perpetual contracts do not have an expiration date.

What is the difference between options and margin trading?

Margin trading allows you to trade with borrowed funds while options trading gives you the right, but not the obligation, to buy or sell an asset at a predetermined future date and price.

What do 'in-the-money' (ITM), 'at-the-money' (ATM) and 'out-of-the-money' (OTM) mean?

ITM for call options means that the strike price is below the market price. For put options, it means that the strike price is above the market price.
ATM refers to when strike price and market price are equal.
OTM in the case of call options refers to when the strike price is above the market price. For put options, it means that the strike price is below the market price.