In the previous article, we’ve explained what Binance options are and how they are unique to existing options products. In this article, you will learn why Binance options are increasingly popular among crypto traders, how you can get started with it and the various strategies that you can implement to potentially generate steady returns with options trading.
Why trade Binance options?
Binance options are a retail-friendly product that has been much anticipated by the community. It simplifies options trading to enhance users’ trading experience and lowers the entry barrier for retail traders.
Since its inception, Binance options have been well-received, processing more than $1 billion in trading volume. This astonishing success has positioned Binance as the largest options venue in the market.
There are some advantages to trading Binance options. Here are the key benefits of trading with Binance options: Flexibility, short-duration strategies, easy to use, unlimited liquidity, competitive premium pricing and high leverage with no liquidation risk.
Binance options are American-style options that can be exercised any time before the expiry date. In contrast, European-style options can only be exercised on the expiration date. In traditional options markets, American-style options are usually worth more because of the flexibility that it offers.
2. Short-duration strategies
Unlike traditional options, Binance Options offers short-duration contracts, ranging from 10 mins to 1 day. This allows users to trade with expiry windows as small as 10 minutes apart, providing a wider selection of option trading strategies.
3. Easy to use
Users need not go through the hassle of choosing over a range of strike prices and expiration dates. Instead, Binance options are designed with only one strike price, which is equivalent to the price of BTCUSDT on Binance Futures. Binance Options simplify options trading as it eliminates the need to keep track of multiple expiry dates and strike prices.
4. Unlimited liquidity
Binance is the sole-issuer and primary liquidity provider of the product. This means that Binance options have an uncapped supply and users will always have quotations in any given period.
5. Zero-fee model and Competitive premium pricing
Users of Binance Options need not incur additional fees other than the premiums paid for the option. Premiums of Binance options are competitively priced; given that Binance options are American-style and it charges no transaction fees, Binance options may be a cheaper choice for options traders.
6. High leverage with no liquidation risk
Binance options offer high leverage so that users can gain exposure to the underlying asset with only paying a fraction of its overall cost. Additionally, users need not worry about liquidation risk that is often associated with leveraged trading. With Binance options, the maximum downside is the premium paid for the option. In other words, users of Binance options have a limited downside.
How to get started with Binance options
Before you start trading Binance options, you need to understand the unique features that it offers. In addition to the key points mentioned above, it is also worth noting that users can only be a buyer of Binance Options as Binance is the sole-counterparty of the product. Therefore, users of Binance Options are not exposed to unlimited downside, unlike traditional option sellers.
Without further ado, let’s dive into the step by step trading process on how to purchase a Binance option:
1. Firstly, confirm the duration of the option that you wish to purchase. Binance options offer short-term durations ranging from 10 minutes to 1-day.
2. Next, determine to buy a call or put option based on your prediction of the near-term price of Bitcoin (rise or fall). Select the appropriate option when ready.
3. After that, confirm the details such as the strike price and premium that is displayed.
4. Subsequently, you may choose to manage your position manually or hold on to expiry.
5. If you wish to book profits before expiry, you may choose to ‘settle’ the contract at the current strike price of the option. In this case, your profit will be calculated as such: Profits = (Current strike price - strike price at entry) * Quantity - Premium paid
6. Or you may choose to hold onto the option until expiry, where the option contract will be settled automatically.
7. However, if the options contract is not in the money, you may choose to hold the option till expiry, where your maximum loss is the premium paid upfront.
Binance Options Trading Strategies
There are various strategies you can employ for options trading - all of which vary on risk, reward and other factors. Here are the main strategies that you can adopt on Binance options.
1. Buy BTC Call options
Purchasing a BTC call option is essentially betting that the price of BTC or its underlying asset will go up over the course of a predetermined period. For instance, if you buy a 1-hour BTC call option at a strike price of $7,000 with a premium of 100 USDT, you are predicting that the price of Bitcoin will increase within the next 1-hour.
Illustration of a Call option
To exit this trade profitably, Bitcoin must move beyond your breakeven price of the trade at expiration or settlement. In this case, the breakeven price will be $7000 + $100 = $7100.
If BTC fails to increase or perhaps decline in value at the time of expiry, then your realized loss will be the premium you paid for the call options.
2. Buy BTC Put options
When purchasing BTC put options, you are expecting the price of BTC or the underlying asset to go down within a certain period. In other words, you are bearish on Bitcoin. For example, if you are purchasing a 1-day BTC put option at a strike price of $7,000 with a premium of 100 USDT, you are assuming its price to decline in value within the next 24 hours.
Illustration of a Put option
To exit this trade profitably, Bitcoin must move below your breakeven price of the trade at expiration or settlement. In this scenario, the breakeven price will be as follows: $7000 - $100 = $6900.
If BTC fails to move in your favor at the time of expiry, then your realized loss will be the premium you paid for the put options.
3. Long Straddles
A long straddle is a neutral options strategy that involves simultaneously buying both a put option and a call option with the same strike price and the same expiration date. The strategy is profitable when the price of Bitcoin either rises or falls sharply from the strike price by more than the total premium paid.
This strategy is often used when you are expecting the price of Bitcoin to move significantly out of a range, but you are unsure of the direction it will take.
Illustration of a long straddle
For example, if you foresee extreme volatility in the price of Bitcoin a day after its halving event, you could express this prediction by constructing a long straddle strategy. In this case, you can buy a 1-day BTC call and put options with the same strike price of $7000 and a premium of $100 each. If Bitcoin moves sharply beyond the combined breakeven price of both options, you can exit the trade profitably.
With long straddles, you have the opportunity to gain unlimited profits as long as the underlying asset moves sharply in your favor.
Trading Binance options on App
Binance Options is currently accessible through our Binance Apps and will be available on the web version soon. On our Binance App, you can monitor the options market, plan your strategy, and trade it in one easy-to-use and integrated platform.
Additionally, you can also monitor related markets such as futures and spot markets. In particular, the underlying asset of Binance options - BTCUSDT perpetual contract on Binance Futures. With an integrated app, users keep track of price developments in related markets.
With the addition of options trading on Binance App, it further expands Binance’s trading ecosystem as users now have more products to efficiently hedge positions or speculate on short-term prices of crypto assets.