How To Get Started With Binance Options
Binance options simplify options trading to enhance users' experience and lower the entry barrier for retail traders.
Some of the main advantages of trading options on Binance Futures include flexibility, short-duration strategies, unlimited liquidity, and more.
Unlike traditional option trading, users are not exposed to the unlimited downside with Binance options.
Options on Binance Futures are a simplified version of traditional derivatives and are designed to enhance a user’s trading experience and lower the entry barrier for retail users. These financial instruments are intuitively designed and provide flexibility to option traders.
In this article, you will learn how to get started with trading crypto options on Binance Futures and the various strategies you can implement to potentially generate steady returns.
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' experience and lowers the entry barrier for retail traders.
There are some advantages to trading options on Binance Futures, which include: 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 offer short-duration contracts, ranging from 5 minutes to 1 day. This allows users to trade with different expiry windows, providing a more comprehensive selection trading strategies.
3. Easy to Use
Users do not need to 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. These financial instruments simplify options trading by eliminating the need to keep track of multiple expiry dates and strike prices.
4. Unlimited Liquidity
Binance Futures 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 who trade Binance options do not need to incur additional fees other than the premiums paid for the derivatives contracts as the premiums are competitively priced. Given that Binance options are American-style and charge no transaction fees, they 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 do not need to worry about the risks associated with leveraged trading.
With Binance options, the maximum downside is the premium paid for the contract.
How to Get Started With Binance Options
Binance Options offers access to six options markets:
Before you start trading options on Binance Futures, you need to understand the unique features that it offers. In addition to the critical points mentioned above, it is worth noting that users can only be buyers of options as Binance Futures is the sole-counterparty of the product. Therefore, users are not exposed to the 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 options:
Firstly, confirm the duration of the option that you wish to purchase. Binance options offer short-term durations ranging from 5 minutes to 1-day.
Next, determine to buy a call or put option based on your prediction of Bitcoin's near-term price (rise or fall). Select the appropriate option when ready.
After that, confirm the details such as the strike price and premium that is displayed.
Subsequently, you may choose to manage your position manually or hold on to expiry.
If you wish to book profits before expiry, you may choose to 'settle' the contract at the option's current strike price. In this case, your profit will be calculated as such: profits = current strike price - strike price at entry - premium paid
Or you may choose to hold onto the option until expiry, where the option contract will be settled automatically.
Suppose the options contract is not in the money. In that case, you may choose to hold the option till expiry, where your maximum loss is the premium paid upfront.
Binance Options Trading Strategies
You can employ various strategies 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 a bet on Bitcoin's price to rise within the predetermined period. For instance, if you buy a 1-hour BTC call option at a strike price of $13,000 with a premium of 50 USDT, you expect Bitcoin's price to rise within the next 1-hour.
Illustration of a Call option
To exit this trade in profits, Bitcoin must move beyond your breakeven price of the trade at expiration or settlement. In this case, the breakeven price will be $13,000 + $50 = $13,050.
If Bitcoin’s price fails to increase or perhaps declines 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 expect Bitcoin's price to fall within a certain period. In other words, you are bearish on Bitcoin. Suppose you purchase a 1-day BTC put option at a strike price of $13,000 with a premium of 200 USDT. In this case, you expect Bitcoin's price to decline in value within the next 24 hours.
Illustration of a Put option
To exit this trade in profits, Bitcoin must move below your breakeven price of the trade at expiration or settlement. In this scenario, the breakeven price will be as follows: $13,000 - $200 = $12,800.
If Bitcoin’s price 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 Bitcoin's price either rises or falls sharply from the strike price by more than the total premium paid.
This strategy is often used when you expect the price of Bitcoin to move significantly out of range. However, you are unsure of the direction it will take.
Illustration of a long straddle
Suppose you expect extreme volatility in Bitcoin's price a day after its halving event. In that case, you could express this prediction by constructing a long straddle. To do so, you can purchase a 1-day BTC call and put options with the same strike price of $13,000 and a premium of $200 each. If Bitcoin moves sharply beyond both options' combined breakeven price, you can exit the trade in profits.
With long straddles, you have the opportunity to gain unlimited profits as long as the underlying asset moves sharply in your favor.
On the latest version of the Binance App, you can trade long straddles via our newly-introduced feature known as vol options.
Vol options allows you to profit during high volatility, regardless of rising or falling prices. When you purchase vol options, you are simultaneously buying both a call option and a put option with the same strike price and expiration. The ideal situation to trade vol options is when volatility is extremely low. By purchasing vol options, you are essentially betting on volatility to rise again.
Download our latest Binance App now to access vol options.
Trading Options on the Binance App
Binance options is currently accessible through the Binance Apps and will be available on the web version soon. On the 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. With an integrated app, users keep track of price developments in related markets.
More information about vol options can be found in our support article.
The addition of options trading on Binance App 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.
Read the following helpful articles for more information about Binance Futures:
And many more Binance Futures FAQtopics…
Disclaimer: Crypto assets are volatile products with a high risk of losing money quickly. Prices can fluctuate significantly on any given day. Due to these price fluctuations, your holdings may significantly increase or decrease in value at any given moment, which can result in a loss of all the capital you have invested in a transaction.
Therefore, you should not trade or invest money you cannot afford to lose. It is crucial that you fully understand the risks involved before deciding to trade with us in light of your financial resources, level of experience, and risk appetite. If required, you should seek advice from an independent financial advisor. The actual returns and losses experienced by you will vary depending on many factors, including, but not limited to, market behavior, market movement, and your trade size. Past performance is not a guide to future performance. The value of your investments may go up or down. Learn more here.