Hello friends, I am the captain of Binance Deer. Today I want to talk to you about some relatively niche trading methods in the currency market-options trading.
In addition to the ordinary secondary market in the traditional investment field, the options market also accounts for a considerable part of the total transaction volume. Similarly, as time rolls forward, the development of the cryptocurrency market is getting stronger and stronger, and it has entered the field of vision of more investors.
As part of the cryptocurrency market, after a long period of institutional layout, the cryptocurrency options market has become one of the fastest growing derivatives contracts in the digital asset ecosystem. They have become a powerful tool for traders to speculate long or short and provide investors with the ability to fully hedge against fluctuations in the cryptocurrency market.
So what exactly are options?
Options, also known as options, are a type of financial derivative that give the holder the "right" to buy or sell a specific commodity at a specific price at a specific time in the future.
There are two roles in options trading: buyer (Buy) and seller (Sell).
In order to ensure the rights and interests of both parties, the buyer and seller will enter into a contract, including the subject matter, expiration date, exercise price and purchase and sale quantity, and the buyer needs to pay a premium to the seller first.
for example:
During periods of milk shortage, consumers (buyers) can choose to order milk from vendors (sellers).
The vendor will ask consumers to fill out an order form, which includes milk (subject matter), a certain day of the month (arrival date), a bottle of 5 yuan (exercise price), and ten bottles (purchase quantity).
In order to ensure that consumers do not abandon their orders and that vendors will sell to consumers at the agreed price, consumers must pay a deposit (premium) to vendors.
When the milk delivery date comes, if the price of milk rises to 6 yuan, then the consumer can exercise his right to buy milk from the supermarket at a price of 50 yuan.
Or you can choose not to drink milk and sell the purchase order to a neighbor who can't buy milk for 55 yuan, earning the difference. The neighbor can also buy milk at a price of $5 cheaper than the market price. , create a win-win situation.
Even if the vendor knows that the current market price of milk reaches 60 yuan, he must sell the milk to the consumer who has this order and paid the deposit at the agreed price of 50 yuan.
In another situation, if the milk price drops to 4 yuan/bottle on the day of milk delivery, consumers can choose not to exercise their right to purchase milk and release the premium.
At this time, the consumer's loss is the deposit paid, so does the supermarket suffer losses?
As long as the vendor's purchase cost is not higher than the current market price, not only will there be no loss, but consumers will also earn additional deposits because they abandon the order.
You may have discovered that we don't even need to actually buy or sell milk, we can just make the difference by trading that order, and that's what "options trading" is.
After understanding what options are, next we need to know that option trading is divided into two types: call options and put options; and two proper nouns: call and put.
call option
When traders expect the underlying price to rise, they buy call options and pay a premium.
Since it is a bullish call, if the underlying price rises, the profit will be unlimited; if the underlying price falls, the loss will be limited.
put option
On the other hand, if a trader expects the underlying price to fall, he or she will buy a put option and pay the premium. Since it is bearish, if the underlying price falls, the profit will be unlimited; if the underlying price rises, the loss will be limited.
Let's give an example:
Suppose today is July 18th, and the deer team predicts that the price of Bitcoin will exceed 30,000 usdt (exercise price) on July 30th; but trader Xiao Wang has a different idea from you. He thinks that Bitcoin price will exceed 30,000 usdt (exercise price) on July 30th. The price will be less than 30000 usdt.
At this time, the trader Xiao Wang thought that if he could find someone willing to buy BTC with 30,000 usdt on July 30, he would definitely make a lot of money;
On the contrary, since you think that the price of btc will exceed 30,000 usdt by then, it would be great if someone is willing to let you buy it at a price lower than 30,000 usdt.
Therefore, trader Xiao Wang sells a "call" on the trading platform. This call gives the buyer (Deer Team) the right to purchase BTC (the underlying asset) with 30,000 usdt on July 30. .
In order to protect the rights and interests of both parties (Deer Team will buy and Xiao Wang will sell), the buyer (Deer Team) must first pay a "royalty" (assumed to be 200 USDT).
By the time July 30 comes, there will be two outcomes.
Result 1: The BTC price is higher than 30,000 usdt, and the buyer (Team Deer) exercises the call option to make a profit. The profit depends on the price of Bitcoin at that time. If the price of Bitcoin is 31,000 usdt at this time, the profit of the deer team is 31,000 (market price) - 30,000 (exercise price) - 200 (premium) = 800 usdt.
Result 2: The Bitcoin price is lower than 30,000 USDT, and the buyer (Team Deer) does not exercise the call option and loses the premium. If the BTC price is 29,000 usdt at this time, the buyer (Deer Team) can not buy BTC from Xiao Wang, but choose to purchase BTC directly from the market, but at this time the buyer (Deer Team) needs to pay 200 to Xiao Wang usdt premium, loss 200 usdt.
The above is an example of the deer buying call options. To reverse the situation, if the deer believes that the price of Bitcoin will be lower than 30,000 usdt on July 30 on July 18, he can buy it on July 30. Delivery of put options.
To sum up, in options trading, there are two roles and two types of options:
Deers = Buyer
Xiao Wang = Seller (Sell)
Call option = call
Put option = Put
Four permutations and combinations can be formed:
Buy call: Deers buying call options
Buy put: Bucks who buy put options
Sell call: Deers selling call options
Sell put: Sell puts on deer
At the same time, I would like to explain that on the Binance options trading platform, the role of the seller (Xiao Wang) is usually played by professional market makers who work closely with Binance. The purpose is also to provide better liquidity for options trading enthusiasts sex.
Having said all that, let’s summarize the pros and cons of options trading on Binance.
advantage:
· Hedging risks:
If you plan to hold Bitcoin spot for a long time, but the macroeconomic environment is poor and you believe that Bitcoin has a high probability of falling slightly, you can buy Bitcoin put options to hedge against the small drop of Bitcoin.
· Limited losses:
When the delivery date of the purchased option arrives, you can choose to exercise or not exercise the option, and the maximum loss is only the premium.
· Low capital threshold and high utilization rate:
Options trading can be used with leverage, which allows the buyer to magnify the principal and profit.
· Binance options have low fees:
Binance options fees are divided into transaction fees and exercise fees.
The transaction fee refers to the fee charged when buying and selling options, and the value is 0.02%.
The exercise fee refers to the fee charged for exercising the call or put option when the option expires, and the value is 0.015%.
for example:
Taking the Bitcoin call option as an example, the exercise price is 30,000 usdt, the premium is 200 usdt, and the transaction quantity is 1 piece.
When buying or selling, you will be charged:
30000*0.02%*1=6 usdt
Exercising your rights will result in:
30000*0.015%*1=4.5 usdt
shortcoming:
· The options market is relatively illiquid
Compared with the spot market and the perpetual contract market, the liquidity of the options market is relatively poor, but Binance is the largest cryptocurrency exchange in the current market. It works closely with major market makers and is committed to providing Binance users with more good service.
· Royalties fluctuate greatly
The premium of options fluctuates greatly and decreases as the delivery expiration date approaches.
· High risk without guarantee of capital
Although the loss of royalties is limited, if you invest more royalties than you can afford, you may still lose all your money.
· The principle is relatively complex and there is a certain learning cost
Binance options trading portal
Currently, transactions can only be conducted on the PC web page, and the mobile app has not yet been launched.
After entering the Binance official website (https://www.binance.com/) - log in to your account - find "Derivatives" in the top column - click "Options"
You can enter the Binance options trading interface.
Summarize
Options are a type of financial derivative that provide the right to buy or sell an asset at a specific price at a specific time. Options can be used for a variety of purposes, including hedging against the risk of potential price declines, speculating on price movements, or taking advantage of market fluctuations. The flexibility and leveraged nature of options trading can make it a powerful tool in the hands of knowledgeable traders, but it also comes with significant risk and complexity.
However, there are risks in the market. I would like to remind you that you must improve your relevant trading knowledge before making transactions. You also need to read the product descriptions carefully and do not blindly pursue high returns.
I would also like to announce that the next two articles will explain the options products "Interval Yield" and "Dual Currency Investment" launched by Binance. If you are interested, please like and follow. Your support is my greatest support. power!
