One of the financial markets’ most adaptable tools is the option. A trader can combine many contracts and create strategies for various market scenarios thanks to the versatility of options. With the option, you can profit from market movements in any direction—up, downwards, or even sideways.
Motives for Trading Options
Options can be used in a variety of ways by traders and investors due to their adaptability.
Earn passive income: By trading call options upon their cryptocurrency, investors can earn passive revenue. One of the most popular techniques employed by long-term investors is the covered call strategy, which is recognised as such.
Portfolio protection: By purchasing a put option, investors who are concerned about unpredictability can hedge against declining stock prices. When prices decline, the earnings from the option contract deal assist in reducing portfolio losses.
Lock in appealing prices: Investors who spot an opportunity but lack the necessary finances to take advantage of it might lock in a buying price by purchasing a margin call and executing it later. If you wanted to buy Bitcoin at $40,000, you could achieve the same exposures by buying a BTC margin call with a $40,000 strike price. In this manner, you only have to pay for the premium rather than the entire purchase price.
Increase your trading options because option prices are susceptible to more than simply changes in the value of the underlying cryptocurrency. The price of an option can be impacted by variations in volatility or time decay. This means that traders can select positions that wager on both the contraction or growth of volatility in addition to changes in price movements.
Capital-efficiency: Options trading is incredibly capital-efficient thanks to leverage. For instance, a trader who believes that BTC’s present price of $40,000 will increase may just invest a little portion of the purchase cost by purchasing a call option. The price of a call option would rise in line with the value of BTC if it does really appreciate in value.
Customize market exposures: Traders can use a variety of options techniques to communicate their views on the market by combining option contracts with various expiries, strike prices, option kinds, and other permutations. Investors can profit from bullish, bearish, and even sideways markets by combining several options types.
Minimizing position risk: Options trading offers downside protection because the owner of an option could only lose the original premium, unlike futures markets where traders may risk more than their starting equity. When trading options, you can restrict your loss when you’re wrong and earn unlimited gains when you’re right.
Three Options Trading Strategies for Any Market Condition according to the Ekrona
Bull Call Spread.
A bull call spreads is a bullish technique in which an “At-The-Money” (ATM) call option is purchased (long) and an “Out-Of-The-Money” call option is sold (short). In this technique, the underlying stock and expiration date of both calls must be the same.
The price increase of the underlying cryptocurrency benefits a bull call spread. Profit is constrained if indeed the asset price increases above the short call’s strike price and possible loss is constrained if the asset prices fall below the long call’s strike price (lower strike).
Bear Call Spread.
A bearish option strategy called a bear call spreads is utilised to benefit from a drop in the price of the underlying asset. In order to use this technique, you must sell an “In-The-Money” Call option and buy an “Out-Of-The-Money” Call option. Both calls should share the same underlying security and expiration date, similar to the bull call spreading method.
A bear call spread makes money from time decay, falling asset prices, or both. If the asset price increases over the long call’s strike price, the potential loss is also constrained to the gross premium received.
A market-neutral options implementation of smart iron condor makes money best when the underlying stock doesn’t really move around significantly.
A double-ended trade range is created by two put, one short and one long, two calls one lengthy and one short), four strike prices, and the same expiry date when using the iron condor technique. When the price of the underlying asset closes within the trading session at expiration, the iron condor is profitable. In other words, the objective is to profit from the underlying asset’s low volatility.
Is trading options right for you?
You should be very clear about your goals before you begin trading options.
Before beginning any options strategy, you should make a few quick calculations to identify the high benefit, maximum loss, and break-even points. This will give you a decent idea of your risk tolerance. When you’re ready to start trading, pick a cryptocurrency exchange like the Ekrona that provides the most affordable costs for crypto choices as well as resources and research to help you decide which trading tactics to employ.
It depends on the stocks or cryptocurrencies you’re trading and how you’re trading them if cryptocurrency trading is considered as being higher risk than stock trading. Trading cryptocurrencies can be riskier than trading undervalued stocks or options, if not more so.
You should be informed that you run the risk of losing money when trading cryptocurrencies. If you genuinely feel that cryptocurrencies will have a bright future, hanging onto your digital currencies for the long run may be more advantageous than trying to time the market.