Amongst all the financial instruments out there in the crypto market, crypto derivatives rank as one of the best to invest in for a variety of reasons.
Crypto options specifically serve as a terrific hedge that balances the volatility of cryptocurrencies while at the same time offering great opportunities to speculate for those who are looking to profit from the volatility.
Delta Exchange is a leading crypto derivatives trading platform that provides several unique products and features, including options trading with options chains for BTC, ETH, USDT along with 50+ altcoins.
There are 2 categories of options contracts on the platform:
- Vanilla Options – Delta provides its users with call and put options on BTC, ETH, and more, all of which are European options that are available for several strikes and expiry dates.
- MOVE Options – Delta’s MOVE Options are a direct way to speculate the volatility of the underlying assets.
What are Crypto Options?
Crypto options are particular types of financial derivatives that give their holder the right but not the obligation to purchase or sell the underlying crypto coin at a specific time at a specific price.
There are two types of crypto options – call options and put options. Call options provide the holder the right to purchase cryptocurrencies at the strike price on its expiry, whereas the put option allows the holder to sell their crypto at the strike price at the time of expiry.
Five Best Crypto Options Strategies To Use On Delta Exchange
Taking advantage of cryptocurrency options by using specific strategies and knowing your trading goals beforehand can substantially up your level in the derivatives game. So here are 5 crypto options strategies that you can use in Delta Exchange for a better experience:
1) Protective Collar
In a protective collar, you can limit the upside and downside of a potential price movement which serves as a cost-efficient method to hedge against a negative price movement.
In this strategy, you purchase a married put and sell a covered call, thereby effectively buying a type of insurance policy against a negative price movement at zero cost.
The only trade-off that you have to deal with is the fact that you won’t be able to take part in profits beyond the strike point since you would be obligated to honor the call. The maximum loss here is restricted to the price difference between the call and put options.
The primary drawback of this strategy is that you are giving away upside in the crypto in exchange for getting downside protection. This strategy works like a charm if the crypto declines, but not so well if it surges ahead, as any extra gain above the call strike price will be lost.
2) Covered Call
This strategy is one of the most widely used strategies in the world of options trading. Also known as the buy-write strategy, the covered call is an effective way to earn a premium in a predictable market.
The strategy is pretty straightforward – you buy or hold the underlying cryptocurrency and sell (write) call options on the very same crypto that you are holding.
Covered call strategies are considered relatively low risk, but they do have one major risk – they limit any additional upside profit potential if the crypto continues to rise and would not protect that much from a drop in its price.
3) Long Straddle
A long straddle strategy is opted when a trader believes that a substantial price change is about to happen but is unsure of the direction of that price change. In this strategy, the trader buys call and put options on the same asset with the same expiration date and strike price.
This strategy, in theory, allows infinite gains while at the same time limiting the losses to the price of both the options combined. When using this strategy, the trader doesn’t care if the move is bullish or bearish but only that the movement is big enough to cover the costs.
The long straddle options strategy has limited risk and unlimited profit since if the price of the underlying asset goes to increases further, the potential benefit is unlimited.
The inherent risk in this strategy is that the market may not live up to the trader’s expectation and might even sometimes go the other way around. This means that if the anticipated price change doesn’t occur, then the options bought will likely expire worthless, thereby creating a loss for the trader.
4) Married Put
The married put strategy is another hedging strategy that provides the holder the option to exit their long position in case of a quick and sudden decline in prices. Rather than writing calls, as seen in covered calls, the holder purchases a put option instead.
Although instead of getting a premium by selling covered calls, you have to pay a premium in order for your option to exit a long position. This means that the investor losses the amount of premium paid in case the price of the crypto doesn’t fall.
The advantage of a married put is that there is a floor under the crypto, thereby limiting downside risk and creating unlimited potential for profit. Newer investors and traders benefit from knowing that their losses in the option are limited.
Of course, this security and protection come at a cost in the form of commissions, the price of the option, and other possible fees.
3) Bull Call Spread
The bull call spread strategy is a type of vertical spread strategy that is bused when a trader thinks that the underlying crypto will have a bullish run in the near future.
This strategy is executed by purchasing calls at a particular strike price, while the same number of calls are sold at a higher strike price, thereby betting on a rise in the underlying crypto’s value.
By using this strategy, even though the trader limits their profits in case their speculations are right, they also limit their net premium spent as buying naked calls tends to be expensive.
The risks involved in this strategy are less since the losses are limited by the gains. This means that traders forfeit any amount of gains in the crypto’s price above the strike of the sold call option. Additionally, the gains are limited given the overall cost of the premiums.
The upsides to this strategy are many, such as this strategy is cheaper than buying a single call option by itself, investors and traders can realize limited gains from an upward movement in a crypto’s price.
Also, the bullish call spread strategy limits the maximum loss of owning crypto to the net cost of the strategy.
Strategy Builder for Options on Delta Exchange
Delta Exchange has its own strategy builder for options trading that traders can readily use to create complex strategies on all the option pairs available in Delta and provides you the analytical power you need to get an edge in the crypto market.