Shorting Bitcoin with Options
Long and Short
With Bitcoin options, you can speculate on the price movements of Bitcoin, both upwards (with call options) and downwards (using put options). This means you can make money in any market, including a bear market. This allows you to short cryptocurrencies, like Bitcoin.
As options are tradeable instruments as such, no interaction with actual Bitcoin is required to profit from changes in its value. No need to worry about storage and security.
Price & Transaction costs
Options have relatively low price and transaction costs, as it concerns a premium paid for the option of buying, or selling Bitcoin on a future date. Making them attractive to investors with limited budgets.
Low capital requirements
Due to the relatively low initial capital required for Bitcoin option trading, it is accessible to a relatively wide range of potential traders.
One of the most significant advantages of using options for shorting Bitcoin is the ability to limit potential losses. When you buy a put option, you pay a premium for the right to sell Bitcoin at a predetermined price (the strike price) before the option’s expiration date. If the price of Bitcoin rises instead of falling, you only lose the premium paid for the option, not the entire investment.
Options offer a wide range of trading strategies beyond simple put options. Traders can employ spreads, straddles, and collars to take advantage of different market conditions. This flexibility can be a powerful tool for experienced traders.
Ownership of assets
Option contracts are centered around price changes. The trader never actually owns the asset being traded. Nor does the option platform.
The relative extreme price fluctuations of option premiums is a two-edged sword. It amplifies profits when the trade goes in the desired direction, but works equally so when the market is moving against you.
Limited number of platforms available
Since Bitcoin option trading is a relative niche, there are only a few global players that facilitate Bitcoin options. Examples include Bit.com, ByBit, Deribit, and OKX.
Options have expiration dates, which means traders must accurately predict the timing of Bitcoin’s price movement. If the market doesn’t move as expected within the option’s timeframe, it can lead to losses.
Established Bitcoin Option Exhanges
Before engaging in options trading, it’s imperative to thoroughly educate yourself, develop a well-thought-out trading plan, and consider your risk tolerance. Whether you’re an experienced trader looking to diversify your strategies or a newcomer to cryptocurrency markets, options can be a useful tool when used wisely.
If you decide that options are your prefered instrument to short Bitcoin, or other cryptocurrencies, and you want to gain some hands-on experience, it is advisable to use an established exchange
Deribit offers a convenient ‘Option Wizard’, that assists you in finding the optimal option strategy. This tool provides you with an optimal option strategy based on your market expectations in a matter of seconds. You have full control over the strategy requirements: you determine your risk, the predicted price, and the timeframe for the prediction. The Option Wizard uses real-time prices from the option markets on Deribit, ensuring the most accurate estimate of your results.
Deribit is the uncontested market leader in cryptocurreny option trading, with ~90% market share in BTC and ETH options.