HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
MultiBank Group information and reviews
MultiBank Group
84%

What Are Bitcoin Options? Bitcoin Options Vs Bitcoin CFDs


Everywhere you turn in financial sector, the focus is on Bitcoin and cryptocurrencies. Businesses are now adopting blockchain or supporting digital currency for payments. Many more are buying BTC and other coins to replace treasury cash reserves. The largest segment is investing in, or trading Bitcoin. 

But because that segment is so vast, investing, and even more so trading, can take on all sizes, shapes, and forms. Investing simply involves BTC holding for the long-term. The most prominent example of Bitcoin trading involves buy and sell orders back and forth called spot trading. More advanced methods of trading include derivatives, which consist of futures, CFDs, and options.

In this guide, we’re looking at financial derivative products, specifically, Bitcoin options and how they compare to other derivatives trading instruments such as Bitcoin futures, and Bitcoin CFDs. Here’s everything you need to know about trading the largest cryptocurrency by market capitalization, specifically trading options on Bitcoin.

What Are Options? The Basics Of Options Trading

Options are a form of financial derivative trading instrument that traders can leverage to make additional profits, or hedge against spot investment positions. Options are derivatives contracts that provide traders with the right, but not obligation to buy or sell the contract at or before an expiration date.

This type of options trading is considered a relatively low risk, high reward way to trade. However, unlike futures trading and or CFDs, there is a large up front cost called a premium. Binary options are a yes or no type situation, where the trader either receives an all or nothing profit for the premium fee to enter the contract.

Bitcoin options work very similar to traditional options, but instead speculate on the future market price of Bitcoin instead of other assets. Here is an explanation of the various aspects of Bitcoin options trading.

Holding And Writing Options

Because these derivatives products are contracts, the terminology used around trading Bitcoin options is also unique. Although the same terms are also prominent in stock market options trading. For example, an options holder is a buyer of the contract, while a seller is referred to as a writer. Depending on if the trader wants to buy or sell will determine if they are write or hold an option.

Because of the terminology unique to Bitcoin options trading, it can seem confusing at first. However, the Greeks represent very simple methodology that can is easy to remember once explained properly. 

How Do Bitcoin Options Work?

Bitcoin options can work one of two ways: settled in cash, or settled in BTC. Those who buy Bitcoin options or sell contracts, should pay attention to how the contracts are settled. Options holders or writers have the option, but not the obligation, to buy or sell Bitcoin at or before the time the contact expires, called the expiry. The amount of profit depends on a variety of factors, including the premium, the market value and average price of Bitcoin, and more.

The strike price is the price option holders or writers can buy or sell the contract at. Two types of options exist, American and European. American options allow traders to buy or sell the options contract before an expiry date, while European options contracts allow execution only on the day the contract expires.

Why Are Bitcoin Options So Expensive?

In options trading, trader are exposed not just to the price of an asset but market volatility. The more volatility the higher the risk premium can be. When premiums get exorbitantly it can limit the profit by cutting into potential margins. Current market conditions in crypto are highly volatile, making options contracts especially expensive recently.

Bitcoin Options Vs Bitcoin CFDs: Which Is Best?

Bitcoin options trading is a popular and growing category of crypto derivatives contracts. Another quickly emerging category are CFDs. CFD stands for contracts for difference, and are derivatives contracts that let traders hedge short or go long on various trading instruments. The contract is settled at the difference in market price from the time the position was opened until it was closed.

Here’s how the two very different types of Bitcoin derivatives contracts differ and compare, as well as any pros and cons.

Bitcoin CFDs 

Bitcoin CFDs can be interpreted in two ways. It can reference when Bitcoin or BTC is used as the collateral asset, as in “Bitcoin-based CFDs.” The CFD itself, however, even if based in, and settled in BTC, can represent any trading pair or instruments – for example, stock indices, commodities, forex, and other types of cryptocurrencies.

CFDs let traders long and short markets, and easily get in and out of positions without the need to worry about expiration dates or time. There’s also no Greek letters to pay attention to. Instead, there’s easy to understand tools such as stop loss, limit, and market orders.

CFDs can also lead to exotic trading pairs or instruments, as well as the ability to easily get in and out of positions unlike other types of derivatives contracts like options or futures. Volatility can be managed effectively with stop loss tools. CFDs can also apply things like leverage using margin accounts that enhance profitability. However, there is considerable risk involved with leverage.

Pros

Cons

Bitcoin Options 

Bitcoin options have been thoroughly explained throughout the article, but as a brief recap, it is a derivatives contract that gives a holders or writer the options to buy or sell Bitcoin at a specific price on or before an expiration date called an expiry. 

Traders pay a premium to make a low-risk bet that the price outcome will be what they expect, allowing the trader to profit from the price difference in the options contract.

Pros

Cons

Bitcoin options, while expensive, still offer several benefits for traders. These include hedge positions, detailed options strategies, and more.

Disadvantages include the complex Greek system, terminology, and expiration dates, which make options complicated, confusing, and challenging for anyone but the most advanced traders.

The Bitcoin CFDs Benefits

CFDs let traders speculate on the market value of any asset, depending on the CFD itself. Each broker will offer a unique array of CFDs to choose from. The variety is one of the key benefits, as well as how easy it is to begin trading CFDs for Bitcoin, crypto, stock indices, commodities, forex, and more.

The biggest disadvantages surrounding CFDs are technically due to the trader themselves. CFDs carry more risk due more reward than Bitcoin options and require a lot of skill. These disadvantages can be alleviated with proper risk management and natural talent or practice.

Bitcoin Options FAQ: Commonly Asked Questions About Bitcoin Options

Because of all the strange and unusual terminology, Greek letters, and more in Bitcoin options, many questions remain and even more pop up on a regular basis. We’ve prepared this list of commonly asked questions related to Bitcoin options.

How Do I Trade Bitcoin Options?

Trading Bitcoin options requires a broker that offers such derivatives contracts, and a deep understanding of options contracts which you now have after reading this guide. Even with this knowledge, options can be risky and confusing.

Why Is Trading Bitcoin Options A Bad Idea?

Trading Bitcoin options is generally a bad idea because traders lose money, and they can be expensive just to access. Because of the risk and high premiums, it can be like paying just to lose money.

What Are The Risks Associated With Bitcoin Trading Options?

Like any type of contract, traders can lose all the money they’ve put on the line. Although options contracts are consider lower risk than other types of derivatives, they can result in an all or nothing win or loss type of situation.

Are CFDs The Same As Options? 

CFDs are not the same as options, as they are not tied to any expiration date and are much easier to understand and access. CFDs let traders speculate on price action using long and short positions they can open and close at any time. Positions can even be held simulatineously with CFDs.

What Are Binary Options? 

Binary options are a yes or no, all or nothing type of options trading strategy. They provide a unique way to get positioned in markets and create hedge positions.


RELATED

Maximizing Returns with USDT Staking: A Comprehensive Guide

In the dynamic world of cryptocurrency, staking has emerged as a popular way to earn passive income. Among the various digital currencies available for staking...

How to Trade Stocks Online: A 5-step Process to Get You Started

Online stock trading can be confusing to the uninitiated, but newcomers looking to start their investment journey needn’t be put off. Here’s a 5-step guide to get you started...

Forex Education: Does It Make Sense?

Work of any nature requires considerable effort, both moral and physical. Indeed, in addition to having to spend a considerable amount of time on theory...

Relative Strength Index

The Relative Strength Index (RSI) is an oscillator that measures a particular financial instrument's current relative strength compared to its own price history...

Understanding Cryptocurrency Market Capitalization

If you have been around cryptocurrencies like Bitcoin and Ethereum for some time, chances are you have heard the term market cap discussed. It is something that helps...

TOP-10 stocks of major US companies that did not notice COVID-19

Many stock and bond markets have won back 50% or more of the fall wave that started at the beginning of the year by now...

How Does Cryptocurrecy Work?

When Bitcoin came along, it introduced a whole new world of digital currencies that are powered by various technologies, such as blockchain and cryptography...

Why is Crypto currency so Popular?

Cryptocurrency has emerged in the last 10 years and continues to gain popularity among various sectors of the population. There are hundreds...

How To Cut Losses Trading Cryptocurrencies

Even good trading and investment strategies can lead to portfolio losses if the basic rules of money management are neglected. In addition to the basic rules typical for investing...

US Stock Indices: The Past and the Present

There is a saying in the world of finance: "America will sneeze, but the whole world will catch a cold." But what is the way to determine how serious...

What is Bond Market

The bond market, also called the debt market or credit market, is an online marketplace where people trade bonds. These bonds can be issued by governments...

Major advantages and disadvantages of mirror trading

The world of trading is often seen as a big and intimidating one. There are so many different commodities, currencies, and cryptocurrencies to trade that it can be difficult...

Unlocking Opportunities in Global Commodity Markets with FXTM’s Advanced CFD Trading

Step into the world of global commodities trading with FXTM, where we offer a gateway to diverse investment opportunities through advanced CFD trading. Experience the flexibility and potential of trading...

Does the Stock Market Reflect the Real Economy?

The stock market has often been regarded as an indicator or predictor of the real economy. Its suggested that a large downward movement in the stock market (20% and below) is telling of a future recession...

How to trade stocks

If you are unfamiliar with the stock market, then this trader's guide will assist you in understanding this market and how you can easily trade stocks...

Benefits of Becoming a Signal Provider for Copy Trading

As a trader, you may be asking yourself if becoming a signal provider is right for you. Many new traders turn to copy trading as a way to learn from more...

What is hedging? Protecting assets from market storms

Hedging in the financial markets is one of the risk management techniques. It’s a sort of insurance cover to protect against potential losses from an investment...

What Is The ERC-20 Ethereum Token Standard?

Although Bitcoin was the first ever cryptocurrency that started the entire crypto and blockchain revolution, Ethereum could be the biggest evolution to hit crypto yet...

HF Markets Enhances Its HFcopy Trading Platform for Enhanced Trading Synergy

HF Markets has announced significant upgrades to its HFcopy program, catering to both Strategy Providers (SPs) and Followers, thereby solidifying its position as a premier copy trading platform...

Libertex: Dash Price Prediction for 2021-2025

At one point, investments in Dash were highly profitable. Many traders received significant gains from the Dash cryptocurrency when the price action surpassed the $1,500...

XM information and reviews
XM
82%
FP Markets information and reviews
FP Markets
81%
FXTM information and reviews
FXTM
80%
AMarkets information and reviews
AMarkets
79%
Octa information and reviews
Octa
79%
BlackBull information and reviews
BlackBull
78%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.