Bitcoin Forum

Always getting REKT by the volatile crypto market? You can insure (aka hedge in trading terms) your crypto assets with options trading.

What does this mean?

Hedging is a trading strategy to reduce or eliminate the risk of holding one position by taking on another position.

One simple example is to compare it to insurance, which is basically a form of hedging.

How do options come in?

Options and its trading terminologies may sound complex. However in layman terms, the mechanics behind options trading can be referenced to the insurance industry — where people pay a premium to insure their health. In fact, we could say that insurance providers are simply options sellers!

Here’s an example of how you can use options to insure your BTC.

Example: Insuring your BTC by buying a put option

If you hold 1 BTC you bought at $7,000 and is long term bullish but afraid of short term volatility, you can buy a put option priced at $200 to protect your position against a possible crash.

If BTC nosedived, your maximum loss will be capped at $200.

If BTC dipped to $6,000 on Settlement Date, you will lose $1,000 value from your BTC. However, your put option will have an intrinsic value of $1,000 and can be sold for that amount thus offsetting potential losses and limiting your loss to your Premium Payable.

Summary

Options can be used as an effective hedging tool — as a protection against market volatility for cryptocurrency holders or as part of a wider trading strategy for professional traders.


Read full article with accompanying images here: https://blog.sparrowexchange.com/insure-your-bitcoin-with-options/

 

Gonna try buying a put to save my BTC  :o

Options are more complicated than futures IMO.

I think people should just stick with trading futures, since they're automatically settled at maturity, whereas options can difficult for noobs to grasp—especially if they're noobie enough to keep getting rekt in a market that is almost perpetually bullish (except lately).

I haven't yet come across a site that makes BTC options accessible to novices, Deribit certainly doesn't do the job.

I am not a fan when it comes to Option trading. I believe it is the worst way of trading and mostly would get you into trouble, so got to be extremely careful with our approach to these things. I am always very careful given I know the impact that it could have.

For average crypto trader that is here it is better to simply buy/sell than buy/hedge. Why hedge if you can sell?

If your coins are locked in other investments - For example, you buy BNB to be able to take part in IEOs and in the same time you short BNB on futures (or options) to get rid of currency risk. Other example - you buy btc to use it in yours casino bankroll and to get rid of currency risk you short btc in the same time. In other situations it is mostly better to simply sell rather than using advanced trading techniques that may lead to big losses when used wrong.

Exactly, I don't understand why people try to make things complicated, it just give you more pressures. Just a simply buy/sell will do for you.

It could be the worst way to get rekt specially for beginners who don't understand who the market works specially it's volatility, I open up a thread here, a sad story, 20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative (https://bitcointalk.org/index.php?topic=5256653.0).

Bitcoin accounts are not insured by any type of federal or government program. Bitcoin is on the internet, they are even easier to steal and much harder to return and trace. Bitcoin itself is secure, but bitcoins are only as secure as the wallet storing them. Bitcoin volatility using the swaps and futures at Bitmex or the CME as there is no volatility contract.

I don't understand what the explanation above is, but is it possible that bitcoin can be insured. Do not think about the difficulties that occur to claim when it happens, something that is certainly with evidence. bitcoin is not authentic with a piece of paper that can be used as evidence.

in fact in bitcoin trading all know the risks that will occur and that is absolutely understandable. so just need caution and good analysis to prevent something very harmful. knowing that I think it's a risk, so there is no alternative that can replace it.

Yes, Options trading can be utilized like an insurance. You can have a look at this video  (https://www.youtube.com/watch?v=qU74cZ-o3Sc)for better understanding. You could also check out the article the OP is referring to "Insure your Bitcoin with options" (https://blog.sparrowexchange.com/insure-your-bitcoin-with-options/). It has image that could help understand what its about,, in a slightly better way. 

Congrats @Sparrow Exchange for getting Series A funding. Bitmex helping with funding is great, along with Finlab EOS!! Excited with whats to come in the future.

Options are not for Noob/newbies. Its extremely hard in my opinion and if you dont have skill in trading or you dont even know how to manage your capital well, stay away from options. Most of options are fast and instantly which you can take a profit in less than 15 minutes. Moreover, there are not many reliable options broker in my country. They are all scammers which change the candle or make your orders disappear without any reasons

I suggest trading with margin/leverage in Binance. This kind of trading is better and you can easily manage the leverage as well as your stop loss/take profit. It can take a little time to learn but its worth after all.

You are trying to emphasize about option trading which maybe or may not be similar to insurance; but I like to appreciate you for your cross thinking.

In the insurance, I will pay premium regardless of I will be happened to make a claim or not. If there will be no situation for me to make a claim then I will be happy because I stayed secured with the thoughts of I could get chances to recover my losses up to 70% to 90% if anything bad happens. Premium is the fee for having faith on recovering losses.

How exactly option trading works here? If market reacts as per my PUT/CALL then I will get profits if not I will lose. If the risked amount is compared to premium how you will compare the situation with insurance on the event of profitable option trading? I am just trying to think your way but I could not.

Wow! Which Options brokers are you talking about? That looks suspicious as hell and you should take legal actions against them. Yeah, I would agree that Options trading generally isnt noob friendly but thats where Sparrow Exchange thrives with the customer friendly "simple order book" and theres Advanced version of needed. I personally use the simple order book and get done with my trades in secs. About changing the candle and making orders disappear. Sparrow uses NIDUS Explorer(blockchain) so your order is safer than being etched in stone. Sparrow utilizes averages of prices from leading exchanges so that theres no inconsistencies. What I do suggest depending on your sentiments( if you are new to trading Options) to try longer dates. Like 3-6 months. If you think BTC's price will go higher, long it. I you are HODLing a lot of BTC and are scared of a potential dump? you can insure your HODLings by utilizing Options like an insurance at a fraction of its cost. Do check Sparrow out and see it for yourself. :)

Maybe this article (https://blog.sparrowexchange.com/insure-your-bitcoin-with-options/) from Sparrow Blog will help you. :)
Alternatively you could join our telegram if you have any questions about Options trading or news about Options or crypto in general..

I see that article is very useful. I was bit confused at first about option trading, however the article smoothly explains it.

It’s really good idea to put with premium and insure your big trades. I loved the idea in first place because all you will be loosing is your premium and nothing much and when it will be a winning then it would be way more than that.

Nice idea for those who have big holdings and want to put up for long term holdings.

Yep, you can utilize Options to your advantage. To really make it profitable on a regular basis, you do require a lot of complex strategies and understanding of the market. That isnt necessary however, if you do not plan to trade on a daily basis. You could just long BTC with Options and get exponential returns. Sparrow Exchange has Options for upto 6 months. So you could just Long BTC and chill.

I'm not sure what you mean by paying double the profits. You could look into THIS (https://blog.sparrowexchange.com/insure-your-bitcoin-with-options/) blog post to understand better. Sparrow Exchange does have insurance for a long term(6 months). So, yeah, Even if BTC goes down to 0, you should be secured. Thanks to Options and be able to recover through the dip.

Most people barely have any idea how spot trading works, so why would they then make the jump to options—which are arguably one of the harder financial instruments out there, especially when combined with volatile cryptocurrencies.

If people want to insure themselves against loss, they should learn to use trailing stop losses like expert traders do. Risk mitigation methods like options are only good for those with large sums of bitcoin that are locked up for some time, e.g. miners and hedge funds.

I'll agree with you on this but I think it could still be used if you hold anything over 0.1-0.2BTC. It just depends on how much the BTC is worth to you. Also, there are a lot more use cases if you are bullish and you dont really need a lot of funds for that, and can be used to leverage your returns in case of a bull run.

Volatility Data Suggests Bitcoin Price Drop to $10K Before Rally Resumes  (https://cointelegraph.com/news/volatility-data-suggests-bitcoin-price-drop-to-10k-before-rally-resumes)

I suppose it could be a good time to insure your BTC on a short term and straddle for long term longs. Might work out.

Interestingly enough what is offered by Sparrow exchange with my Bitcoin insurance for 6 months, when Bitcoin falls then I should be safe.
But I am not yet interested in this Bitcoin options, for me the risk management settings and the use of the stop-loss feature are enough to
make I feel safe. Maybe in the future I can change my mind with a good idea about Bitcoin with options, but now I am still feel safe the way
I trade.

Its not just 6 months but it is up to 6 months. Meaning, you could set settlement date for every friday or beyond up to 6 months time. They have launched secondary market (https://blog.sparrowexchange.com/trade-sparrow-options-on-the-secondary-market/) as well so now you can buy or sell your Options before the settlement date..giving you more control over your trades. Which has honestly been a blessing since, sometimes you are not too sure about your trades..thanks to the volatility and uncertainty.

Sorry for being noob dude, Can you briefly explain or summarize it in simple explanation about sparrow exchange, what doesn't it means?
am I gonna invest in it then has a similarity of staking? Just not so sure if I am correct to my understanding, but anyway I think this will give me a bit of help to me.

Futures and options are very similar in terms of "hedging," and just like you pointed out.


I think what you didn't point out is the risk between the two choices that you have "Call" and "Put" Options. It basically has the same risk. but you need to know that there are fees on it when you are holding that particular position.

I still prefer to trade Futures even if it's riskier and has funding fees like in Binance Futures.

Sparrow Exchange has 50% off on trading fees if you utilize their native token (SPO). If trading fees has become a burden. Maybe you could try multiple platforms to get the best possible value of your trades.  8)

I am not sure about that. Well,  about Sparrow Exchange, they are an Options trading platform located in Singapore. You could join their telegram(link in my signature) or write an email to them on support@sparrowexchange.com about investment opportunities(don't think they are looking for investments, but I could be wrong).