By trading options, you can also handle the volatility more deliberately.
You need a counter party for the trade.
Only a fool would trade derivative based on bitcoin or short volatility.
Yeah, vanilla options are difficult to find a counter party as the seller bears very high risk. But binary options offer you an easy way to trade volatility. By binary options, I mean exchange traded options with multiple strike prices not the one for betting.
How would a seller price binary option then? The premium would need to be high even for short term binary option, and who is going to buy it?
Pricing of binary options can be done using the Black-Scholes model
http://en.wikipedia.org/wiki/Binary_option#Cash-or-nothing_call. Premium depends on many factors including the strike price and volatility. For example, if the current BTC price is 380, I guess the call option with strike price 1000 should be very cheap.
