Guide to Crypto Options trading in India
India is the second most populous country in the world with a population of over 1.3 billion people. And it is no surprise that the country has seen a surge in crypto trading activity in recent years. With a large number of young people living in India. The country has a huge potential for growth in the crypto space. And indeed, we are seeing more and more Indian exchanges launching and offering their services to traders in the country. If you’re based in India and looking to get started in crypto options trading, then this guide is for you. In this post, we will give you an overview of the different exchanges that are available to traders in India. As well as some tips on how to trade successfully.
What is Crypto Options trading?
Options give holders the right, but not the obligation, to buy or sell an asset like shares of a company stock.
- Call option contract: The right to purchase
- Put option contract: The right to sell
Options trading allows investors to buy and sell these contracts on the open market. Because there is no obligation to buy or sell, this type of trading is essentially a risk-reduction strategy.
However, not all option trades involve risk. You can either pay someone to assume the risk on your behalf or be rewarded, when using options trading methods. They also allow you to hedge against potential losses while speculating on the future value of an asset.
Key terms related to Options trading
- Call Option: A contract that traders purchase when they have faith in the future value of cryptos.
- Put Option: A contract that enables buyers to sell cryptos even if the current price is lesser than the strike price.
- Strike price: This is the price at which an option holder can buy or sell the underlying asset.
- Premium: The sum that the buyer of the options has paid.
- Maturity: The maturity of the option is its expiration date.
- Delivery Date: The day the option is executed, completed, settled, or delivered.
- Trade Date: The date on which the trader decides to exercise his option, and the option is executed on the market.
- Intrinsic value: This is the difference between the strike price of an option and the current market price of the underlying asset. If the current market price is lower than the strike price, then the option has no intrinsic value.
- Time value: This is the amount by which the option premium exceeds the intrinsic value. It reflects the possibility that the underlying asset’s price may move in favour of the option holder before expiration. The longer an option has until expiration, the greater its time value will be.
Different Crypto Options trading strategies
- Covered Calls – To generate income, you can use the covered call option strategy to sell call options on securities you already own. You will specify a strike price and an expiration date for the call options you sell. Even if the stock price rises and the call buyer exercises their option to buy your stock at the strike price, you will still profit because you sold the option for more than the strike price. Even if the stock price falls, you will still profit from the option premium you received.
- Naked puts – To generate income, you can use the covered call option strategy to sell call options on securities you already own. You will specify a strike price and an expiration date for the call options you sell. Even if the stock price rises and the call buyer exercises their option to buy your stock at the strike price, you will still profit because you sold the option for more than the strike price. Even if the stock price falls, you will still profit from the option premium you received.
- Bull Call Spread – In a bull call spread, you buy call options and then sell them at a higher strike price. This is a bullish strategy because you are betting that the price of the security will rise. If the stock price rises, the call options you sold will expire worthless, and you will keep the profit from the spread between the strike prices. In the event that the stock price falls, you may lose money on the call options you purchased, but you will still profit on the call options you sold.
- Bear Put Spread – When you execute a bear put spread, you buy put options and then sell them at a lower strike price. This is a bearish strategy because you are betting that the price of the security will fall. If the price of the underlying security falls, the put options you sold will expire worthless, and you will keep the profit from the spread between the strike prices. If the stock price rises, you may lose money on the call options you purchased, but you will still profit if you sell the put options you purchased.
- Iron Condor – Selling call and put options with varying strike prices is the iron condor options strategy. This is a neutral strategy in which you wager that the price of a security will remain within a certain range. If it remains within the range, both the call and put options you sold will expire worthless, and you will profit from the premiums. If the price of the underlying security moves outside the range, you may lose money on the options you sold, but you will still make money on the options you bought.
How is crypto options trading different from traditional options trading?
The main distinction between trading traditional options and crypto options is that the crypto market is open 24 hours a day, seven days a week. Whereas traditional financial markets are only open Monday through Friday from 9:30 a.m. to 4:00 p.m. ET. Crypto markets are also more volatile, with prices rising and falling more frequently and sharply.
The benefit of this high volatility is if the market moves in the direction they predict. hat traders may make better returns. Because the difference between the strike price and the settlement price at expiry will be greater.
What platforms provide crypto options trading?
The following platforms provide crypto options trading.
- CME Group
- IQ option
Advantages over other derivatives
The main advantage of purchasing cryptocurrency call options over other types of derivatives such as futures is. That a call buyer is not required to exercise the contract if he or she does not wish to. The risk of purchasing call options is limited to the premium paid. Which means that if the market moves against call buyers, they will not incur losses greater than their initial investment.
The Bottom line
The bottom line is that crypto options trading in India is a relatively new phenomenon. There is still a lot of uncertainty surrounding it. However, with the right approach and a bit of research, can be a lucrative way to earn money.
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