Buy crypto options to enjoy leveraged returns
Buying options is a great way to amplify your returns, while limiting your risk to the Premium Payable for the trade.
With options, you get the rights to trade the asset’s volatility with a small upfront cost (Premium Payable) without needing to commit full capital.
If an asset price spikes 20%, a $10,000 investment will just yield 20% return in profit. In comparison, buying an option could potentially generate over 200% — 500% more yield as compared to spot trading.
Confused? Read on for an example.
Buy options for unlimited gains and limited risk
Instead of longing the market, you can, for example, buy a call option for $1,000. If the stock goes up 20%, your option contract will go up by a larger amount, depending on your position.
Buying a BTC Call Option
Scenario 1
BTC/USD price at start: $10,000
BTC/USD price at end: $12,000
If you paid $1,000 Premium Payable to buy a 1 BTC Call position at a Strike Price of $10,000 and BTC settles at $12,000, you will get 100% return from your $1,000 Premium Payable.
Vs buying BTC at spot price
This is as compared to buying BTC at $10,000. When the price reaches $12,000, you will get a 20% return from your $10,000 position. You also risk your whole capital by placing this trade, as compared to buying a Call option where your risk is limited to your Premium Payable.
Buying options is a great way of achieving leverage, while limiting your risk to the Premium Payable.
Risks involved
Of course, there are never guaranteed returns. As an options buyer, you risk the entire amount of the Premium Payable.
However, since options require less capital than equivalent long and short positions, your potential losses will be capped.
Options, being flexible trading tools, enable you to adjust and roll forward your positions after Settlement Date, allowing you to stay in the game week after week and potentially leverage your trades with just a small Premium Payable.
Learn more about how you can boost your trades with options in any market conditions:
- How can I boost my trades with crypto options?
- 3 strategies to combat crypto market volatility with options trading
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