The world of options has also come to stay in decentralized finance (DeFi), but first, for those who do not know how they work, we are going to briefly summarize what a financial option is.
Understanding Options: Options can be complicated, and it’s important to have a good understanding of how they work before investing. Options can be used for a variety of purposes, such as hedging against risk or speculating on the direction of the market.
Risk Management: Options can be risky, and it’s important to manage your risk carefully. One way to do this is by setting stop-loss orders to limit your losses if the market moves against you.
Choosing the Right Broker: Options trading requires a specialized broker, and it’s important to choose a broker that offers the right tools and services for your needs. Look for a broker that offers a wide range of options contracts, low commissions, and a user-friendly trading platform.
Developing a Strategy: Successful options trading requires a well-developed strategy. This may involve analyzing market trends, using technical analysis tools, or using options to hedge against risk.
Practicing with a Demo Account: Many brokers offer demo accounts that allow you to practice trading options without risking real money. This is a great way to test your strategies and get a feel for how options trading works.
Financial Options in the DeFi World?
Now, they are gaining traction in the DeFi world as well. Financial options are contracts that give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price, known as the strike price, on or before a specified date.
So who introduced financial options to the DeFi world, and how do they work for cryptocurrencies?
The introduction of financial options to the DeFi world is largely attributed to the decentralized options protocol, Hegic. Launched in August 2020, Hegic is a non-custodial options trading platform that operates on the Ethereum blockchain. Hegic allows users to buy and sell options contracts for ETH and WBTC, which are backed by a liquidity pool of both assets.
Here’s how options trading works on Hegic:
Users can buy or sell call or put options on ETH or WBTC.
Call options give the holder the right, but not the obligation, to buy the underlying asset at a predetermined price on or before a specified date.
Put options give the holder the right, but not the obligation, to sell the underlying asset at a predetermined price on or before a specified date.
The strike price for the options contracts is set by the market at the time of creation.
When an options contract is created, the buyer pays a premium to the seller for the right to buy or sell the underlying asset at the strike price.
If the price of the underlying asset is above the strike price at the expiration date, the buyer can exercise their call option and buy the asset at the strike price. If the price is below the strike price, the buyer does not exercise their option and the seller keeps the premium.
If the price of the underlying asset is below the strike price at the expiration date, the buyer can exercise their put option and sell the asset at the strike price. If the price is above the strike price, the buyer does not exercise their option and the seller keeps the premium.
Several cryptocurrency exchanges currently offer options for cryptocurrencies, including:
Binance: One of the largest cryptocurrency exchanges in the world, Binance offers options trading for Bitcoin and Ethereum.
Deribit: A popular options trading platform, Deribit offers options contracts for Bitcoin and Ethereum, as well as other cryptocurrencies.
Bit.com: An options trading platform launched by the Bitmain group, Bit.com offers options trading for Bitcoin and Ethereum.
OKEx: A popular cryptocurrency exchange, OKEx offers options trading for Bitcoin and Ethereum.
These exchanges offer a range of options contracts, including call and put options, as well as different expiration dates and strike prices. As with any investment, it’s important to do your research and understand the risks involved before trading options for cryptocurrencies. It’s also worth noting that options trading can be complex and may not be suitable for all investors.
BTC Options for the end of April show a clear pathway without much resistance (put options) for higher prices once the price is accepted around 30k.
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And BELOBABA, the future of banking, will have soon, products like this, to offer services and products, both from the CeFi world and the DeFi world, and in an “all in one banking web3” offer a product experience, complete and in line with the new era.
The best thing about the future is that BELOBABA will bring it to you in the present.
Not Financial Advice.