Order Placement:
a) Basics of options trading: underlying assets, expiration date, strike price and contract type. Take Options Contracts BTCUSD-190830-10000-C as an example, this represents a call option contract that expires on Aug 30, 2019 with strike price of 10,000 USD.
b) Users can trade options of different types, expiration dates, and strike prices.
c) Before placing orders, users should deposit a certain amount of funds into their accounts to become eligible for trading. After placing orders, the order margin will be held in the accounts. Both buyers and sellers are required to post order margins.
Order Filled:
d) The user's account holds long or short positons respectively after a buy or sell order is filled. Margin is required for short positions. When the user’s account balance or equity is insufficient to maintain their current positions, partial or full liquidation will take place.
e) Users can close their positions depending on the market situation.
f) In-the-money (ITM) options will be automatically exercised at 08:00 (UTC) on their expiration dates. During exercise, OKEx will credit an amount of cryptocurrency equivalent to the exercise profit into buyers’ accounts, and deduct the same amount from sellers’ accounts.
g) Options contracts will automatically expire after exercise, and then OKEx will launch new contracts.
Why Trading Options?
1. Cost-efficient
Since options provide leverage, investors can use them for hedging and trading. For options buyers, they can buy large amounts of options contracts with a small amount of premium.
For example, if a user believes Bitcoin’s price will rise next month and wants to buy 1 BTC, the costs involved in the spot market and the options market are as follows:
|
Market |
Price per BTC (BTC) |
Purchase Amount |
Cost (BTC) |
|
Spot |
1 |
1 |
1 |
|
Market |
Price per Contract (BTC) |
Purchase Amount |
Cost (BTC) |
|
Options |
0.005 |
10 |
0.05 |
Each call option contract corresponds to 0.1 BTC. You can acquire the exposure equivalent up to 1 BTC by purchasing 10 contracts and saving 0.95 BTC. In this sense, options trading is cost-efficient.
2. Reduced Risk
Whatever the price of the underlying asset, the options buyer's loss is limited to the premium, but the potential gain can increase with an underlying asset’s price. Margin call risk is therefore avoided. In addition, 24/7 options trading allows for more trading flexibility and hedging opportunities against fluctuations of underlying asset prices. Institution investors and professional traders can reduce risk exposure in the spot market and hedge positions on our well-managed platform.
3. Extended decision-making time to seize investment opportunities
When investors are not 100% sure about the future trend of the crypto market, they can first allocate a small number of funds to buy an options contract, which only involves little risk. They can then make further decisions later when they feel the market trend is obvious.
4. Multiple Strategies
There are only two kinds of futures positions, namely long and short. However, in options trading, there are four kinds of positions, long call, long put, short call and short put. While futures are limited to long/short trading, options trading can be based on the movement of underlying assets, as well as the time and volatility.
For risk-aversion investors, they can be options buyers; For investors with bigger risk appetite, they can be options sellers. Investors can get different returns with different investment strategies.