Bybit Learn

Options

Interested to start trading options, but don't know where to start? Learn how to hedge with crypto options and more with the only guide you'll ever need.

Expand_Your_Options_Series.png

31161_EN_OPTIONS_Pillar-Options-Guide_Crypto_Hedging_interesting_fact.png

Bull_Call_Spread_1.jpg

Bear_Put_Spread.png

cue-cards-european-options_(call-and-put).jpg

cue-cards-american-options_(call-and-put).jpg

31161_SM_EN_Options_Pillar_Guide_KV_(Campaign_CTA).png

top-4-rookie-crypto-options-trading-strategies.png

Covered_Call.png

Protective_Put.png

Married_Put.png

Options_Collar.png

Diagonal_Put.png

Diagonal_Call.png

Diagonal_Spread_Infographics.png

Long_Stradle.png

Long_Strangle.png

Short_Strangle.png

Strade_and_Strangle_Infographics.png

Long_Butterfly.png

Short_Butterfly.png

Skip_Strike_Call.png

Skip_Strike_Put.png

Inverse_Skip_Call.png

Inverse_Skip_Put.png

Butterfly_Infographics.png

Iron_Condor.png

Reverse_Iron_Condor.png

Iron_Condor_Infographics.png

Christmas_Tree_Butterfly_with_Call.png

Christmas_Tree_Butterfly_with_Put.png

Christmas_Tree_Iron_Condor_Infographics.png

Neutral_Iron_Condor.png

Bearish_Iron_Condor.png

Bullish_Iron_Condor.png

31161_EN_OPTIONS_Options-Pillar-Guide_5-Options-Trading-Mistakes-to-Avoid-Second-Batch_1600x2060.png

31161_EN_OPTIONS_Options-Pillar-Guide_1WeekPlan-1600x1900.png

15-key-options-greek-and-terms.png

Looking to expand your investment portfolio, or keen to start a rainy day fund? Right this way! In this article, you'll learn how to use Options to maximize your profits in uncertain markets. From basic to advanced strategies, there’s something here for everyone. But before we dive in, here are two things about Options we’ll bet you didn’t know:

Options trading as we know it today can be traced back to the philosopher Aristotle, who detailed the first-ever call Option (against an olive oil harvest) in the 6th century B.C.

Stock Options have become so popular that they’re expected to overtake stock trading in volume by 2023.

First and foremost: Options contracts are derivatives. Essentially, this means they're tied to an underlying asset such as a stock, a commodity or a cryptocurrency.

Options always have an agreed-upon price (known as the strike price) at which the buyer will gain long or short exposure to the underlying asset. They also have a predetermined date at which they expire (expiration date).

There are two types of Options: Call Options (calls) and Put Options (puts).

As they’re highly versatile, you can use puts and calls on their own or combine them to create complex Options strategies. Ultimately, the end goal for all strategies is the same — to profit from market conditions.

The Option buyer (sometimes called the holder) always pays a fee (Option premium) to the seller (or writer). This amount indicates the maximum amount of money the buyer can lose, and the most the seller can profit, from the particular trade.

When trading Options, there are three ways to describe a strike price:

Although they may sound complicated, Options are one of the most common investment strategies for traders to hedge their existing positions and bet on the market’s movement for returns. A crypto Option is a contract that gives you the right to buy or sell an asset at a specific price within a given time frame or a particular expiration date, depending on the chosen type of contract.

“Crypto Options trading” is a term used to describe Options contracts designed specifically for cryptocurrencies. Like stock Options, crypto Options are booming, as more retail traders turn to Options as a hedging instrument amidst the 

. Fundamentally, crypto Options share the same characteristics as stock Options, but they come with many more advantages.

Unlike stock Options, crypto Options don’t require you to buy or sell the underlying asset if an Option expires ITM. Instead, your trading account will receive a credit or debit equal to the cash difference between the strike price and the Option's settlement price.

By removing the hassle of physical ownership, you can focus on what's truly important — making money.

Why Do Futures Traders Diversify Their Portfolios With Options to Amplify Returns?

 after numerous Option wins made headlines across the globe.

GME and AMC stock prices surged, and several Wall Street hedge funds opened sizable short positions in GME and AMC in anticipation of a drop in share prices. 

Retail traders rightly guessed that if stocks moved higher, institutions would be forced to buy back shares, pushing prices even higher. 

To take advantage of this, they bought far OTM call Options and paid small up-front premiums. Using leverage, retail traders multiplied their buying power to gain access to a much larger volume of stock than if they’d bought it outright. As predicted, stocks roared higher, with call Options increasing in value exponentially and generating huge profits for retail traders.

With this knowledge, futures traders now consider Options a key component of their investment portfolios. 

Can Crypto Options Really Help to Maximize Gains?

Once you’ve learned to use them to your advantage, crypto Options really can help you maximize gains. Here are three ways to profit from Options:

Options are ideal for protecting an underlying portfolio against market risks and uncertainties. 

If you hold the underlying asset, a long put or a put spread are effective ways to hedge against a sell-off. If you're short of the underlying, a long call or call spread offers the same protection on the upside.

The great thing about Options is that you can choose an expiration date to protect your portfolio for one day, or weeks — or even months in the future. 

With Options, all you need is a little capital to potentially gain significant profits.

When you buy an Option, you can gain access to a large amount of the underlying asset for a small initial deposit. By using leverage, you can multiply the buying power of your capital several times over.

Every trader dreams of their first “10-bagger” (+1,000% ROI). Options are the perfect way to achieve it.

All long Options have limited risk and significant (sometimes unlimited) profit potential. To illustrate this point, think back to the first crypto bull run of 2021. Some coins/tokens recorded growth of 10–20x, with a small number skyrocketing to over 100 times their original value within just a few months. 

Now, just imagine leveraging on Options to take advantage of this price action, knowing the most you could lose is the premium … and the sky’s the limit when it comes to profit. Sounds good? That’s the beauty of Options for you.

Find out how bull markets can affect you:

Although crypto Options behave like other Options, they’re more user-friendly. What do we mean by this? Hold your horses — we’ll explain.

As Bybit’s crypto Options are cash settled, you realize your profits as soon as the Option expires, allowing you to move on to the next opportunity without hesitation. This makes crypto Options the perfect choice for speculating and hedging.

Another benefit is that they don’t have a fixed contract size, so you can risk as much or as little as you want.

In addition, Bybit’s crypto Options are settled in USDC for security and flexibility. In the examples below, you’ll see how this works in practice.

A bull call spread is an effective way to profit in a bull market without breaking the bank.

The setup for the strategy involves buying a call Option (usually OTM) and selling a call at a higher strike price with the same expiration date.

Since you're buying the strike closest to the underlying, the trade costs a net debit, which is the most you can lose.

Here's an example of the bull call spread in action:

The trade costs a net debit of $450 (Premium paid of $600 − Premium received of $150)

The breakeven point is $31,450 (Lower strike + Net debit). The maximum potential profit of $1,550 occurs if the $33,000 call expires ITM ($33,000 − $31,000 − $450).

The worst-case scenario is when the settlement price is at or below $31,000. Here, both calls expire worthless, and you lose the $450 net premium paid.

The bear put spread is the mirror image of the bull call spread, offering a low-risk play for bear market profits.

To set up the bear put spread, you buy a put Option (usually OTM) and sell a put at a lower strike with the same expiration date.

Like the bull call spread, you're buying the strike closest to the underlying, so the trade costs a net debit. 

The cost is a net debit of $450 (Premium paid of $600 − Premium received of $150), which is also your maximum potential loss.

The breakeven point is $28,550 (Higher strike − $450 Net debit). The max profit of $1,550 occurs if both strikes expire ITM ($29,000 -$27,000 − $450).

The maximum potential loss occurs when both strikes expire OTM with zero value. Here, you lose your $450 investment.

Call Options are contracts that confer upon their owner the right (but not the obligation) to buy a specific amount of an underlying asset at a preset price, on or before a certain date (known as the expiration date).

Put Options are contracts that confer upon the Options buyer the right (but not the obligation) to sell a specific amount of an underlying asset at a preset price within a particular time frame.

A stock or crypto European put and call Option is a contract that gives investors a right to buy or sell an asset at a specific price on the day the contract expires. 

A stock or crypto American put and call Option gives investors the right to exercise the contract to buy or sell an asset at any time within a given time frame before the contract expires.

How Do Crypto Options Differ From Stock Options?

Though they have similar characteristics, Bybit’s crypto Options are different from traditional Options in several ways.

How Is Hedging Futures Different From Hedging Options? 

There are a few ways in which hedging with Options — as opposed to futures — can deliver better results.

With futures, you benefit only from a single-directional (up or down) move. But with Options, you can profit when the market moves up, down, sideways, up then down, down then up, a little or a lot … you get the point. In short, Options are much more versatile than futures.

With futures, you take on the same risk level whether you buy or sell. However, you can never lose more than your initial investment when you purchase an Option. Additionally, depending on the strategy, a long Option could have unlimited upside potential.

Another advantage of using Options over futures is that the risk of liquidation is minimal for long Options. Because you pay an up-front premium, the maximum potential loss is known, making it easier for you to manage your capital.

Options Trading Guide: How to Hedge with Crypto Options

Get your daily dose of crypto and trading info