Despite ongoing vaccination efforts and pandemic aid, the world’s economy looks remarkably different than it did over a year ago. The new financial landscape and continued uncertainty have accelerated the shift away from traditional financial institutions.
As the economy attempts to roar into high gear from a standing start, the world of cryptocurrency has taken to the main stage. It has cemented itself as a recognized asset class by major asset managers, investment banks and hedge funds. As the speed of mainstream adoption continues to take the financial world by storm, it is also paving the way for investors to explore a new frontier — crypto options.
What are options?
Options are financial contracts that allow investors to buy or sell the underlying asset, at a set price, at a future date. This allows investors to take directional bets on the price movement of an asset. Investors that expect the asset to appreciate in value can purchase call options from which they will profit if the market price of the asset exceeds the strike price. Contrarily, if they believe the asset will depreciate in value, they can purchase put options, which will bring in profit when the market price of the asset falls below the strike price.
When these conditions are met, investors can choose to exercise their option, requiring the issuer to buy or sell the underlying asset from or to the investor at the strike price. Or, they can simply trade their options to others to realize a profit.
Truth about options
There are several features inherent to options that make them more palatable to investors, especially in a volatile market. With options, investors are able to gain exposure to larger positions at a fraction of the cost. For example, consider buying 100 shares of a stock at $50. In order to be in this position, an investor would need to have $5,000 in capital. With options, however, the cost can be…