Trade Like a Chad: Guide to Ethereum Options Trading

Key Takeaways

  • There are three styles of options execution and five key variables that traders must take into account before entering a position in the options market.
  • Opyn and ACO Finance are DeFi options protocols that trade in-line with Deribit’s prices and function like regular options.
  • Hegic offers an innovative approach to option selling, and will launch a liquidity mining program in September 2020.
  • Choosing between trading on a centralized platform or a non-custodial protocol should be made after considering various factors such as size and strategy.

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Options are one of the most complex and misunderstood financial instruments. Understanding how they work can expand a trader’s, crypto or otherwise, profit-generating tool kit in specific market environments.

Options Aren’t All Fun and Games

Centralized venues like Deribit are the primary venue to trade crypto options. Of late, non-custodial options trading platforms on Ethereum have also been gaining ground. While these options platforms are not as liquid as Deribit and OKEx, they are interoperable with Ethereum’s DeFi stack.

Most permissionless options trading protocols are designed to mimic the traditional options.

But before diving into these instruments, it’s important to highlight that options are one of the most complex financial tools that retail traders have access to. Due to this complexity, inexperienced traders are advised to exercise extreme caution when beginning.

Once grasped, however, the following concepts will enable traders to use the most popular derivative in the world to enhance profits and fortify risk management.

Mastering the Basics

There are three types of option settlements: American, European, and Bermuda. Option pricing is dependent on the style of execution the option follows.

American options allow the buyer to exercise their contracts at any given time before expiration. European options can only be used on the day of expiry. Bermuda options have…

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