How to Trade Crypto Options

Options are the most flexible financial instrument; they’re great for directional trades, hedging, and even yield. 

Not only that, they are tools that allow market participants to not only speculate on price action, but to trade volatility and other aspects of an asset like BTC.

But how and when should one actually trade options? It’s fairly simple. Just ask yourself; what price do I think BTC will be at one week from now?

In this article, we’ll cover a step-by-step guide for buying options on Premia Blue accompanied by fundamental guidelines for newbie traders.

Before delving into this article, we recommend completing the Options 101 courses inside the Premia Academy unless you’re already familiar with these topics.

What are Options and How do They Work on Premia?

Options are financial derivatives that allow their holder to buy (call option) or sell (put option) the underlying asset at a specific time (expiration date) and price (strike price.)

Example: Calls could be used to make a bet on the BTC price being above 65k a week from now, whereas a put option could protect you from the BTC price falling below 55k.

Options on Premia are represented by tokens inside your wallet, which can be traded freely on the platform. An option you purchase inside the app can be sold to an open quote or simply held until maturity and settled.

This is useful because Premia’s options are European in nature, meaning they can only be exercised (settled) after the expiration date. If I have a BTC-31May24-64000 call option and BTC goes over 64000, I won’t be able to exercise before May 31st. 

However, since options can be freely traded, I’m able to sell that option to open quotes on the platform for a profit. An option will go up in value as it becomes more in-the-money, allowing you to lock in profits.

Buying Call and Put Options 

Step One: Choosing an Option

The two most basic considerations when choosing which option to buy should be…

1. Which direction will an asset move (up or down)

2. When will the asset move

Let’s say it’s May 17th. You think ETH will be above $3200 by June 7th. Here’s what you could consider doing:

First, navigate to app.premia.blue and connect your wallet from the top-right corner.

Step Two: Option Parameters & Confirmation

This is where you have to figure out what option to buy. First, you need to choose the underlying asset (WETH) and type of option (Call).

In accordance with the example above, let’s set the strike price to $3200 and the maturity to 3 weeks from now; June 7th.

Here, you can see the details of your transaction and the potential PnL of your trade. Now all that’s left is to wrap some ETH and complete the transactions in your wallet!

Step Three: Management

Now that you’ve purchased an option, you can manage the position inside the Portfolio page. This is where you’re able to view the details of your open positions, including the one we just opened.

Don’t be surprised if your newly opened position is already at a negative PnL; this is simply because you paid a premium for it!

By expanding a position you can also view more detailed information, such as The Greeks. However, the most basic function on this page is the possibility to close a position.

If there’s open quotes for the option, you can sell it — if not, you’re still able to utilize limit- and range orders with your option!

More on limit orders, short options, and vaults in future issues. Thanks for reading my frens. Check out the Premia Academy for more educational content and cool badges!

Join the next generation of Decentralized Finance with Premia and Archetype

Re-imagine the future of on-chain finance: Archetype is approaching!

Premia Blue is the first non-custodial options exchange with fully customizable options parameters and risk exposure.

Maximize capital efficiency, define your own risk, and optimize fees earned with Premia Blue on Arbitrum!

Website | Premia Blue | Academy | Docs | Twitter | Discord | Blog | YouTube | GitHub |