Crypto Options Trading Strategy: Using Options to Protect Your PnL
If you’ve always been curious about how to trade crypto options, you’ve come to the right place. There are a million ways to make profit in crypto – even so within the category of options – and it can be hard to know where to start.
Which is why we’ve broken down a ready-made strategy for options traders – specifically one that utilises crypto options as a way to hedge your perpetual contract positions.
How to Use Crypto Options to Hedge Your Perp Position
TL;DR. One can use an option contract to lock in a fixed profit should the market rise/fall, while not limiting your upside gains.
Why would you want to do this? You want a good night’s sleep. You want to remove the risk of losing your PnL gains should any sudden price spikes/drops for a respective asset occur.
Let’s Look at an Example
We’ve outlined an example scenario below (needless to say, it’s a fictional one).
Say you bought one BTC (Bitcoin) via a long perpetual contract at $40,000.
The current BTC price is $47,000.
This means you have an open PnL of $7,000 on your long position.
You remain bullish on BTC and have no desire to close the position yet.
However, you want to remove the risk of losing your PnL gains by any sudden price drop in BTC – say, below $45,000.
How Can Crypto Options Help?
In this scenario, you can purchase a Put Option for one BTC with a $45,000 strike price. This will cost a $1,000 premium.
You select an expiration date of 28/5/2024 based on your market analysis.
Should the price of BTC drop (e.g. below $45,000), the Put Option shields you from the market action.
Should the price of BTC continue rising (e.g. above $47,000), your long perpetual position will continue giving you profit.
In this scenario, the only expense incurred is the $1,000 premium paid for the downside protection.
Once the expiration date hits (28/5/2024), all Options positions will be automatically exercised if they’re profitable. You’ll receive your payout if the spot market price of BTC is below $45,000.
The best part – on BitMEX Options, you’ll receive your payout in USDC.
Like what you’ve read? We’ve got a range of educational resources on trading crypto Options as well as other derivatives, which you can find here.
To be the first to know about our new listings, product launches, giveaways and more, we invite you to join one of our online communities and connect with other traders. For the absolute latest, you can also follow us on Twitter, or read our blog and site announcements for the absolute latest.
The post Crypto Options Trading Strategy: Using Options to Protect Your PnL appeared first on BitMEX Blog.
BitMEX Blog