With a lot of economic turmoil, many crypto traders are wondering whether it is the right time to invest or try Bitcoin Trading.
It is very challenging for investors to determine when investing on days like these. With a lot of economic turmoil, the current incomes are insufficient to fulfill our daily expenditures.
The Crypto market has also suffered a huge hit. We saw in the pandemic period, the same market outperformed the rest of the markets, but today it is also suffering like the rest of the financial markets.
But can you still make money trading Bitcoin in the market?
At some point through the pandemic the price of the Bitcoin trended at roughly $67,000, it’s an all-time high, but it did not survive that threshold for a more extended period.
There was a gradual decrease in the price trend of Bitcoin, which is common if you compare it with any other financial asset like stocks. However, Bitcoin is now trending roughly at $20,000.
With the Fed trying to differentiate between Bitcoin and other altcoins, many traders are feeling the chills.
So what do you do? You need the money to survive the harsh conditions we are currently facing. So do you buy Bitcoin or start Bitcoin Trading?
It has been observed that you can make a lot of money when the market is bearish. This is because the market falls quicker than the surge experienced in a bullish market.
Since there is no fixed time to enter the crypto market, any time is a good time for you to enter and start trading.
It is far cheaper for you to trade Bitcoin rather than owning one, as it ensures two objectives; one, you don’t own the Bitcoin, so even if Bitcoin happens to be banned, you do not end up with a worthless asset, and second, you can make a lot of money while being exposed to the same price fluctuation risk that is inherent with Bitcoin.
Many traders are taking advantage of the current economic conditions and are making substantial money.
Financial instruments like futures and options are like a hot cake amongst professional crypto traders. However, many are attracted to Options trading rather than Futures. So in this article, we will get into understanding how you can make a profit by entering into an options contract.
Before that, we shall understand the terminologies used in Bitcoin Option trading.
Trading Options: This is a contract in which the buyer and seller agree that the buyer will have the option to purchase the Bitcoin on a specific date.
The investor does not purchase Bitcoin but rather trades on the price of Bitcoin, assuring the same risk of the volatility of Bitcoin.
Lot Size: The quantity of Bitcoins purchased in a single transaction is known as the lot size. Multiple lot sizes may also be purchased. For example, an investor might trade five lots, each with five Bitcoins.
Call Option: A “Call Option” is when investors choose to exercise their option to purchase.
Put Option: A “Put Option” is when the investor exercises the right to sell.
Strike Price: A contract is said to be at its “Strike Price” when it is entered at a future date and price.
Spot Price: The value or the price of Bitcoin on the day the Contract expires is referred to as the “Spot Price.”
Premium: The premium is the minimum amount that must be paid for the investor to enter a Bitcoin Options Trading contract.
Expiry Date: The Expiry Date is the day the Contract expires.
We shall now understand how Call and Put options are exercised in Bitcoin Options Trading. We shall elaborate on it with the help of a simple contract.
As you wish to opt for Bitcoin Trading, let us consider that you have entered into Bitcoin Options by paying a premium of $100 with 5 Lots, each with 4 Bitcoins. The current month is January 2022, and the Contract will expire in the future after three months, i.e., in March 2022.
Bitcoin Call Options.
Suppose the current month of January, Bitcoin is trending at $10,000, and you predict, based on your research, it will reach $12,000, which is the agreed strike price. There are two potential results.
- The Spot Price of Bitcoin will be higher than the Strike Price.
- The Spot Price of Bitcoin will be lower than the Strike Price.
Let us understand each outcome in detail.
- The Spot Price of Bitcoin will be higher than the Strike Price.
When the Contract expires, the spot price of Bitcoin is at $15,000; thus, you are making $3,000 more than the expected price of the agreed price.
Thus, profit made = $5,000
You have 5 contracts with each Lot being 4; thus, 20 Bitcoins
So Total Profit made = [3,000 X 20] – [100 X 5]
= 60,000 – 500
= $59,500.
So you have made a total of $59,500 by just investing $500.
- The Spot Price of Bitcoin will be lower than the Strike Price.
When the Contract expires, the spot price of Bitcoin is at $8,000; thus, you are losing $4,000 less than the expected price of the agreed price.
Since you are not in an obligation to buy the Contract, you will honor the Contract by paying off $500.
Bitcoin Put Options.
Suppose the current month of January, Bitcoin is trending at $10,000, and you predict, based on your research, it will reach $8,000, which is the agreed strike price. There are two potential results.
- The Spot Price of Bitcoin will be lower than the Strike Price.
- The Spot Price of Bitcoin will be higher than the Strike Price.
Let us understand each outcome in detail.
- The Spot Price of Bitcoin will be lower than the Strike Price.
At the end of the day, the Contract expires, and the spot price of Bitcoin is at $6,000; thus, the Contract is $2,000 cheaper than the agreed strike price3 of $8,000
Thus, profit made = $2,000
You have 5 contracts with each Lot being 4; thus, 20 Bitcoins
So Total Profit made = [2,000 X 20] – [100 X 5]
= 40,000 – 500
= $39,500.
So you have made a total of $39,500 by just investing $500.
- The Spot Price of Bitcoin will be higher than the Strike Price.
When the Contract expires, the spot price of Bitcoin is at $15,000; thus, you are paying $7,000, which is more than the expected price of the agreed price.
Since you are not in an obligation to buy the Contract, you will honor the Contract by paying off $500.
Conclusion:
We can see that you can make a lot of profit with the minimum investment when you consider Bitcoin Trading. The amount of risk involved is also minimum in Bitcoin Options Trading. You can “Leverage” your profit by entering multiple contracts.
Although the loss you bear is limited, you should exercise caution and invest the amount of money you may not regret if you lose.