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Bitcoin Options: A Complete Guide for Newbies!

Bitcoin Options is a derivative product that is created on the asset, Bitcoin. These financial instruments are cryptocurrency derivatives that similar but more complex than that of Bitcoin Futures. They are great for making money if you understand them well and know how to use them to your advantage. 

BTC options trading is a low-risk, high-reward trade. This is mainly because of these kinds of trades, you simply lose the “premium” paid for accessing the market. I’m going to walk you through the different basic and important things about Bitcoin options. 

What are Bitcoin Options? How do BTC Option Contracts Work?

Bitcoin options are financial derivatives that are dictated by Bitcoin (BTC), which is the underlying asset in this case. To understand options, it is very important to know the following:

  • By buy or selling an options contract, you’ve the right to buy/sell the underlying asset, which is Bitcoin here. When you buy a BTC options contract, you don’t have any obligation of buying or selling Bitcoin. 
  • Bitcoin option contracts are significantly different from the Bitcoin futures contracts, despite the fact that both are cryptocurrency based derivative products. The difference of BTC options from BTC Futures is that you don’t have any obligation of buying or selling the underlying Bitcoin BTC asset if you’re still holding the options contract at the time of contract expiry. 

This is where bitcoin options trading becomes so attractive. You can speculate on the future price of a BTC options contract without having to purchase or sell it during trade. Instead of paying the entire price of bitcoin (the underlying asset), you simply pay a non-refundable security deposit called “premium”. Usually, the premium you’ve to pay is around 5-10% of the contract value. 

Before paying the premium, you’re predicting whether Bitcoin will finish above or below the “strike price” of the options. An example will help you understand it better. 

Suppose, the price of each Bitcoin is trading at US$41,300 and the strike price of the options contract is US$43,000. Now, suppose, you purchase 1 options contract with the strike price at US$43,000. If the price of Bitcoin (the underlying asset) at the time of that contract’s expiry is at US$44,000, you make a profit of US$1,000. If you held 10 options contract, you will make a profit of 10 x US$1,000 = US$10,000. 

Bitcoin options contracts always come with an expiry date. The most common option contracts are for 3-months. However, weekly, monthly, or 6-months option contracts are also available. It is important to note that you can your options contracts before the date of expiry. 

Example of Bitcoin Options Contract

Suppose, you purchased 2 Bitcoin options contract of 3-months. Its strike price is US$45,000. The premium for each BTC options contract is US$2,500. As you purchased 2 options contract, you’ve to pay a total of US$5,000 as premium. 

Now, suppose, at the time of expiry of the options contract, the price of each BTC becomes US$50,000. This means that you made a profit of US$5,000 per contract. So, your total profit for 2 options contracts is US$10,000 (US$5,000 profit per contract x 2 contracts). Now, you have to subtract the premium amount you paid. Therefore, your net profit will be US$10,000 - US$5,000 = US$5,000. 

Bitcoin Options Contracts: Key Terms

  • Calls and Puts
  • Call Option Contract

A bitcoin call option gives you the right (not the obligation) to buy Bitcoin (the underlying asset) at the exercised price at/within a specified time (say, 3 months). The value of a call option increases as the price of Bitcoin goes upwards. If you think that the price of BTC will increase, you should buy a call option.

  • Put Option Contract

A bitcoin put option gives you the right (not the obligation) to sell Bitcoin (the underlying asset) at the exercised price at/within a specified time (say, 3 months). The value of a put option increases as the price of Bitcoin goes downwards. If you think that the price of BTC will fall, you should buy a put option.

  • Spread

The price differential between a BTC Call Option contract and a BTC Put Option contract (having the same expiry date) is called the “spread”.  

  • Strike Price

It is the price at which the market believes the Bitcoin price will close at the time of a certain option contract’s expiry. It is the market forces (and not the cryptocurrency exchange) that decides the strike price. 

Suppose, the BTC price is hovering around US$42,000 currently. The strike price of BTC Call Options contracts for 1-month and 3-months are US$43,000 and US$45,000 respectively. Now, it is up to you to speculate what the price of each BTC will be after 1-month or 3-months. 

Suppose, the price of each BTC after 1-month becomes US$45,000. If you bought a 1-month call contract of US$43,000 strike price, your profit at the time of expiry of the call options contract is US$2,000 per contract. If your speculation becomes wrong and the price of each BTC becomes US$42,500, you make a loss of US$500 per contract. Your total loss, in that case, will be US$500 per contract plus the premium amount. 

  • Premium

When you are buying a Bitcoin options contract, you are not purchasing the contract in full. Instead, you are paying just a small percentage of the contract value (usually, 5-10%) and buying the right (not obligation) to buy or sell the options contract. This small percentage of the contract value is called premium. 

  • Contract Value

Suppose, the value of each contract is 0.1 BTC and you are buying a BTC options contract with the strike price of US$45,000. If we consider that the premium amount per options contract is 5%, then the contract value will be:

(Value of Each Contract) x (5% of Option Contract’s Strike Price) = 0.1 x (5% of US$45,000) = 0.1 x 2,250 = 225.

What are the Best Bitcoin Options Trading Platforms?

  • Binance
  • Bitfinex 
  • Deribit 
  • FTX 

Buy Bitcoin, Cryptocurrencies, Stocks, and Gold Now

If you are ready to invest in stocks and cryptos or buy Bitcoins through online brokerage accounts of centralized or decentralized cryptocurrency exchanges, you can do so in a legit way by investing through stock investing and cryptocurrency apps. You have to open an account with such an exchange or online broker (including trading apps and investment apps such as TD Ameritrade). Then verify your details (including basic personal information) and fund your stock or cryptocurrency trading account. 

The best thing about the Bitcoin and crypto market is that the transactions are done without the involvement of banking entities. This is one of the reasons why more and more investors (including corporates, venture capitals, and institutional investors) are heavily investing in cryptos. 

You can start depositing funds to your stock or crypto exchange account to buy company shares or cryptocurrencies. This can be done by simply connecting your online banking account (savings accounts, checking accounts, or other account types). Besides transferring fiat currency money online through bank transfer, you can make payments with other payment methods including credit cards, debit cards, and others. 

If you need further assistance, you may consider taking help from the vibrant and helpful trading communities. You can trade cryptos with credit cards (business credit cards, personal ones, or citi custom cash cards), debit cards, or other payment options through reliable crypto trading web platforms. 

You can also check the savings calculator to know how much you should save on a weekly, monthly, or yearly basis. Check the financial news to know more about the prospects of various assets so that you can build long term wealth.

In case you are bullish on the future prospects of gold, stock and ETF trading, crypto market, Bitcoin BTC, Ethereum ETH, Bitcoin Cash BCH, Litecoin LTC, Ethereum Classic ETC, Bitcoin SV, Wrap Bitcoin, and other altcoins, you can start investing in stocks, gold, Bitcoin, and other altcoins with USD. Once bought, transfer them to:

  • hot wallets (including mobile app wallets and software crypto wallets) or 
  • cold wallets (including most secure hardware wallets) 

Hold them for a longer time period to let the Bitcoin BTC price increase. Keep your cryptocurrencies safe with:

  • Ledger Nano S
  • Trezor One
  • Other Ledger and Trezor models

Crypto market investing will provide you a higher return in the long run. The ROI from crypto investment is much more than investing in:

  • Stocks
  • Mutual funds
  • Index funds
  • Real estates
  • Yield savings accounts
  • Real estate investment trusts
  • Fiat currency trading (forex trading)
  • CD rates
  • Trade Options
  • Money saving in savings accounts
  • money market returns
  • Exchange traded funds
  • IRA accounts (including Bitcoin IRA), and others. 

In fact, many retirement funds or IRA accounts such as Roth IRAs are allowing digital currency investors to purchase XRP, Bitcoin, Chainlink, and other digital assets. These retirement funds are increasing investor choice by allowing them to invest a small percentage of their money in cryptocurrencies. This is, in turn, increasing the prospects of these funds to provide their investors to get higher returns. If you are thinking about building wealth, you should include cryptos in your portfolio like other crypto investors. 

Therefore, it can be concluded that holding Bitcoin Ethereum and other cryptos can help you to build real wealth and multiply your net worth. You can learn investing basics to buy crypto currency and other digital assets to make more gains. Start going through Wall Street Journal and other investing magazines on cryptos to learn more about investing in crypto market and make better financial decisions. Learn about valuation calculation to true bitcoin value and assess the overpriced or underpriced situations instantly. 

As a beginners guide, you may also check out the trading basics provided by various cryptocurrency exchanges such as Coinbase, Binance, Kraken, and other crypto APIs. There are many brokers suitable for beginners as well. So, read reviews of customers before joining a crypto exchange. There are many brokers for beginners in the USA through which you can trade and invest extra cash and investible fund in fractional shares and stocks funds. 

You should definitely learn about:

  • Trading for beginners (Step By Step guide)
  • Types of stocks including penny stocks, value stocks, growth stocks, blue-chip stocks, etc.
  • Gold standard
  • Futures contract
  • Gold miner, gold mining company, and gold mining stocks
  • Bad debt and bad credit
  • Home equity
  • Employment tax records and receipts
  • Periods of limitations
  • How credit score is determined?
  • World gold council
  • How is the price of gold and other precious metals determined?
  • How to rent out your car to make money
  • Significance of owning gold
  • Stock plans
  • Fixed income assets
  • Stocks and Funds
  • Spot price and futures price of gold
  • Write an eBook to start making money 
  • Use spare time and personal internet connection to earn extra cash through part-time graphic design
  • Asset allocation
  • Investment gold
  • Different ways of buying and selling golds
  • How to make money from Google adsense?
  • Gold stocks
  • Utilizing market news for profit
  • Significance of Dow Jones in the stock market
  • How to increase your disposable income through balance transfers credit cards?
  • Different trade ideas
  • Warren Buffet’s investing styles
  • Passive investors
  • Different investment goals
  • Teaching as a private tutor in your free time
  • Cash Management
  • Investing for beginners
  • How to choose brokerage firms and stock exchanges?
  • Gold markets
  • Trading strategies for beginners to time your entry and exit
  • Using price actions to one’s advantages
  • Teach English to earn a lot of money online and start saving
  • Browsing websites can also help you earn little extra cash
  • Margin Requirement
  • Margin Call
  • Margin Account
  • Day Trading Margin
  • Trend Trading
  • Market Maker
  • Options trades
  • Fundamental Analysis
  • Short Sell
  • Market Research
  • Success Rates Of Day Trades
  • Trading Vs Investing
  • Swing Trading
  • Time Frames Of Trading
  • Successful Ways Of Buying Stocks And Cryptos Throughout The Day
  • Risk Management
  • Financial Industry Regulatory Authority
  • Trade On Margin,
  • Foreign Exchange Trade
  • Pattern Day Traders
  • Day trading rules
  • Active trading
  • Secrets of a successful day trader
  • Stock price actions
  • How to pay off debt quickly
  • Planning for retirement 
  • IRA guide and fruitful ways of increasing returns of individual retirement accounts
  • Stock price determinants
  • Charles Schwab’s modern approach to investing and retirement
  • Day Trading Tools, trading software, and different financial tools. 

Defi tokens and NFTs (Non Fungible Tokens) are the next generations of crypto coins. These decentralized coins have started to become very popular among active traders who trade cryptocurrency. You can buy sell them through crypto trading platforms too. 

Whether you buy Ethereum ETH or buy Dogecoin, you should also invest in: 

  • Chainlink LINK
  • Litecoin LTC
  • Binance Coin
  • Cardano ADA
  • Polkadot DOT
  • Dogecoin DOGE, and 
  • Trade Litecoin LTC for better diversification of coins

To diversify your portfolio, you may also buy stocks through stock brokers for beginners and pros.

Get better guidance on improving your personal finance, retirement planning, management of cash flows or capital gains, and investment ideas from financial advisors, investment managers, and wealth managers, especially the ones who are not averse to cryptocurrencies such as Bitcoin and others. 

While day trading, you should always try to invest only that much money which you can afford to lose. When you do margin trading, be very careful. Financial protection must be there in your mind always while you make cryptocurrency trades. That’s why having a secure financial plan is so important. 

Invest money in stocks, gold, and other cryptocurrencies through centralized or decentralized exchanges and reliable online brokers. 

Choose NapBots to Increase ROI

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You may also check “Napbots Review - Simple Way To Increase Your Crypto Returns” before taking the plunge.

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