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Trading Bitcoin options is less risky than futures but mind the premium!

Trading Bitcoin options can be a great way to access leverage while avoiding the liquidation risk presented by futures contracts but investors must keep an eye on the premiums.
The most basic Bitcoin (BTC) options contracts involve buying a call which gives the holder the opportunity to acquire the asset at a fixed price on a set date. For this privilege, the buyer simply pays an upfront fee, known as a premium, to the contract seller.Although this is a great way to use leverage while avoiding the liquidation risk that comes from trading futures contracts, it comes at a cost. The options premium will rise during volatile markets, causing the trade to require even further price appreciation to generate a reasonable profit, so the premium is a metric investors must keep a close eye on.Bitcoin 3-day historical volatility. Source: buybitcoinworldwide.comBitcoin’s daily volatility currently stands at 5.4%, which is far higher than S&P 500’s 1.7%. This creates opportunities for arbitrage desks, which will gladly hold Bitcoins in custody and sell a call option to capture this premium.Let’s look at a hypothetical trade to what role the premium plays in the scenario. The odds of this trade are calculated according to the Black & Scholes model and Deribit exchange presents this information as ‘delta’. In short, these are the percent-based odds for each strike.March 26 BTC call options pricing. Source: Deribit.comAccording to the chart above, the $54,000 strike for March 26 has a 48% chance of occurring according to the …
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