It started as a harmless WhatsApp conversation. Tunde had just received his salary, and his friend Femi sent him a voice note: “Bro, do you know you can make a huge profit just by learning how to buy and sell Bitcoin options? I made 300% profit last month this way? Forget all those savings accounts, this is the real deal!”
Tunde had always been interested in Bitcoin, but he didn’t understand how options trading worked. He had heard stories—some people made serious money, while others lost everything. Still, the idea of turning a small amount into something much bigger intrigued him.
So, he asked Femi, “How exactly do you buy and sell Bitcoin options?”
If you’ve ever wondered the same thing, this guide will explain everything. Bitcoin options trading offers a way to profit from Bitcoin’s price movements without directly buying or selling Bitcoin. However, it’s not as simple as pressing a few buttons. You need the right knowledge to make smart moves.
By the end of this guide, you’ll understand how to buy and sell Bitcoin options step by step, as well as the risks and strategies involved.
See Also: A Step-by-Step Guide to Invest in Crypto
What Are Bitcoin Options?
Before you start trading, you must understand what Bitcoin options are.
A Bitcoin option is a financial contract that gives you the right—but not the obligation—to buy or sell Bitcoin at a specific price before a set date. Traders use these contracts to take advantage of price movements without owning Bitcoin directly.
Bitcoin options are mainly of two types:
- Call Options – These allow you to buy Bitcoin at a fixed price before the option expires. If you believe Bitcoin’s price will increase, you buy a call option.
- Put Options – These let you sell Bitcoin at a fixed price before expiry. If you think Bitcoin’s price will drop, you buy a put option.
Unlike spot trading, where you must buy or sell Bitcoin immediately, options trading allows you to take positions based on price expectations.
Now, let’s get into the steps for buying Bitcoin options.
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How to Buy Bitcoin Options
Buying Bitcoin options is straightforward once you understand the process. Here’s a step-by-step guide:
1. Choose a Reliable Trading Platform
Not all platforms offer Bitcoin options trading. Some of the most popular ones include:
- Deribit – A widely used platform for crypto options.
- Binance – A global exchange that supports options trading.
- OKX – Offers a variety of crypto derivatives, including options.
Before choosing a platform, consider these factors:
- Security – Does the platform have strong security measures like two-factor authentication?
- Liquidity – Can you easily buy and sell options without major price differences?
- Fees – Some platforms charge high transaction fees, so check before trading.
- Ease of Use – A complicated interface can lead to mistakes, especially for beginners.
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2. Create and Fund Your Account
Once you select a platform, follow these steps:
- Register – Sign up with your email and complete identity verification if required.
- Deposit funds – Most platforms allow you to fund your account using Bitcoin, USDT (Tether), or other stablecoins. Some even allow deposits in local currency.
3. Select Your Option Type
Now that your account is funded, decide on the type of option to buy:
- Call Option – Choose this if you expect Bitcoin’s price to go up.
- Put Option – Select this if you predict a price drop.
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Each option has key details you must consider:
- Strike Price – The price at which you can buy or sell Bitcoin.
- Expiration Date – The date when the option contract expires.
- Premium – The cost of purchasing the option.
For example, if Bitcoin is currently at $40,000, you might buy a call option with a strike price of $42,000. If Bitcoin’s price rises to $45,000 before the expiration date, you can exercise your option and buy at $42,000, securing a profit.
4. Execute Your Trade
Once you’ve chosen an option, confirm the trade. The platform will display the premium (cost) before you complete the purchase. After buying, your option will appear in your portfolio.
At this stage, you now own a Bitcoin option. However, you need to know how to sell it at the right time.
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How to Sell Bitcoin Options
Selling Bitcoin options can mean two things:
- Selling Before Expiry – If your option has gained value, you can sell it to another trader for a profit.
- Exercising the Option – If the market moves in your favour, you can execute the contract and buy or sell Bitcoin at the agreed strike price.
Here’s how to go about it:
1. Monitor the Market Closely
Once you have an option, you need to watch Bitcoin’s price movements. If the price moves in your favour, your option gains value. However, if the price moves against you, the option can lose value or expire worthless.
For instance, if you bought a call option when Bitcoin was at $40,000 with a strike price of $42,000, and Bitcoin’s price reaches $44,000, your option becomes more valuable. But if Bitcoin drops to $38,000, your option may become worthless before expiry.
2. Decide When to Sell
You can sell your option before expiry if:
- The price has moved in your favour, and you want to take profits.
- You spot a better trading opportunity and need to free up capital.
- Market trends have shifted, and you want to cut potential losses.
To sell, go to your platform, select the option in your portfolio, and place a sell order. The platform will match you with a buyer.
See Also: A Step-by-Step Guide on How to Invest in Crypto
3. Understand the Risks Involved
Bitcoin options trading comes with risks, including:
- Time Decay – As expiration nears, options lose value faster.
- Market Volatility – Unexpected price swings can affect your option’s value.
- Liquidity Issues – If there are no buyers, you may struggle to sell your option.
Understanding these risks helps you manage your trades wisely.
Strategies for Trading Bitcoin Options
Trading Bitcoin options is not just about buying and selling at random. Successful traders follow well-planned strategies to manage risks and maximise profits. Below are some of the most effective approaches.
1. The Long Call Strategy (Buying Call Options)
This is one of the simplest strategies. You buy a call option when you believe Bitcoin’s price will rise significantly before the option expires.
- Example:
- Current Bitcoin price: $40,000
- Call option strike price: $42,000
- Expiry date: One month from today
- Premium paid: $500
If Bitcoin’s price rises to $45,000 before expiry, your profit is:
($45,000 – $42,000) – $500 = $2,500
This strategy is ideal for traders who expect a strong upward movement.
2. The Long Put Strategy (Buying Put Options)
This is the opposite of the long call strategy. You buy a put option when you expect Bitcoin’s price to drop.
- Example:
- Current Bitcoin price: $40,000
- Put option strike price: $38,000
- Expiry date: One month
- Premium paid: $400
If Bitcoin falls to $35,000, your profit is:
($38,000 – $35,000) – $400 = $2,600
This strategy works well when Bitcoin shows signs of a bearish trend.
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3. Covered Call Strategy (Generating Extra Income)
This is a strategy for traders who already own Bitcoin. Instead of selling your Bitcoin immediately, you sell call options against it.
- If Bitcoin’s price does not exceed the strike price, you keep the premium as profit.
- If Bitcoin’s price rises beyond the strike price, you must sell at that agreed price, limiting your upside.
This approach allows you to generate extra income from Bitcoin holdings.
4. Protective Put Strategy (Limiting Losses)
Think of this as buying insurance for your Bitcoin. If you own Bitcoin but are worried about a price drop, you can buy a put option.
- If Bitcoin’s price falls, the put option increases in value, offsetting your losses.
- If Bitcoin’s price rises, you only lose the premium you paid for the put option.
This strategy is useful when market conditions are uncertain.
5. Straddle Strategy (Profiting from Volatility)
This involves buying both a call option and a put option with the same strike price and expiry date. It is useful when you expect a big price movement but are unsure of the direction.
- If Bitcoin’s price moves significantly up or down, one of the options will be profitable.
- If Bitcoin remains stable, you lose the premiums paid.
This strategy is common when major events, such as regulations or economic announcements, are expected to impact Bitcoin.
See Also: What is Cryptocurrency?
Risk Management in Bitcoin Options Trading
Every trading strategy carries risks. However, you can manage these risks effectively by following key principles.
1. Never Invest More Than You Can Afford to Lose
Bitcoin options trading is speculative. You should only use funds you can afford to lose without affecting your finances.
2. Set Stop-Loss and Take-Profit Targets
- Stop-Loss – Set a price where you will exit the trade to limit losses.
- Take-Profit – Choose a profit target where you will close the trade and secure gains.
This prevents emotions from affecting your decisions.
3. Monitor Market Trends Regularly
Stay updated on news and price trends. Bitcoin is highly volatile, and price movements can change within minutes.
4. Manage Your Position Size
Instead of using all your capital on one trade, spread your risk across multiple trades.
5. Avoid Holding Options Until Expiry
Many traders assume they must wait until expiry to profit. However, options lose value as they approach expiry. If you’re in profit, consider selling early.
See Also: What is Cryptocurrency Trading and How Does it Work?
Common Mistakes to Avoid
Many new traders make costly mistakes when trading Bitcoin options. Here are some common errors and how to avoid them.
1. Ignoring Expiry Dates
Options lose value over time. If your option is not profitable before expiry, it can become worthless. Always track your expiration dates.
2. Overpaying for Premiums
A high premium means you need a bigger price movement to break even. Compare different options before choosing the best deal.
3. Failing to Use Risk Management
Some traders risk all their funds on one trade. A single bad move can wipe out your account. Always manage your risk properly.
4. Trading Without a Clear Strategy
Guessing price movements is a dangerous game. Always follow a proven strategy and avoid emotional decisions.
5. Not Understanding Option Pricing
Bitcoin options prices are influenced by factors such as:
- Bitcoin’s price – Higher volatility increases option prices.
- Time to expiry – Options lose value as expiry nears.
- Market demand – Popular options have higher premiums.
Understanding these factors can help you make better trading decisions.
Conclusion
Bitcoin options trading offers great opportunities but also comes with risks. If done correctly, it can be a powerful way to profit from Bitcoin’s price movements without holding Bitcoin directly.
To trade successfully, remember these key points:
- Understand how Bitcoin options work before trading.
- Use proven strategies to manage risks and increase profits.
- Monitor the market regularly and avoid common mistakes.
- Start with small trades and gain experience before increasing your investments.
If you’re ready to get started, open an account on a trusted options trading platform and begin practising with small amounts. Trading Bitcoin options takes time to master, but with the right approach, it can be rewarding.
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Frequently Asked Questions (FAQ) on How to Buy and Sell Bitcoin Options
1. What are Bitcoin options?
Bitcoin options are financial contracts that give traders the right—but not the obligation—to buy or sell Bitcoin at a specific price before a set expiry date. Traders use options to profit from Bitcoin price movements without directly owning Bitcoin.
2. How do call and put options work?
- Call Options – These allow you to buy Bitcoin at a set price before expiry. If Bitcoin’s price rises above this price, you make a profit.
- Put Options – These allow you to sell Bitcoin at a set price before expiry. If Bitcoin’s price drops below this price, you make a profit.
3. What is the difference between Bitcoin options and Bitcoin futures?
- Bitcoin Options – You are not required to buy or sell Bitcoin; you only exercise the option if it benefits you.
- Bitcoin Futures – You must buy or sell Bitcoin at the agreed price once the contract expires.
4. Where can I trade Bitcoin options?
Popular platforms for trading Bitcoin options include:
- Deribit – A leading platform for Bitcoin options trading.
- Binance – A global exchange with options trading features.
- OKX – Offers Bitcoin options and other crypto derivatives.
5. How much money do I need to start trading Bitcoin options?
The amount required depends on the platform and the option contract you choose. Some platforms allow you to start with as little as $10, while others require larger amounts. Always check the premium cost before trading.
6. What is a strike price in Bitcoin options trading?
The strike price is the price at which you can buy or sell Bitcoin if you exercise the option. For example, if you buy a call option with a strike price of $42,000, you can buy Bitcoin at that price even if the market price goes up to $45,000.
7. What happens when a Bitcoin option expires?
If an option expires:
- In profit (in the money) – You can exercise it or sell it before expiry for a profit.
- Out of the money – If Bitcoin’s price doesn’t move in your favour, the option expires worthless, and you lose the premium paid.
8. Can I sell my Bitcoin options before expiry?
Yes. You can sell your option to another trader before expiry if it has gained value. Selling early is a common strategy to lock in profits and avoid time decay.
9. How do I minimise risk when trading Bitcoin options?
To reduce risks:
- Trade only with money you can afford to lose.
- Use stop-loss and take-profit strategies.
- Monitor market trends and avoid emotional decisions.
- Avoid holding options until expiry if they lose value.
10. What is time decay in options trading?
Time decay refers to the gradual loss of an option’s value as it gets closer to expiry. The longer you wait, the more the option loses value—especially if the market doesn’t move in your favour.
11. Can I trade Bitcoin options without owning Bitcoin?
Yes. You don’t need to own Bitcoin to trade options. You are simply buying a contract that gives you the right to buy or sell Bitcoin at a later date.
12. Is Bitcoin options trading legal?
Bitcoin options trading is legal on regulated exchanges. However, regulations vary by country, so it’s important to check the rules in your location before trading.
13. Why do Bitcoin options have premiums?
The premium is the price you pay for the option. It is determined by factors such as:
- Bitcoin’s current price.
- Time remaining before expiry.
- Market demand and volatility.
14. How can I improve my success in Bitcoin options trading?
To increase your chances of making profitable trades:
- Learn the basics of options trading before investing.
- Start with small trades and gain experience.
- Use risk management strategies.
- Keep track of market trends and Bitcoin price movements.
15. Are there risks involved in Bitcoin options trading?
Yes, risks include:
- Losing the premium – If the market moves against you, your option can expire worthless.
- High volatility – Bitcoin’s price can change rapidly, affecting your trades.
- Liquidity issues – If there are no buyers, you may struggle to sell your option.
16. Should I trade Bitcoin options as a beginner?
If you’re new to Bitcoin options, it’s best to start with a demo account or trade small amounts while learning. Understanding market trends and risk management is essential before investing larger sums.
17. What is the best strategy for trading Bitcoin options?
The best strategy depends on market conditions:
- If Bitcoin is expected to rise, buy call options.
- If Bitcoin is expected to fall, buy put options.
- If uncertain, use a straddle strategy (buying both call and put options) to profit from volatility.
18. How long should I hold a Bitcoin option?
This depends on your strategy. Some traders hold for a few hours or days, while others wait until expiry. If your option is profitable before expiry, you may choose to sell early to secure gains.
19. What should I do if my Bitcoin option is losing value?
- Sell early if you believe the price will not recover.
- Hold and hope for a price movement in your favour (high risk).
- Cut losses and focus on better trading opportunities.
20. Can I lose more money than I invested in Bitcoin options?
No. The maximum loss is limited to the premium paid for the option. Unlike futures trading, options do not require you to buy or sell Bitcoin if the trade does not go in your favour.
