Bybit Options: Advantages to Hedge Your Positions & Maximize Profits

Diversifying your investment portfolio is essential, and crypto options offer an excellent way to manage risk and take advantage of price fluctuations in the volatile crypto market. 

Crypto options function in the same way as traditional options in the stock market. Essentially, they confer on you the right, but not the obligation, to buy or sell your crypto assets at a predetermined price and time. Options contracts predominantly offer the choice to trade call options, which give a buyer the right to purchase an asset, and put options, which give a buyer the right to sell an asset. 

In fact, crypto options have gained popularity in recent years because they don’t require substantial capital in order to get started, and they're less risky yet have the potential to generate higher percentage returns than any other method. 

We understand there’s a learning curve for users who want to understand how the options market works. In this guide, we’ll examine the fundamentals of crypto options and see how Bybit Options is an ideal choice to get you started.

Key Takeaways:

• Bybit Options is a European-style crypto option that gives traders the right to buy or sell and underlying asset at a predetermined price and date without owning the underlying asset. 

• Traders prefer Bybit Options for its unique Portfolio Margin feature, competitive trading fees, and fair trading environment. 

• Bybit Options is one of the largest crypto option platforms by trading volume that pioneers the stablecoin USDC-settled Option Market.

What Are Bybit Options?

Bybit Options are European-style cash-settled Options in the form of derivatives contracts that give you the right to buy or sell an underlying asset at a predetermined price and date. Buyers are required to pay a premium for a Call or Put Option for the rights to the contract.

Since the inception of this product about a year ago, Bybit USDC Options has gained popularity with consistent trading volume. The recent revamp of Bybit’s USDC Options trading fees further enhances traders’ potential to maximize their profits. 

Bybit Options sets itself apart from other options contracts for its versatility and flexibility. Unlike futures contracts, which obligate traders to buy or sell an asset at a specific price, Bybit Options give traders the freedom to exercise their rights at their discretion. In return, traders can make strategic decisions based on market trends and risk tolerance, thus increasing their chances of success at enhanced capital efficiency.

Learn more: What Are Bitcoin Options?

How Do Bybit Options Work?

Bybit Options work similarly to traditional financial options contracts that revolve around two contract types: Calls and Puts. 

Call Option: This is an agreement that allows a Call Option holder to buy an agreed-upon amount of an asset for a particular price and date.

Put Option: This agreement gives the contract’s owner the right to sell an asset at an agreed-upon price later at a predetermined date.

European-style Options work differently from American-style Options, particularly regarding the contract’s expiration date. Even if a contract is in the money (ITM), the holder can't exercise their option until the set date, at which time the expected outcome of such a contract may have reversed.Bybit predominantly practices European-style Options because the expiration date is fixed, and the profit or loss can be estimated with precision.

When executing this contract, traders should be aware of the following mechanics:

• There is no actual physical delivery of the underlying asset.

• European Options will automatically be exercised upon the Option’s expiration date.

• The final settlement and strike price will determine the Option's payoff using the average index price 30 minutes in advance of the Option's expiration date.

To learn more about how Bybit European-style Options work, let’s use an example.

BTC-31OCT2023-48000-C is a BTC Call Option with a strike price of $48,000, which will expire on Oct. 31, 2023. To illustrate the differences between Call and Put Options, we’ll use two different scenarios. 

Example 1: Call Option

The market price of BTC at the start of September is $25,000. Ann thinks the price of BTC will be much higher at the end of the month, while Bob believes that BTC’s price will decrease.

Let’s take the following Option:

• Type: Call

• Strike Price: $26,000

• Expiration Date: Oct. 31, 2023

• Underlying: BTC

Ann buys a BTC Call Option for $1,000. This means she has the right to buy 1 BTC at $26,000 when the contract matures. Bob sells Call Options.

Scenario A: Upon expiration, BTC’s settlement price increases to $29,000. 

• Buy Call:Ann exercises her Call Option and makes a $3,000 profit (i.e., $29,000 − $26,000). Minus her $1,000 paid premium, she’s pocketing a profit of $2,000.

• Sell Call:Bob needs to fulfill his obligation to sell the Option at a strike price of $29,000, and he loses $3,000 (i.e., 29,000 − $26,000). Deducting the $1,000 premium he receives, Bob’s total loss is $2,000.

Scenario B: Upon expiration, BTC’s settlement price dips to $24,000.

• Buy Call:In this case, Ann loses $1,000, which is the premium she paid for the Call Option.

• Sell Call:Bob doesn’t need to perform his obligations, and earns a premium of $1,000.

Example 2: Put Option

Let’s say that BTC is trading for $38,000 on September 1. Based on Bob’s research, he believes BTC’s price will drop by the end of the month. Ann, however, thinks BTC’s price is going to rise.

Let’s take the following Option:

• Type: Put

• Strike Price: $37,000

• Expiration Date: Oct 31, 2023

• Underlying: BTC

Bob buys a BTC Put Option for $1,000. This means that he has the right to sell 1 BTC at $37,000 when the contract matures. Ann sells Put Options. 

Scenario A: Upon expiration, the BTC settlement price dips to $35,000. 

Buy Put:Bob exercises his Put Option and makes a $2,000 profit (i.e., $37,000 − $35,000). Minus his $1,000 premium, he walks away with a profit of $1,000.

Sell Put:Ann needs to fulfill her obligation to sell the Put Option at a strike price of $35,000, and she loses $2,000 (i.e., 35,000 − $37,000). Deducting the $1,000 premium she receives, her total loss is $1,000.

Scenario B: Upon expiration, BTC’s settlement price increases to $39,000. 

Buy Put:In this case, Bob loses $1,000, which is the premium he paid for the Put Option.

Sell Put:Ann doesn’t need to perform her obligations, and earns a premium of $1,000.

The Importance of Hedging in Crypto Trading

Crypto Options have a reputation for hedging and profit maximization, especially in volatile market conditions. Take crypto trading as an example. The prices of cryptocurrencies can swing dramatically in a short period, leading to substantial losses if not properly managed. By hedging their positions, traders can cushion their portfolios against these price swings and improve their overall trading performance.

Essentially, hedging helps protect users’ investments from unfavorable price movements. This involves taking an offsetting position in a related asset to mitigate potential losses.

In addition, hedging also provides profit opportunities. Therefore, even if you anticipate a decline in the price of a cryptocurrency, you can hedge your position by buying a Put option. If the price does indeed fall, the value of the Put Option will increase, offsetting the losses from your original position. Similarly, if you expect a price increase, you can buy Call Options to capitalize on the upward movement.

Learn more: How to Hedge With Crypto Options

What Sets Bybit Options Apart From the Rest?

Optimized Capital Efficiency

Bybit users who upgrade to the Unified Trading Account (UTA) can enjoy enhanced capital efficiency by offsetting their unrealized profits and losses on all Derivatives positions on Bybit, including Bybit Options. 

With the UTA, Bybit Options traders can better hedge their positions without separating their accounts for different Derivatives products, so margins won’t require additional capital for offsetting risks. Since margin trading with a UTA is at the account level instead of the position level, margin requirements could be significantly lower. Thus, traders have more protection for their hedged positions. 

Highly Competitive Options Fees and Best-in-Class Liquidity

Bybit Options trading involves three major fees: trading fees, delivery fees and liquidation fees.

• Trading fees: These are charged in USDC in the form of Maker and Taker fees when opening or closing a trading USDC Options position on the platform.

• Delivery fees: Based on the predetermined agreement, these are charged when an Options contract is exercised. 

• Liquidation fees: If a position is liquidated, the trader will be charged based on the option’s traded size, index price and the current liquidation fee rate.

Bybit recently revamped its Option fees across all users' VIP tiers, featuring some of the lowest trading fees in the industry — including zero settlement fees for short-term contract expiration. 

Below is an overview of Bybit Options fee revisions.

Bybit Options Fees Before and After the Update

Pioneer in the Stablecoin-Settled Options Market

Bybit is a proud partner with Circle Internet Financial — most widely known for being the issuer of USD Coin (USDC). This partnership paves the way for the rapid growth of all things USDC, including the USDC Options offered on Bybit’s platform, allowing our traders to leverage the strength and stability of the leading digital dollar-based currency.

Traders can mitigate the risk of volatile price swings without hedging their underlying collateral exposure, as the USDC stablecoin is less volatile than any other cryptocurrency. The ease of calculating profit and loss (PnL) in USD equivalents makes it easier for traders to benchmark and calculate returns. 

Innovative Portfolio Margin Boosts Profitability

Portfolio Margin mode helps traders optimize their margin requirements for their trading positions. It considers the overall risk of a portfolio, rather than each position in isolation. By reviewing portfolio-level risk, brokers or exchanges can potentially reduce their margin requirements, which translates into increased buying power and trading flexibility.

Portfolio margin benefits traders by allowing them to trade larger positions with less margin required. This can increase buying power and capital efficiency, potentially opening the door to more trading opportunities.

Bybit Options is one of several trading platforms in the industry to utilize this feature of ETH and BTC Options. Users benefit by lowering their margin requirements on hedge positions that are aligned with the overall risks of the entire portfolio. At the same time, Portfolio Margin mode offers traders increased access to leverage, which can help them increase their exposure to the market while maintaining a balanced portfolio. 

With increased leverage, traders can hold larger positions with less capital for a higher return potential with calculated risks.

Trade With Safety and Fairness: Industry-Leading Risk Control

Bybit is committed to protecting users from financial and security risks. We deploy multi-layered liquidation protocols to ensure all Bybit traders can manage risks and safeguard themself from excessive loss in a safe and fair environment. In addition, users on the platform are free to customize their personal settings based on their preference for additional protection and enhanced security.

Tips for Trading Crypto Options on Bybit

Trading crypto options on Bybit can be a profitable venture when done correctly. 

Here are a few tips:

• Understand the basics: Before you start trading options, take the time to understand their mechanics. Learn about call options, put options, strike prices, expiration dates and premiums. Bybit provides educational resources to help you get started.

Learn more: Everything you need to know about Options trading

• Use a Demo Account: Bybit offers a free Demo Account for new traders. This allows you to practice trading options without risking real money.

Learn more: What Is Bybit Demo Trading?

• Monitor the market: Monitor market news and trends closely, as they can significantly influence the prices of cryptocurrencies and, by extension, the value of your Options.

Learn more: How to Earn Crypto During Market Uncertainties

• Manage your risk: Don't invest more than you can afford to lose. Use stop-loss orders to limit losses, and take-profit orders to secure profits.

• Use a reliable trading strategy: Have a well-defined trading strategy to guide your trading decisions and improve your chances of success. Whether it's technical analysis, fundamental analysis, or a combination of both, find a strategy that works for you and stick to it.

The Bottom Line

Bybit encourages traders to take control of their investments, manage their risks effectively and capitalize on the volatile crypto market. Whether you're a seasoned trader or a beginner, Bybit Options provides a powerful avenue for traders to enhance their trading portfolios. So why wait? Harness the power of Bybit options today and unlock your potential for success in the crypto market.

#Bybit #TheCryptoArk