The recent bullish market saw open positions in futures as well as in Bitcoin and Ether options hit record highs. By the morning of July 30 UTC, the open interest of Bitcoin options on OKEx had reached an all-time high of $93 million — just three days earlier, the one-day trading volume had also set an all-time high of $55 million, as per data by skew.
Options are more flexible and have a broader variety of expiration dates and strike prices as compared to futures, allowing investors to benefit from more customizable contracts. Moreover, given their nature, options are primarily used for risk hedging and strategic portfolio management.
Options as hedging instruments
We commonly see a lot of Bitcoin miners hedging their block rewards using BTC options. With their non-linear profit and loss characteristics, options provide room for investors to grow their returns. In a nutshell, constructing a hedging portfolio with options can help miners protect a minimum return on their mining, all the while retaining the potential for higher returns.
For example, if a coin holder believes that the market is going to go down, they buy a put option. If the price continues to fall, the holder loses money on the coins but continues to make money on the option. If the market rises, the holder makes money on the coins and only loses up to the option’s front or premium cost, since the option is not an obligation. This allows the holder to hedge risk while retaining room for earnings growth in a high volatility market.
Please visit https://www.okex.com/ for the full report.
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