Let’s say we believe that the bearish trend of the BTC market that has lasted for the past few months will continue. Traders may go short as their primary trading strategy rather than going long. Although BTC short/medium term bias remains to the downside, there was still little evidence showing the November correction would be repeated at this point, and 6400 levels seem like good support for now.
How to trade with ATM (at-the-money) options?
What are ATM options?
Below is the OKEx options trading simulation page that shows the information of the ATM option, including:
Green Box: The name of the option. The 1st part refers to the underlying product of the option, ‘TBTCUSD’ means the virtual BTC used in trading simulation. In the live market, it will be BTCUSD, meaning Bitcoin. In the 2nd part, ‘191213’ refers to the exercise date — December 13, 2019. It is the same as the information provided in the red box. In the 3rd part, ‘7000’ refers to the strike price, which is used to compare with the underlying price and to calculate the yield and forced-liquidation price. In the 4th part, ‘C’(Call) means a call option. If it is P (Put), it means a put option.
Blue box: Order book. Similar to futures, the red part shows the sell price, the green part shows the buy price. The right side is the number of options.
Yellow Box: Metrics of options. The first row shows the most crucial part: spot index and mark price. The index directly affects the buy & sell price of the option. When calculating the return on the expiration date, you need to compare the index and the strike price in order to calculate your return and the market price of the BTC spot after forced-liquidation. Here, we should focus on the mark price. The mark price, calculated by the platform’s system algorithm, is a relatively fair options price that changes in real-time.
Why should we focus on the mark price?
Let’s take another example from the BTC market history.
Back to December 15th, we saw that the trading volume and momentum indicators were not strong, and the market would oscillate in the short term. We believe traders should not go long on Bitcoin unless its price broke above 7300.
How to trade with OTM (out-of-the-money) options?
What are OTM options?
So, which OTM option should you choose? Here is the tip: consider the leverage of options. First, click “List Settings” on the top right corner, then tick the “Leverage” checkbox and click confirm. You can see the leverage of each option on the page, as shown in the blue circle in the figure above.
Please be clear that options are different from futures and perpetual swap. Options trading does not involve leverage, and users cannot select the leverage level. It is just a rough value given by the system based on cost calculation.
If you look closer, you will find that for a call option, the larger the strike price, the higher the leverage — exceptions for the last few leverages that stay at 2000x as their prices are small.
The leverage allows you to consider other factors besides strike prices. You can also refer to the contracts’ leverage levels to consider the risks involved and how much funds you should put into an options trade.
Finally, please bear in mind that the leverage ratio is directly proportional to the risk involved — the higher the leverage ratio, the lower the probability of exercise. Although your input is smaller, the risk of losing all funds invested is higher accordingly as well.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.