Options Overview – Part 5 (Why Trade Options?)

It seems like a whole lifetime ago, but when I only traded stocks I would roll my eyes every time someone would mention the word “options.” They seemed confusing and the walls would raise around my brain. You know the feeling…when something sounds difficult, you’ll do anything to avoid learning about it. 

And then I listened to a presentation by a former Green Beret on how trading options changed his life, and I was hooked; suddenly I had the motivation necessary to learn this supposedly “difficult” thing, and I tackled it. And you know what? It wasn’t that hard. 

Using Options is like many other mundane things in life, like using coupons to lock in a price, or buying insurance to offload risk. I was making a mountain out of a molehill. 

OK, let’s discuss some of the reasons why you should trade crypto options!

Earning Income

This is the classic “insurance company” business model. You will SELL TO OPEN an option, which means that you’re being paid immediately by the market to take some risk out. This is exactly what insurance companies do with your insurance premium; you’re paying them to take risk off of your hands. 

You can sell options over and over again and create cash flow by doing so. The trick is to manage your risk properly so that you don’t let a small risk turn into a bigger one through excessive price movement. 

You can earn income by selling cash-secured (naked) puts against an asset that you want to eventually buy, or you can sell covered calls against an asset that you already own. 

Hedging Against Risk

This is the other side of the equation from the insurance company; this time you are BUYING insurance to help protect an asset that you own from downside risk. The normal way to do this is to buy put options, which gain value if the price drops before the expiration date for those options. 

Defined-Risk Speculating

When you buy an option to open the trade, it offers defined risk with no obligation. These can be used as inexpensive vehicles for speculation, if you have reason to think that a big move is coming. Spot currencies offer unlimited downside risk if you get it wrong, however a cheap “flier” option can expire worthless with no further obligation on your behalf, or it could potentially be sold for many multiples of the original price should you get the timing and magnitude correct. 

And More!

You can think of options as the “power tools” of crypto trading and investing; you can do a lot with a small amount of capital, especially as most vendors have incorporated mini-options that leverage a fraction of a coin. All that’s required is some curiosity on your behalf so you can begin to acquire the skills necessary to earn income, speculate, and hedge risk. Check out the readysetcrypto options masterclass (on our course roster) for more detail, or ask Doc directly.