| Best Options Trading Platforms | ||
|---|---|---|
| Platform | Account Minimum | Fees |
| tastytrade | $0 | $0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close |
| Interactive Brokers | $0 | $0 commissions for equities/ETFs available on IBKR’s TWS Light, or low costs scaled by volume for active traders on TWS Pro. $0.65 per contract for options on TWS Light. $0.15 to $0.65 per contract on TWS Pro. |
| E*TRADE | $0 | No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume. |
| Webull | $0 | $0 commissions for stock, ETF, options, and cryptocurrency trading |
For Bitcoin options specifically, a crypto trading platform is likely preferable. Examples of crypto trading platforms that provide Bitcoin options include:
Risks to Watch for When Trading Bitcoin Options
Before you begin, know that trading cryptocurrency options involves a high level of risk. If you are new to derivatives trading, you should start with a demo account to learn the ins and outs of options trading before putting investment capital at risk.
Also, keep in mind that Bitcoin itself is not regulated as a security, but rather is considered a digital currency.
Investing in cryptocurrencies, decentralized finance (DeFi), and initial coin offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions.
Options Are Riskier Than Spot Trading
Trading Bitcoin options is generally riskier than buying and selling Bitcoin in the spot market.
For example, suppose you buy a call option on Bitcoin with a strike price of $35,000 and an expiry date that is three months away. If the price of Bitcoin doesn’t surpass $35,000 by the expiration date, you will lose the options premium (the price you paid for the option) in full.
Options Are More Complex Than Spot Trading
When trading Bitcoin options, the price of Bitcoin is not the only factor affecting the value of options contracts. There are several key factors that affect the value of the options you buy or sell, but time decay is by far the most critical. That’s because as the time moves closer to the expiry date, the value of an options contract decreases because the time remaining to trade or exercise the options diminishes.
The Bitcoin Options Market Is Less Established
While Bitcoin options can be found on traditional securities exchanges, like the Chicago Mercantile Exchange (CME), and on dedicated crypto trading platforms, the BTC options market is still quite young and doesn’t have the deep liquidity found in mature options markets. This can affect price slippage, especially in options with longer maturities.
How to Trade Bitcoin Options
Trading Bitcoin options is different from trading spot Bitcoin. Not only is the risk profile of your trade completely different, but there is a range of different aspects to consider when looking at which Bitcoin options contracts to buy or sell.
Before you can start trading Bitcoin options, you need to sign up with an exchange that supports crypto derivatives. If your online brokerage account provides you with access to the CME, you could trade Bitcoin options on the leading securities exchange. For most private investors, however, the more likely choice will be to sign up with a digital asset exchange that offers Bitcoin options trading, such as Bit.com, Bybit, Deribit, or OKX.
Here’s how it works.
Step 1: Sign Up for a Crypto Exchange
Find a digital asset exchange that offers Bitcoin options trading. Ensure you select a reputable exchange; then complete the onboarding process.
Step 2: Deposit Funds in Your Trading Account
Next, deposit U.S. dollars (using one of the exchange’s available fiat funding options) or cryptocurrency in your exchange account.
Step 3: Practice Trading Options Using a Demo Account
Ideally, the exchange you have signed up for offers a demo trading account where you can start trading Bitcoin options without putting real capital at risk. That way, you can become comfortable with how the options Greeks affect Bitcoin options.
Step 4: Research the Bitcoin Market
Learn what drives the price of Bitcoin to get an idea of what type of options trading strategy is best suited for the cryptocurrency and for your risk/return profile. The more you learn about the Bitcoin market and Bitcoin options, the more likely you’ll be able to trade options profitably.
Step 5: Place Your First Bitcoin Options Trade
Once you feel comfortable with Bitcoin options and how they work, you can place your first trade using the platform.
What You Need to Open an Options Trading Account
To open an options trading account, you’ll need the same documents as for a standard spot trading account.
Personal Information
Crypto options trading platforms generally require the following information from you:
- Full name
- Email address
- Phone number
- Home address
Additionally, to pass a trading platform’s Know Your Customer (KYC) verification process, you may also need to provide a scanned copy of your government-issued ID (such as a passport or a driver’s license) and proof of address (such as a utility bill or a bank statement). You may also be asked questions about your level of expertise as a trader to enable access to derivatives trading products on the platform.
Minimum Deposits
Crypto exchanges generally have very low minimum deposits; $10 to $20 is the industry standard, although there are also trading apps that allow you to start buying crypto with as little as $1.
To trade Bitcoin options, however, you will definitely need more than $1 to get started. Even the cheapest BTC options contracts have premiums worth over $10.
Trading on Cryptocurrency Exchanges
Trading on cryptocurrency exchanges is a little different. Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors.
The three main types of cryptocurrency exchanges are centralized, decentralized, and hybrid.
Centralized Exchanges
Centralized crypto exchanges are online trading platforms that look and feel like traditional online brokerages. You can use them to trade a range of cryptocurrencies in the same way you would buy stocks, bonds, or ETFs using an online broker account after you have registered and completed KYC verification.
Decentralized Exchanges
Decentralized crypto exchanges are Internet-native online trading venues powered by smart contracts that allow traders to buy and sell cryptocurrencies on a peer-to-peer basis. Crypto assets are traded directly from wallet to wallet. There is no need to create an account or complete a KYC onboarding process, making decentralized crypto exchanges accessible to anyone in the world.
Hybrid Exchanges
Hybrid crypto exchanges merge a centralized order book for matching trades with decentralized crypto asset custody, allowing crypto traders and investors to benefit from the best features of both types of crypto exchanges.
| Best Cryptocurrency Exchanges | ||||
|---|---|---|---|---|
| Company | Trading Fees | Currencies | Minimum Deposit or Purchase | Trade Limits |
| Kraken | 0.00% to 0.26% | 230+ | $1 | No |
| Coinbase | 0.00% to 0.60% | 240+ | $1 | Yes |
| Crypto.com | 0.00% to 0.075% | 300+ | 1 Euro | Yes |
Factors to Consider When Opening an Options Trading Account
When choosing where you’ll place your trades, keep the following factors in mind:
- Security: Choose a reputable crypto derivatives exchange that has a high level of security, highlighted by a track record of no hacks.
- Fees: Trading fees can affect your trading profitability, especially when you are an active trader on an exchange with high commissions. Hence, it’s important to choose a crypto derivatives trading platform that balances low fees with platform reliability, strong trading technology, and highly rated customer service.
- Supported cryptocurrencies: If you are looking to trade a range of crypto options, you will need to choose an exchange that offers more than just BTC options.
- Research tools: If you plan on trading Bitcoin options, you should use a platform that provides you with all the tools you need to set yourself up for success. Ideally, the trading platform should offer a range of charting tools and options calculators and highlight all aspects of each contract in a clear, easy-to-understand manner.
- Storage and custody: Choose a trading platform that holds most, if not all, customer funds in cold storage. That greatly reduces the chances of losing funds due to an exchange hack. Moreover, if the exchange has additional wallet security features in place, such as withdrawal address whitelisting, that’s even better. Address whitelisting is a popular exchange wallet security feature that only allows crypto withdrawals to specific “whitelisted” external wallet addresses predetermined by the user.
- Customer service: Ideally, you should also choose an exchange that has responsive, high-quality customer support. After all, it’s your money at stake, so if there are any issues with the platform, you need to be able to resolve them quickly with the help of the exchange’s support team.
Are Bitcoin Futures the Same as Bitcoin Options?
No. Bitcoin futures are not the same as Bitcoin options. Bitcoin futures obligate the buyer to purchase or the seller to sell a predetermined amount of Bitcoin at a specific price and date in the future. Conversely, Bitcoin options give the holder the right but not the obligation to buy or sell Bitcoin at a predefined price and date in the future. Therefore, options are more flexible than futures.
How Can You Hedge With Bitcoin Options?
Bitcoin options are an excellent investment product for hedging digital asset exposure. For example, if you have a crypto portfolio composed of long positions in Bitcoin (BTC), Ethereum (ETH), Stacks (STX), Dogecoin (DOGE), and Solana (SOL), you could purchase Bitcoin put options with a 100% hedge ratio so that if the crypto market crashes and your portfolio drops in value, your profit on the BTC put options contracts would offset roughly all of your losses on your crypto portfolio.
Should the market not drop in this scenario, you will lose the money you paid for the options contracts.
Can You Trade Options on Crypto Exchanges?
Yes, but not on all exchanges. Numerous digital asset exchanges provide crypto derivatives, including Bitcoin options, on their platforms. Notable examples include Bybit, Deribit, and OKX. There, you will find BTC options contracts with various strike prices and expiration dates, giving crypto traders the flexibility to execute complex options trading strategies.
The Bottom Line
Traders wishing to execute a Bitcoin options trading strategy should choose their trading platform or cryptocurrency exchange with care. There’s always risk when trading derivatives, but the relatively new and illiquid nature of the Bitcoin options market means traders should exercise additional caution to protect their investment capital.
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