The major crypto exchange Binance claims to have become the largest option location in the crypto market with a trading volume of $ 295 million on April 20.
In an interview with Cointelegraph on April 23, Aaron Gong, Vice President of Binance Futures, said the platform outperformed her peers on April 14 by volume traded daily. just a day after its official launch.
Gong said the contract was designed to address the issues perceived by Binance as the main drawbacks of existing cryptocurrency option products: low liquidity, high premiums, and high diversification.
An option contract gives traders the opportunity to acquire the right to buy (a “call option”) or to sell (a “put option”) a certain asset at a certain “exercise price”.
Gong noted that existing cryptocurrency options in the market generally offer a wide range of expiration dates and strike prices, including long-term terms that can take up to 100 days and even longer. He said:
“This market structure creates a fragmented liquidity landscape in which contracts that are far from the money and far from the expiration date are notoriously illiquid, so trading these contracts can pose challenges to transaction costs and execution.”
Binance’s Bitcoin (BTC) / Tether (USDT) option contracts offer a shorter period of time from 10 minutes to a day. In addition, Binance is the main liquidity provider for the product. This means that the options are unlimited and users have offers at all times.
According to Gong, the contract is a simplified version of traditional options, aimed specifically at home users, with the aim of removing entry barriers to trading in derivatives.
The exchange has decided to offer the US version of the options instead of the European version, where traders can settle the contract at any time at the chosen exercise price, including the expiry date.
Gong gave a concrete example of how an option contract works and found that:
“When a buyer buys a Binance Call option with an exercise price of $ 7,000 and a premium of $ 100, the equilibrium price is $ 7,100, the sum of the exercise price and the premium. To exit trading profitably, the underlying asset must exceed $ 7,100 […] Conversely, the option expires worthless if the underlying does not exceed the equilibrium price when it matures. “
He noted that in this example, the buyer would make a net profit of $ 100 if the price of the underlying reached $ 7,200, which is a return on investment (ROI) of 100%. If the price of the underlying reached $ 7,300, the buyer would have a net profit of $ 200 or an ROI of 200%.
In the near future Gong added that derivatives such as futures and options could prove to be a useful hedging tool, not only for retail and institutional investors, but also for miners who are under strong economic pressure. before halving Bitcoin 2020 in May.