Cryptocurrencies became very popular for people that want to make some extra profits by trading. However, to become a good trader it is necessary to have time, discipline, and knowledge about the digital assets we handle.
Some advanced traders are now using cryptocurrency options. Options are financial derivatives that have their price determined by an underlying asset. Crypto options base their price on digital assets.
In this guide, we are sharing with you what is crypto options trading, how to automate it, and how profitable crypto options trading bots could be.
🔎 What is Crypto Options Trading?
Crypto options trading is an activity in which the trader purchases financial contracts that give them the option (but not the obligation) to buy or sell the underlying asset at a predetermined price and a specified date in the future.
These contracts are now available in the financial markets and also for cryptocurrencies. That means that traders can create more advanced trading options using options. Nevertheless, trading options is not an easy task and it requires knowledge of the underlying financial assets.
When we talk about a call option, we make reference to a situation in which the buyer of the option has the right to buy the underlying asset at a determined price and a future date. Instead, a put option gives the buyer the right to sell the underlying asset at a future date and for a set price.
Call and put options are already available in some cryptocurrency exchanges, meaning that a large number of traders are already able to gain exposure to crypto markets without necessarily purchasing the underlying asset.
Expert traders have several strategies that they can implement in order to trade options and digital assets. But it becomes very difficult for occasional traders to execute these strategies alone. This is where automated options trading comes in.
🤷 Why to Automate Options Trading?
There are different reasons to automate options trading. For beginners, this could be an easy way to get access to more advanced trading tools that they would not be able to execute without the help of the trading bot.
For expert traders, there are also benefits. They can reduce the time they spend looking at the charts and spend more time doing other things while the bot operates.
By using a trading bot, traders have the possibility to set the parameters they consider important and allow the bot to operate for the time they consider enough. In this way, and without relying on their own trading skills, the bot will execute these strategies in a very efficient way.
🦾 How Cryptocurrency Options Bots Are Working?
In order to start using a cryptocurrency options bot, you should select the exchange that you want to use, create an account and connect your bot to it. If you have these things already done and working, we now need to select the virtual currency we want to trade.
Let’s say we want to trade Bitcoin options. The trading bot will allow you to select an expiration date and select the trading strategy you want the bot to conduct. Some of the trading bots currently available in the market make it easier for you to select the strategies you want to follow.
The strategy you choose would depend on the type of trading plan you have. There are usually some simple strategies that can be implemented by small traders and advanced strategies for those users that want to properly execute their trades.
Furthermore, trading bots usually share with you some additional information related to the parameters of a trade. For example, you might be able to select the expected volatility and expected trend so as to have a more accurate strategy execution.
💰 How Profitable Options Bot Trading Could Be?
Trading with bots is usually a very good option for traders. As we have seen, there are many advantages of using a cryptocurrency options bot. The profitability of trading bots depends on a wide range of factors, including the bot itself and its execution mechanism, the market in which you are operating and the strategies used.
When we talk about options trading we also have to talk about futures trading. Futures contracts give investors the right to buy or sell an asset at a specific price before the contract expires. However, the main benefit of futures contracts in the cryptocurrency market is related to the possibility to use leverage.
Instead, if we use options rather than futures contracts, we could make large gains even if the market does not move higher or lower. Everything depends on the strategy used and how you execute the strategies you planned.
Trading bots would make it easier for you to execute these strategies but they do not guarantee any profit. Indeed, the underlying analysis should be made by the trader rather than by the bot, which merely executes the strategies you desire.
👍 Pros and Cons
There are several pros and cons about cryptocurrency options trading bots that we should consider.
Pros:
- Trading bots make it easier for traders to execute their strategies
- Some trading bots include both advanced and simple strategies
- Options trading could be very profitable, even during periods of low volatility
- There are different exchanges supporting options trading bots
- They help you reduce your time in front of a chart
Cons:
- They do not guarantee profits
- Sometimes they could be difficult to use
- The strategies should be planned by the analyst