Introduction to Bybit Options

    bybit2023-11-15 10:09:43

    The Option is a type of Derivatives contract that provides the buyer with the right to purchase or sell an underlying asset at a predetermined price and on a specific date. To acquire this right, buyers must pay a premium to acquire either a Call or Put Option.

     

    The seller of the Option is obliged to purchase or sell the underlying asset to the buyer if the buyer chooses to exercise their Option. As an Option seller, you will receive a premium from the Option buyer.




    Bybit Options

     

    Bybit offers Options that are margined and settled in USDC. This simplifies benchmarking and return calculations. We provide European-style cash-settled Options, which have the following features:

    • European-style Options can only be exercised at expiration.
    • There is no requirement for the actual physical delivery of the underlying asset.
    • Bybit's European Options automatically exercise upon expiration.
    • The Option's payoff at settlement is determined by the difference between the final settlement price and the strike price, with the final settlement price calculated using the average index price 30 minutes before the Option's expiration.
    • USDC Options is currently only supported in Unified Trading Account.






    Benefits of Trading Options

    • Risk Control and Profit Potential: Options provide a way to manage risk and unlock unlimited profit potential. Traders can limit losses when predictions are wrong and seize significant profits when they're right. Options' leverage can boost profits, and Put options act as a safeguard against market declines.
    • Diversified Strategies: Traders can optimize their strategies by blending different types of Options, enabling them to generate profits across various market conditions.
    • Eliminate Funding Fees and Liquidation Concerns: Option buyers avoid the risks of position liquidation and the burden of funding fees. This ensures a cost-efficient, risk-averse trading approach that shields against unforeseen market fluctuations. It's crucial to acknowledge that Options sellers face potential liquidation risks.






    Differences Between Option Explore, Easy and Pro

    The following are the key differences between the three (3) trading tools:

     

    Explore

    Easy

    Pro

    Introduction

    Option Explore and Easy serve as introductory tools tailored for novice options traders. They offer a user-friendly approach to seize profit opportunities and simplify order placement by leveraging historical data.

    Option Pro is a trading tool tailored for experienced traders. It empowers traders to access the Option Chain, place orders, and leverage advanced features to enhance their trading capabilities.

    Suitable Users

    - Novice options traders. 

    - Users keen on monitoring the activities of prominent traders.

    - Novice options traders.

    - Users with some prior knowledge of options.

    - Experienced options traders.

    Options Contracts Supported

    Popular Options Contracts 


    Note: Recommended Options contracts are based on different aspects such as high 24-hour trading volume, open interest, and more.

    All Options Contracts

    All Options Contracts

    Options Trading Direction

    Buy 

    Buy 

    Buy and Sell

    Options Trading Types

    Call and Put Options

    Call and Put Options

    Call and Put Options

    Advantages

    - Recommends popular Options contracts with high trading volume, open interest, and other different aspects. 


    - Offers the ability to track trades of substantial traders.


    - Provides a user-friendly interface.

    - Presents essential information about Option profitability, costs, and price movements.


    - Simplifies understanding of Option contract details. 


    - Offers clear and easily comprehensible profit and loss analysis.

    - Features an Options chain.


     - Supports single and multi-leg orders.


     - Provides comprehensive and customizable profit and loss analysis. 


    - Enables custom order creation for tailored trading strategies.




    Before diving into trading, it's essential to familiarize yourself with some key Options terms:

     

    Term

    Definition

    Call Option

    Call Options are often utilized when traders anticipate the price of the underlying asset to rise.

    Put Option

    Put Options are commonly used when traders expect the price of the underlying asset to decline.

    Underlying Asset

    The asset for which you hold the right/obligation to buy or sell.

    Strike Price

    The predetermined price at which you have the right/obligation to buy or sell when the Option is exercised.

    Expiry Date

    The date when your Options contract expires.

     

    Note: On Bybit, the symbol of an Option contract is composed of the underlying asset-expiry date-strike price-option type (C = call, P = put).

     

    For example, BTC-8NOV23-32000-P is a BTC Put Option with a strike price of $32,000, which will expire on Nov. 8, 2023.

     

    Read More

    FAQ — USDC Options

     

    To learn more about Bybit Options contract specifications, please visit here.






    Understanding Call and Put Option Dynamics

    In the realm of Call Options, buyers anticipate the underlying asset's price surpassing the strike price, while sellers hold the belief that it won't. Conversely, Put Option buyers predict the market price of the underlying asset to drop below the strike price, while sellers maintain the opposite viewpoint.

     

    For further insights into how the interplay between delivery price and strike price influences the choices of Option buyers and sellers, please refer to the table below.

     

    Types of Options

    Buyer

    Seller 


    Call Option

    Maximum Gain: Unlimited

    Maximum Loss: Premium Paid

    Maximum Gain: Premium Received

    Maximum Loss: Unlimited

    Delivery Price ≥ Strike Price 

    Exercised

    Obligated to sell

    Delivery Price < Strike Price

    Expired 

    No obligation to perform



    Put Option 

    Maximum Gain: Strike Price − Premium


    Maximum Loss: Premium Paid



    Maximum Gain: Premium Received

    Maximum Loss: Strike Price + Premium

    Delivery Price ≤ Strike Price

    Exercised

    Obligated to buy

    Delivery Price > Strike Price

    Expired

    No obligation to perform






    Types of Options Orders

    There are four (4) types of Option orders: Buy Call, Sell Call, Buy Put, and Sell Put.

     

    Example 1:

    At the beginning of Nov 2023, the market price of BTC stood at $35,000. Ann is optimistic that BTC's price will substantially rise by the end of the month, while Bob anticipates a decline. They engage in the following option trade:

     

    • Type: Call
    • Strike Price: $37,000
    • Expiry Date: Nov 31, 2023
    • Underlying Asset: BTC

     

    Ann buys the Call Option for $1,000, granting her the right to buy 1 BTC at $37,000 when the contract matures. Bob, on the other hand, sells a Call Option.

     

    Scenario A: Upon expiration, the BTC settlement price is $40,000.

    • Buy Call: Ann exercises her Call Option, securing a $3,000 profit ($40,000 − $37,000). After deducting her $1,000 premium, she realizes a net profit of $2,000.
    • Sell Call: Bob fulfills his obligation to sell the Option at the strike price of $37,000, resulting in a loss of $3,000 (37,000 − $40,000). Deducting the $1,000 premium he received, Bob incurs a total loss of $2,000.

     

    Scenario B: Upon expiration, the BTC settlement price is $34,000.

    • Buy Call: In this case, Ann experiences a loss of $1,000, equivalent to the premium paid for the Call Option.
    • Sell Call: Bob is not required to fulfill his obligations, earning a premium of $1,000.




    Example 2:

    Suppose BTC is trading at $38,000 on Dec 1, 2023. Bob anticipates a drop in BTC's price by the end of the month, while Ann expects it to rise. They engage in the following option trade:

    • Type: Put
    • Strike Price: $37,000
    • Expiry Date: Dec 31, 2023
    • Underlying Asset: BTC

     

    Bob bought a BTC Put Option for $800, granting him the right to sell 1 BTC at $37,000 when the contract matures. Conversely, Ann sells a Put Option.

     

    Scenario A: Upon expiration, the BTC settlement price is $35,000.

    • Buy Put: Bob exercises his Put Option, securing a $2,000 profit ($37,000 − $35,000). After deducting his $800 premium, he walks away with a net profit of $1,200.
    • Sell Put: Ann fulfills her obligation to sell the Put Option at a strike price of $35,000, resulting in a loss of $2,000 (35,000 − $37,000). After deducting the $800 premium she receives, her total loss amounts to $1,200.

     

    Scenario B: Upon expiration, the BTC settlement price is $39,000.

    • Buy Put: In this case, Bob incurs a loss of $800, equivalent to the premium paid for the Put Option.
    • Sell Put: Ann is not obligated to fulfill her obligations and earns a premium of $800.

     

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