Derivatives in the crypto market offer investors and traders a variety of opportunities to speculate on the price development of Bitcoin or to hedge against price fluctuations. Bitcoin options and Bitcoin index options are particularly popular. Although both instruments are based on Bitcoin, there are key differences in how they work and their risk.
• Bitcoin speculation through options
• More stability through Bitcoin index options
• Differences in volatility
Bitcoin options: Direct speculation on the Bitcoin price
Bitcoin options are contracts that give the holder the right, but not the obligation, to buy or sell a specific amount of Bitcoin at a predetermined price (the strike price) within a specified period of time. With Bitcoin options, the underlying value refers directly to the current Bitcoin price on a specific exchange. Settlement occurs either in Bitcoin itself (physical delivery) or in fiat currency, depending on the specific terms of the contract.
Advertising
Over 650+ cryptos and 3,000 digital assets
Bitpanda is the BaFin-licensed crypto broker from Austria and the official crypto partner of FC Bayern Munich. Create your account in just a few clicks and benefit from 0% deposit and withdrawal fees.
Bitcoin Index Options: Based on a market index
Bitcoin index options work similarly to regular options, however the underlying value is not based on the price of a single Bitcoin, but rather on a Bitcoin index that reflects the average of Bitcoin prices from multiple exchanges. These types of options therefore offer a broader market overview and are less dependent on the volatility of individual exchanges.
Differences in volatility
Bitcoin options and Bitcoin index options have different volatility. Because index options are based on an average market price, they are attenuated in the event of price spikes or dips on individual exchanges. Bitcoin options, on the other hand, depend on the underlying price of a single trading platform and are therefore influenced by direct price fluctuations.
Paul Schütte, editorial team at finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
