What are options?
Crypto options are a financial instrument that provides the right, but not the obligation, to buy or sell a particular coin at a specified price at a certain point in time in the future. They are typically used as a way to manage risk or as a means to make money on differences in the price of digital assets.
As with options on traditional securities, there are two main types of cryptocurrency options: call and put.
- The call option gives you the right to buy a cryptocurrency at a specified price at a predetermined time in the future.
- The put option gives the right to sell the cryptocurrency at a specified price at a predetermined time in the future.
Since no one knows the future price of the cryptocurrency, all traders take a certain risk. The same principle applies to cryptocurrency options: if on the day of the expiration of the contract, the rate of the asset falls, the seller receives the profit, while the buyer is left with a loss. If the digital coin rises in value, the buyer wins.
Options give the holder the right, but not the obligation, to buy or sell a cryptocurrency at a predetermined price by a certain date. In exchange for this guarantee, it is necessary to pay a premium on the purchase of the contract.
Here's an example to illustrate the mechanics of how options work.
Let's imagine that you buy a call option on Ethereum at $3,000, expiring in 90 days with the premium of $300. This option allows you to buy Ethereum at $3,000 in 3 months. If the price of Ethereum rises to $4,000, you can execute the contract and make a profit of $1,000 less the $300 premium.
If the price of Ethereum falls below $3,000, you will lose the premium of $300, but you are not required to buy Ethereum cheaper than its true value. The maximum loss will be the premium you paid, which is $300.
Instead, let's say you bought a 90-day put option to sell Ethereum, also at $3,000 with a $300 premium. In that case, you could sell Ethereum at $3,000 in ninety days.
If the price of Ethereum rises to $4,000, you would not exercise your option because you would then incur a loss of $1,000. Instead, you will simply let the option expire and lose your premium of $300.
If the markets fall and Ethereum falls to $1,500, your put option will allow you to sell Ethereum for $3,000 and cover some of your losses.
Thus, you get a high return for some risk. That's why traders use different tools to analyze the situation in the cryptocurrency markets to make profits.
What does bot mean in options trading?
An options trading robot is software that trades the options market on its own, without human involvement. It is generally designed to help traders increase their profits by automating trading processes and reducing stress levels.
Typically, options robots are based on technical analysis algorithms that use various charts, indicators and other tools to predict asset price movements. Options trading robots can be used either on their own or in combination with manual trading.
Advantages of trading robots for options include:
- Automation: trading robots can automatically monitor market conditions and execute trades, which can make trading easier and faster.
- Emotional stability: trading robots are not affected by emotional outbursts and react only to actual data and some parameters, which can help to reduce risk.
Such software allows a single trader to make dozens of options deals at once, which is physically unavailable to a human being.
Option robots come in two varieties.
- Automated - they independently analyze the market situation, find the right moments to enter and conduct transactions. The trader has only to perform a spot adjustment and, from time to time, monitor the process. The weak point of automated options trading bot is that it is unable to comprehensively assess the market, track the news and make corrections to its strategy in time.
- Semi-automated - the trader evaluates the situation and makes a decision about entering a position or ignoring the received signal. Hence their disadvantage: without the trader's command, the deal cannot be activated.
Before choosing one or another type of trading bot for options, study their characteristics carefully.
Do trading robots really make money?
Many people refuse to believe in the effectiveness of trading robots for options. At the same time, there are users of the cryptocurrency market who actively support the position of using bots on trading platforms. There is no unequivocal opinion on the effectiveness of automated software.
It is important to understand that the bot will not always work independently, a certain amount of control should always be present. The system of such robots is optimized for the market situation at the time of the creation of the model. Every day, after the changes in the market, the demand for specific coins falls, while the demand for others increases seriously. Therefore, you can not fully trust the program with your money. It is recommended to monitor the situation on the market, in time to make changes in the trading algorithm.
How to get the trading robot?
If you are interested in making money on options and want to automate this process as much as possible, you have several ways to get such software.
Developed the trading robot by yourself
This way requires programming skills and knowledge of trading strategies. You can use special platforms to create options trading bot, such as Wundertrading. In this case you do not even need programming skills - the robot is set up in a few clicks according to the preset strategy.
Buy the trading robot
You can find ready-made trading robots on specialized websites or from developers. Before you buy a trading robot, make sure that you have studied its work and understand how it works.
Find the free trading robot on the internet
Some developers may provide free trading robots for options as a demonstration of their product. However, in this case there is a risk of encountering low-quality software or scammers. In the first case, you may discover that the software does not work the way you want. In the second case it will turn out that the money you have earned will not be credited to your account, but will be sent to the creator of the software. So you have to be very careful with this type of software.
How do I choose a trading robot for options?
The demand for cryptocurrency trading robots today is enormous, so their choice is counted in hundreds and even thousands. Therefore, it is not surprising that the user may have difficulty in choosing software that will meet the given parameters.
That is why we give you a list of criteria that you should pay attention to in the first place.
The cost of the robot
We briefly mentioned this point above. Free trading robots can lose you all your money. Paid ones are more reliable, but their price can be very high. If you are not yet ready to invest a lot of money in such software, try to use robots from automated trading platforms.
Strategies used by a robot
Trading robots use a lot of indicators and strategies to analyze the market. The more of them are included in the trading software, the more accurate the prediction of the price movement of the cryptocurrency on which you have concluded an option will be.
Easy to configure
Some trading robots have such a complex interface that they are difficult to understand both for beginners and professional traders. If you are looking for simple options trading for beginners try to avoid complex trading software and choose ones with a simple and user friendly interface.
Probably one of the most important criteria in choosing a trading robot for options. Thanks to their reputation you will know how reliable your chosen software is and how much money it can bring you. You can find out about the reputation of this or that robot in various cryptocurrency communities - traders and investors are often happy to share their experience and help less experienced users.
The bottom line
Robots for trading options simplify and make trading more profitable. However, you should always remember that a software is only software, and in some important decisions, it is inferior to a person. For example, if the market situation changes rapidly, your trading robot can work on the old strategy, thereby leading you to a money loss. That's why we recommend you to check its work from time to time in order to avoid such situations.
We also advise you to practice on a demo account. This will help you understand how your trading robot works and it will help you gain experience before you move on to real trading.