Buying is afraid of quilt cover, not buying is afraid of being empty, this can be said to be the eternal entanglement of young leeks.

I will not talk about anything else here, but I will say that a hedging tool that has become well-known recently-options, may solve this problem.

An option is a right that gives the holder the right to buy (or sell) an asset at a fixed price on a certain date. It can be small and big, "using 1/10 of the cost to get the same benefits".

Over the past month, options have been successively launched by various exchanges as "net celebrity single products", which has also worried some practitioners.

"The high-risk nature of the digital currency market, the gap in user awareness, and zero entry barriers make it easy to expose yourself to high risks. Have these exchanges considered it?"

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Options, can you not get caught in the air or get caught?

Take a real-world example on LedgerX, a New York-based cryptocurrency derivatives provider.

According to the Wall Street Journal, in May of this year, an unidentified trader (let’s call him Old K) was optimistic that the price of the currency would rise to more than $50,000 a year later. If he hoards coins at this time, he needs to invest $7,600. In this way, if the currency price falls after one year, the old K's principal will be discounted.

Old K did not do this, but chose to buy 30 call options (one option corresponds to one bitcoin). The contract stipulates that from the date of purchase to June 2020, old K can buy bitcoin for $50,000. According to the transaction records, he purchased options products for $4,500.

If the currency price does not reach 50,000 US dollars (about 350,000 RMB), Old K's money will be wasted directly. But if the price of the currency exceeds 50,000 US dollars, for example, if it rises to 100,000 US dollars, Old K will make a fortune.

Compared with spot trading, option contracts can resist the risk that future prices deviate from expectations, and can make big gains with a small amount. As the saying goes, "you can get the same income with only 1/10 of the cost."

We talked about the buyer of the call option above, but what about the seller?

Still taking old K as an example, for the recent market correction and consolidation, he judged that after the sideways market, it may further drop. Therefore, the old K who wanted to arbitrage sold the "buy option (call option)", that is, he sold Bitcoin at a certain price such as $9,000 a week later.

As the buyer's counterparty, the seller (old K) can get its "royalty fee" no matter whether the buyer exercises the option or not. If the currency price really falls in the future, the counterparty may choose not to exercise the option. At this time, although the spot in the old K’s hands has depreciated, the loss can be properly hedged by selling options; but if the currency price rises, the buyer exercises the option. At this time, the old K It is necessary to fulfill the obligation to sell assets (the old K of the seller can also be called the obligation warehouse).

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Miner: Why do you recommend me to play options?

Who tends to play options?

Miners, probably the answer I hear the most.

"Using options to construct a hedging portfolio can help miners guarantee the minimum mining income while maintaining the possibility of obtaining higher income." Chen Xin, founder of Binance JEX, said.

Ju Jianhua, the founder of BHEX, also said when building momentum for his option products that at this stage, due to currency price fluctuations, computing power growth and other reasons, there is great uncertainty in the mining income of miners, and options can be used for hedging and hedging risks .

Li Lianxuan, a senior researcher at OKEx, divided the participants in the options market into three types: speculators, hedgers, and arbitrageurs.

Clearly, miners are hedgers.

Li Lianxuan explained that miners can buy a put option (put option) to "sell Bitcoin at $9,000 in one month" in the options market, and after paying the option fee, they can lock in the price of selling Bitcoin one month later. If the price of the currency rises one month later, the miners may not exercise the put option and lose the option fee, but they can obtain the benefits brought about by the rise in the price of the currency.

Of course, miners can also act as sellers, selling "call options (call options)". For example, a miner sells the option to "buy Bitcoin at $9,000 in one month's time". After the transaction is successful, the miner is equivalent to placing an order for the coin to be mined in advance, thereby locking the price of the coin, and at the same time getting an additional option fee from the buyer .

Both of these methods can be used to hedge against the coins that miners are about to dig out.

It is unknown how many miners will choose options, but it is certain that options attract many futures users.

JEX has launched option products since the beginning of 2018. "We already have a considerable number of stable users, many of whom were originally engaged in futures trading." Chen Xin also told Odaily.

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The new derivatives battlefield where the giants compete

Just like other financial instruments, options are created by market demand. Various exchanges that are sensitive to wealth have already geared up on this track and are ready to go.

Binance acquired JEX, and various exchange giants such as OKEx, BitMEX, CME, and Bakkt are about to launch option products.

"In a highly competitive market, only innovative companies can survive. If you don't do it, other companies will naturally do it. This is why new financial derivatives continue to appear in the traditional financial market. The reason for launching contract products. Now, through futures products, these companies also have a certain amount of derivatives technology reserves, and the launch of option contracts is a matter of course.” Li Lianxuan said.

The exchanges that entered the game are also based on the judgment of "the options market is broad".

Xu Kun, vice president of strategy at OK, said on Weibo, “The derivatives market space in the traditional financial market is more than ten times that of the spot market. Like digital currencies, the future derivatives space will be very high.”

LedgerX CEO Paul Chou said frankly that LedgerX's institutional clients with assets ranging from $10 million to $1 billion have expressed interest in new derivatives. “I understand that $100,000 in Bitcoin is a big number, but a lot of people in this space remember Bitcoin at $1, and then it went to $10, $100, $10,000… We are not surprised at all by options contracts to buy Bitcoin at an agreed price (lower price) in the future to avoid missing out on low-priced coins.”

Chen Xin concluded that the gradual outbreak of the options market is apparently the need for exchanges to maintain their enthusiasm. Inside, options are basic derivatives like futures. When the number of users and transaction volume in the spot market reach a certain level, the cornerstone of this financial system will inevitably be supplemented.

So, with the influx of traditional exchanges that can "provide compliant option products", what advantages do native players in the currency circle have?

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I haven't understood futures yet, and now I want to play options?

We all know that futures contracts have become a battleground for military strategists because their gold-absorbing effect has been fully verified. What about options?

Whether it is LedgerX, JEX or BHEX, they have never disclosed their option "record". The only one that has been announced is Deribit, a derivatives exchange, whose BTC options daily trading volume peaked at $25 million in January this year. It can be seen that there is still a lot of imagination to be able to achieve this result when the market is in its infancy.

However, the futures contracts launched earlier are still referred to as "meat grinders" and "ultra-high-speed harvesters" by the majority of currency people. Compared with them, the risks of options are not low. For example, if no stop loss line is set for the obligation position of the option, it means that the loss of the obligation position may be unlimited.

For example, the buyer of the call option can buy Bitcoin for $10,000 in one month and pay a premium of $1,000. One month later, if Bitcoin falls to $5,000, the buyer will lose up to $1,000 in premium, and the seller (obligation position) will earn $1,000. Conversely, if Bitcoin rises to $20,000 a month later, the buyer earns $9,000 and the seller loses $9,000. The potential loss for the seller is much greater than the potential income of $1,000.

The high risk of the digital currency market and the gap in user awareness make Ah Sa, a digital currency trader with a background in the traditional financial industry, worried.

"In the contract market of the currency circle, most users trade without fully understanding the relevant rules of futures contracts, exposing themselves to high risks; the design of option products is more complicated than that of futures, can users fully understand the current Still a question mark."

Ah Sa also made a comparison with traditional option products, "Look at the requirements for qualified investors in the domestic option market, the threshold is quite high. This is to protect the interests of investors, requiring participants to have relevant professional knowledge and investment Experience, the most important thing is to have a certain risk tolerance. The digital currency options exchange directly reduces its threshold to 0, and correspondingly, the risk increases sharply.”

"The domestic traditional options market has only been developed for a few years. For such a complex financial product, the currency circle exchange is busy going online. Has the market risk in the future been considered? The behavior of the exchange rashly placing retail investors in the high-risk investment market, I don’t feel very responsible,” the trader reiterated.

Another person in charge of the quantification team also agreed, "Bimin who don't understand come to play options casually. To put it bluntly, they come here as a gamble. They lose millions of dollars. Rights protection incidents occur frequently, which may affect social stability."

The zero user access threshold is the result of the lack of effective supervision of the exchange.

"Now futures contracts are all on the sidelines, let alone options. However, the supervision in the United States is relatively complete. If you want to provide options services to American investors, you must apply for relevant licenses, otherwise it is illegal." A manager of an exchange People in the compliance business said.

Indeed, for this market to prosper, stable and healthy development is the premise. Exchange players are not unaware, but the road to compliance is an Achilles heel for the entire industry.

Although there is no policy, many derivatives exchanges are still working hard to regulate themselves for the long-term.

For example, for the education market, LedgerX has recently introduced the simplest binary option to users to allow users to "try a little bit".

The product is called the Bitcoin Halving Contract. The contract stipulates that the user chooses a date among the five days of March 27, April 24, March 29, June 26, and July 31, 2020. If the bitcoin halving occurs on the selected date in the United States Before 16:00 Eastern Time, then each contract will receive a reward of $100, otherwise, the contract buyer will get nothing. Is it simple and easy to play?

Platforms such as JEX and BHEX also strive to protect the interests of users in terms of user education and product settings. For example, JEX provides users with options education videos, regular training courses, and simulated trading.

After 5 years of development, digital currency futures have gradually achieved market education and user explosion. We should indeed leave some time for new products, and investors need to be very cautious.