- Cryptomarkets are rallying with Bitcoin trading at $9,600 and Ethereum at $275.
- The Bitcoin options market is due for a massive expiry this month.
Crypto markets continue to rally with Bitcoin up over 2% and Ethereum up over 12%. The sudden rally triggered a wave of short liquidations. According to cryptometer.io, over $41 million in crypto shorts were liquidated on BitMEX alone. Unsurprisingly, the majority of the liquidation came from Bitcoin and Ethereum shorts.
Shorts allow traders to make a profit when a cryptocurrency falls in price. For example, to short Bitcoin, a trader will sell Bitcoin at market price and then repurchase the Bitcoin once the price falls. By doing so, the trader can net the difference in prices.
Some traders also utilize leverage trading to amplify returns by increasing their trading power.
Leverage trading allows traders to borrow a portion of the position they are opening. When trading with 20x leverage, the trader only needs to contribute 0.05 Bitcoin to open a 1 Bitcoin position. Therefore the trader can leverage the trading power of 1 Bitcoin while only using 0.05 of their own Bitcoin. As a result, using 20x leverage gains are amplified 20x (excluding fees).
However, leverage trading also comes with inherent risks. Through leverage, gains are amplified at the same rate as losses. On a 20x leverage trade, a 5% move in the opposite direction may result in liquidations, meaning the trader stands to lose their initial contribution to the position
Bitcoin Options July Expiry
The Crypto Associate covered last month’s record $1 billion Bitcoin options expiry. However, data from Skew, a cryptocurrency analytics firm, shows that July is also due for a massive expiry. Over 60,000 Bitcoin worth of options are due to expire on July 31.
Bitcoin options allow buyers to purchase or sell Bitcoin at a specified price on or before the option’s expiry date. Option buyers can choose between calls and puts.
Bitcoin calls allow option holders to purchase Bitcoin at a predetermined price, also known as the strike price. If Bitcoin rises above the strike price, on or before the expiry date, the option holder will likely exercise the option and purchase Bitcoin at the strike price which is below the spot price.
Bitcoin puts allow buyers to the opposite. Puts allows traders to sell Bitcoin at the strike price. If Bitcoin falls below the strike price, the trader can exercise the option and sell Bitcoin at the strike price which is above the spot price.
To purchase an option, traders pay a premium. If the price does not follow, traders can simply decide not to exercise the option and limit their downside to just the option premium.
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