Topic: HODLing is great but why not use Options to insure what you are HODLing? (Read 892 times)

I'll try to explain what I have understood so far, so basically hedging means you put some funds on the other side too to manage some potential loss. for example you have on buy order like 1K dollars and you see the market going down then what hedging means is you put some money on the other side too for sell order so that in case market goes unexpected you can save some part of the loss.

But, the problem with hedging is that you are also going to cut off your profits by a large margin in case the market behaves in the expected manner and the price changes in your favor. Basically hedging can be understood for gamblers like betting money on Team A and then betting some on Team B to ensure you don't loose everything.

There are a lot of strategies when it comes to options and a lot of the very complex. Strategies can only work based on your insight into the market or your sentiments. Its very likely a gamble (HODLing is a gamble too). you could straddle if you think the market is volatile and figure out a way to maximize your profits if BTC goes up while limiting your losses if things do turn south. If you need help figuring out a strategy suitable for your sentiment. Please let me know. I'll try to figure out what could potentially suit best for you. You could also join Sparrow's telegram channel and discuss with us about it(it would definitely be easier. You might even get some expert advice from pro traders and even the CEO of the company. Its a helpful community that we've built. Feel free to ask us your doubts about Options trading and strategies if you want to learn more about them. (Link is in my signature). You don't have to sign up to the website if you don't want to. We welcome everybody with open arms and happy to help with your questions regarding the platform or Options trading in general.

This works like having an investment in Bitcoin but risking suppose $ 200, this is how I understand it, but how to do when volatility can currently work for or against us? If we choose the option to risk the $ 200 and it is lost, how to recover that $ 200? risking another $ 200 or do you have another particular strategy?

Well, Im just providing an alternative for a safer trading etiquette. I don't think there is any trader who would disagree that hedging your trades is a good idea. It could be your philosophy that owning BTC is the hedge while comparing it to fiat. That doesn't always have to be the case when we look at it intrinsically and focus on Bitcoin and its volatility. Also, I will also agree that managing your own keys is great and I do that as well but when you have to trade, you sort of lose that aspect. Anyways, in the idea that I provided in my OP. You dont have to put a lot of funds to insure your coins. It will be fractional when compared to your stack you HODL. Also, if it helps, Sparrow Exchange uses 3rd party service for storing crypto, who are world leader in digital custodial service and your trades are put on blockchain for others to see.

Sure, Ill list a few and try to explain them as much as I can
Options expose sellers to unlimited/amplified losses.
Unlike an option buyer, the option seller can incur losses much greater than the price of the contract. Remember, when an investor writes a put or call, he or she is obligated to buy or sell shares at a specified price within the contract’s time frame, even if the price is unfavorable (and there’s no cap on how high a stock price can rise). There are limits, but it could eat away all of your funds you've invested with.

There’s limited time for the investing thesis to bear out.
The very nature of options is short term. Options investors are looking to capitalize on a near-term price movement, which must take place within days, weeks or months for the trade/contract to pay off. That requires making two correct assumptions: picking the right time to buy the option contract, and deciding exactly when to exercise, sell or walk away before the option expires. HODLers aren’t on a deadline. They have time — years, even decades — to let their investing theses play out.

Complexity with advanced strategies and reading the market.
Options trading could become as complex as rocket science when you go deeper into it. Sparrow Exchange does help keeping it simple for anyone to start trading but if you want to trade like a pro you need to spend a lot of time understand the charts, understanding complex strategies to maximize potential profits. Which a lot of us aren't ready to get into for various reasons or just time constraint. You could just make a few trades depending on your sentiment of the crypto market for a long duration like 6months like sparrow provides. Could be useful especially if you are a HODLer.
source for the disadvantages (if you want to read more about risks and benefits)

My question too. OP only sugar-coated it. The way he described it. Of course there are disadvantages too as options is just like everything else in investing. there is a time value in that even if the underlying share price is stable, the options price decreases over time as the expiry date approaches. This is called a "time decay".   It's possible to lose even 100% of the investment even if the underlying asset "bitcoin" does well. Like other markets, someone losses money while another gains.

OP, I believe options for hedging doesn't apply on Bitcoiners' HODLing philosophy. Marketing it "good for HODLers" might not be the best path. For Bitcoiners, HODLing itself/managing your own keys/actual control on your own money IS the hedge.

I see that your main concern is the platform running away with your Crypto. Well, all I can say in this regard is that Sparrow does not hold any of the crypto that you have deposited into your accounts. Sparrow is partnered with Bitgo who take custody of the crypto deposited on the platform and none of them are stored with Sparrow. Bitgo is worlds leader in digital custodial service who also provide services for known entities such as Bitstamp, BitBay, SBI Holdings, Ripple, Nexo to name a few. You can read about it in the blog post. Another concern you may have is the platform manipulating with your trades for their benefit. That simply isnt possible as Sparrow works on a blokchain called Nidus Explorerthrough which you can verify your transation. Sparrow is located in Singapore, which is a crypto friendly country and that brings in regulations as well. If you have any more questions. Please feel free to ask. I can understand why someone could be apprehensive about a new kid on the block.

Thats the reason for the post. To help people understand at least a small portion of it.

Nice thread OP.
But may I know what is/are the disadvantages of using an Options, it's only advantages I read in the first post.

But my idea on the disadvantage of using an Options is trusting your Bitcoins or money to the entity or company that owns that Options.
Because for sure, if the company or entity want to run with your money or Bitcoins, they can do it right?

Option is really a nice trading strategy especially for pro traders who whants to up their game against market volatility but most holdlers are not often worried about market volatility and little price dumps as they do go into the trade with a pre-determined price goal of when to sell the token so they don't often care about market volatility 

People have been coming here and talking about options and insurance all the time but it is really getting boring.

Yes we get it, yes there are options, yes there are insurance towards our positions. If we wanted it, we already have all the reasons we want to use it and we have already seen it a million times, could we get a break?

I do not use options because I do not trust them, not because I do not agree with the logic, the logic is a seriously good one and it is definitely a good idea, but at the end of the day I do not trust all the places that offer those options, when binance eventually goes there, I can honestly tell you that I will be one of the first in line to do it, but until that day I am way out of this. And please stop promoting all these option places.

It's really hard to be entrusted your funds even in a trusted exchange because it might be lost out of your control unlike if it was keep directly in your wallet whatever may happen or if it get hacked you can't blame anyone or the exchange because it was in your own caution.

Thats a good explanation and what I'd like to add is that, the commission that platforms take is marginal when it comes to trades worth 1btc etc. On top of that, on Sparrow exchange, you get 50% off on your trading fees if you use their tokens(SPO) in the platform. So, the already marginal trading fees is even more obsolete.

If you are very bullish. You should look into call options and especially that you are bullish on a long term, may I suggest you buying a long term call? That could do the trick. Sparrow exchange has options for upto 6 months, so you could give it a shot there.  I am bullish on a long term as well so that's what I have been doing personally.

Well, that is right. We don't know which way bitcoin headed at but one thing that we know for sure, --bitcoin will be experienced massive down but it will always resist and go up high. I am with HOLDING because I know that it is a great option while you are investing in a long term purpose, we know how bitcoin volatile is but does not matter if there is the law of demand and supply that makes bitcoin price move.
Indeed, that is why I always advise my colleague who has invested bitcoin that invests only in what he can afford to wait in a long term. Because investing in crypto needs a perfect time when you will going to harvest your profit.

If the purchase is made with option options, yes, the risk and loss potential will be much less. In addition, since all capital is not used for a single investment, it can be used for various transactions. Yes, the time value of your money does not decrease when you buy options, and your loss potential is only the commission paid for the option transaction. For example, if the option is taken from 8,000 USD today, if the price drops to 7,000 USD after 2 days, the loss here will be only the commission fee of the option transaction, not 1,000 USD. Since this fee varies in many services, I cannot write a clear amount, but I can assure you that for every drop that will occur, except for minor decreases, there will be much less than your possible loss.

Not very sure which way BTC is headed. I think its a pretty good time to trade options and secure your position by buying a put. It will act as an insurance incase BTC goes tumbling down. I feel its a good way to protect your assets.

How are you prepared for everything to go down badly? Can you tell us as well. I feel like Options is a great tool for that. You could try to panic sell/short BTC but its no good for anyone.

Um, because not everybody wants to hedge their bets? People like me bet long term but we are always prepared for things to go suddenly boom!

And yes, we are also prepared for everything to go down badly. But hedging for me isn't going to yet another risky thing to keep an eye on. For me savings and investments are all diversified through different markets. Gold? Bank long-term deposit?

HODLING is great yes we all know that but many lack this: PATIENCE is just recently few of my guys in Crypto are realising. HODLING is not bad as most people who are getting into the Crypto system or who has already been there are condemning it. Is in the Matter of fact that you know what token or coin you are HODLING. Then you build it up with patience and you will succeed.

If we hold using money that we can afford to lose, it feel safe. Because if the price of bitcoin goes down, it won't panic. We just have
to wait until bitcoin rises again and reaches the target we want. But I admit using the option, we can be more productive when trading.
Because we can manage the maximum amount of loss that we want, that way we can protect trading capital that we have.

Options Market is growing like crazy! Its the right time to learn about it and take advantage. 

Not just short term, there are options available for 6 months as well. So, if you are bullish on long term, you could sell calls for 6 months and enjoy returns without risking much while compared to just hodling. If you HODL a lot of coins and you are happy with the current position but are afraid of BTC volatility. You could buy puts for the amount. The premium payable (paid upfront) would be negligible when compared to the amount of BTC you are holding(which could be held by you on your private wallet and not exchange so it is extra secure). If the BTC does crash in the future(I hope not), you will recover whatever the value youve lost. It basically works like an insurance and instead of paying repeatedly you just pay once at the start and relax for the duration youve opted. 

Just chill, you got a point. We're not here for money, we are here for the better future of using cryptocurrency and for the benefit of us all. We should help each other and contribute to the promotion of cryptocurrency. But that's not my main point, we're here to learn more about the advantages of bitcoin in the market, we're here to learn how to manipulate our assets and money properly.

We're not here to get rich, being rich is just the effect of proper manipulation of your assets. Sometimes we just really need to understand and hodl depending on the situation in the market. When we hold, we really need to increase our safety and security about wallets, there are a lot of options, yes, but we need to think more of the possibilities that may occur.

Hodling is really essential when you want to maintain your assets during downward movement in bitcoin's price, patience and self-discipline is really crucial here in cryptocurrency that's why you need to practice it. Just like controlling your emotions and controlling your money. Just like that.

I think using options to insure our hodling is the best idea, i already did this too.

So many people don't understand why this strategy have to lose some money(insure fee), but they didn't realize that the volatility is the way where their profit goes from...

Not fimiliar either but after thorough reading about the OP offer, i somehow understand how the whole thing works. It a process where people will have to pay the company some fund base on the amount of crypto they want to insure other to reduce/protect their coins during market fluctuations but you still can be sure how secure your coin will be because nothing was said about the fund wallet private keys.

Yes, it not always about money but the legacy, understanding and affection cause the price of the market will later appreciate.

I had a fiddle with options on stock markets. I knew nothing but bought a load anyway and doubled my money. Nice. Never did it again.

Unlike normal leverage, options might be something I'd consider for BTC if I fancied some price speculation, but for many it's all about the platform and there's nothing of note offering them yet.

Bitcoin turned into commercial business right now because businessman took their hands on it and when it happens, things get abused.
A lot of "bitcoin supporters" hodl bitcoin but is that right behavior? When you freeze money in your pocket in order to wait for futher price rise, when you stop circulation of money, I think that's not right. Holding only stops things from progress while circulation increases it's ability of massive spread. I know it may sounds hard to understand what I said but hope you understood what was the point there.
And my post isn't intended to start talking about central banks and etc, just about "bitcoin holders".

I am not too familiar with options trading and don't understand how it really works but isn't this strategy (hedging), you explained here, going to reduce the risks for short term investments only?! Am a little bit skeptical, but is there any analyses which proves that this strategy will work with long term investments?

Anyway, I think all long term holders are true bitcoin believers and don't really care about losses otherwise (imo) they are just traders not holders.

I would say instead of going all this trouble, all you can do is not risk all of your money into leverages and so forth and simply just save.

If you save bitcoin and put it on freebitco.in you could basically gain 4% interest rate on your bitcoin as well (in bitcoin form of course) and all you would be doing is work hard, earn money, put some of it aside as bitcoin and gain interest and in 30 years you will retire very rich and you will leave something to your kid that they would basically live better than you did, if your kid does the same but in bigger amount they will lea... that is a dynasty family right there.

If that is so easy why can't people do it? Because, there are way too many unexpected expenses in the world that comes up all the time (literally like right now and pandemic) that causes us to empty the piggy bank.

Sound is like stop-loss, and I think option trading and stop-loss is same. But fortunetly you will have to exchange if you like to set option or stop-loss. The problem is most of hodlers do not like to hold their assets on the exchange due to low security. On the other hand, long terms hodler do not care about small volatility since their intention to hold for future. Whatever you wrote looks time short time trade to be honest. Also you can't say you are fully secure by set option, because sometimes we have encounter price has pumped after touch set option/stop-loss. So if this happen then you will be loser by the way. So for long term hodlers it's not much important to set stop-loss or set option. That's why they are HODLER, not a traders.

I heard about Option on another trading form, but I forget what the name is. It is easy to try to use Options if we know about that, but for people who don't have much skill in trading, mostly about how to use Options with the right, that will be too risky. Instead of making a profit, they can lose their money by applying something that they don't know with good, so I think Holding will be the best options for them.

But if they can learn about Options, and they willing to accept the risk behind Options, then that will be their way to try to make a profit while they can reduce the risk of fluctuating of the bitcoin price. Perhaps, we need more lesson about Options so we can know more details, and we can practice using Options itself. But now, I still prefer to trade by manual, but I think I will search for more information about Options Trading.

I fear for such too that time you don't have a trusted exchange, is risky. I like I buy my choice coin and then direct to my wallet. A wallet that I'm the one with the security. As for exchange address, you can even get hacked out and your coin gone. I'm cool with having my coin myself.

Crypto HODLERs are already used to the hedging though the options might be a good trading strategy that may secure traders' Bitcoins and their crypto assets. Hodlers probably not be able to adopt this right away or will intend not to but for me, I really appreciate this as a small traders. I'm afraid of losing the Bitcoin that I have but I know at the same time that in trading I must take the risk to earn profit and this option will at least save some of my bitcoin if an unavoidable situation arises in the market.

However, when traders start to use this option and will post their testimonies that it is really advantageous to use this option when trading then many of the rest will follow this strategy.

Today there are a lot of people making an investment to buy a lot of coins when the market price reaches the dip and they are now keeping hodling because they know the passive income but still, even in holding there is a risk sometimes there are unexpected actions on the market movement and this may cause a lot of damage to your investment which takes a lot of additional time again before you make pull out or withdrawal to your funds. Still, we can set the limit to avoid this kind of action because by setting the limitation you can make already profit and pull it out but sometimes getting greedy makes it more difficult for us to stop market profit.


I'm not highly recommended too making an investment and hold it to their exchanges because it is quite risky you cannot tell until when that they are operating it is better to find some wallet to make sure our funds are safe and secure it is better to be careful and aware than to lose a huge amount of money.  If you will use an exchange just use to trade your coins but not hold your coins there.

It is a big help for holders to keep safe their assets in this volatile market but wondering if all reputable exchanges have that OPTION button because usually, I found is only a stop-loss option. I don't think that noobs will find that impressive or even not use this option.

For it knows that some holders aren't thinking that way but just a simple holder who waits for the market to rise and then sell. I hold some bitcoins but I'd never had that strategy because even we use it but still we can be lost. And I don't think we need it if we always tracking out holding every day.

So you are suggesting that we should deposit our coins in some cryptocurrency exchange that supports option trading and buy put options?What if there's no trusted exchange that supports options trading and the ones that do support option trading are scams?HODLing is the best possible strategy for the newbies,because they are keeping their coins in their own wallets and not relying on the mercy of some shady crypto trading platform,that might run away with their coins.

I completely understand what you are trying to say and I do the same. Most of my BTC is on my Ledger Nano but I use a small portion of my stash to enhance my HODLings. Like straddle so that even if BTC goes down, I still recover my losses with put Options. There has always been a trend of BTC price deteriorating right after halving so, it was a good time to buy some puts. You never know which direction BTC is gonna go so better to be safe than sorry.


Which is the motive for this post. Hopefully I can help someone learn a thing or two about trading Options and how one can utilize it to their advantage. On the base level, it isnt very hard to understand but Options does get very complex like rocket science. You dont really have to go very deep to be able to utilize it though but a word of caution needs to be thrown when it comes to using it as a money making tool.


What you are trying to do is "short" BTC when you see other people panic sell. Hopefully you do it in time, but you never know. Shorting is a dangerous game. Anyways, HODLing all your funds in exchanges is a very bad idea. There are tons of examples you can find if you look at the history of Bitcoin exchanges. Simply HODLing in a hardware wallet is fine too but why not insure your BTC incase of a rainy day? save yourself from a potential crash and sleep peacefully. 
 

Most trader are using the USDT to hedge and nothing else. 200USD still is a loss but hedging USDT while they know when the price of BTC is going to drop thru reading the charts they may not lose 200. For holders, they don't care as long as their BTC stays the same while the price sinks, all they would so is wait since they put their trust to BTC.

Options are quite an advanced trading product, most of the people here on the forum are complete pleb noobs that have no idea how to trade and yet come on here and try to spout their "wisdom" and "secrets".

Very few of them even have a substantial portfolio worth protecting, so they're highly unlikely to look to options to hedge their risks.

You could say the same with having a stop-loss order on an exchange.

But look. I somewhat get your point, but with some Bitcoiners here on Bitcointalk(or probably most?), we're not only here for the money. We're here for more than that, A LOT more than that. We believe in self sovereignty, and having total control over our money, which Bitcoin gives us hence why we hold them on non-custodial wallets and not on exchanges.

^And that's just the tip of the iceberg. Don't get me started into furiously ranting about governments and central banks.

Always getting REKT by the volatile crypto market? You can insure (aka hedge in trading terms) your crypto assets with options trading.

What does this mean?

Hedging is a trading strategy to reduce or eliminate the risk of holding one position by taking on another position.

One simple example is to compare it to insurance, which is basically a form of hedging.

How do options come in?

Options and its trading terminologies may sound complex. However in layman terms, the mechanics behind options trading can be referenced to the insurance industry — where people pay a premium to insure their health. In fact, we could say that insurance providers are simply options sellers!

Here’s an example of how you can use options to insure your BTC.

Example: Insuring your BTC by buying a put option



If you hold 1 BTC you bought at $7,000 and is long term bullish but afraid of short term volatility, you can buy a put option priced at $200 to protect your position against a possible crash.

If BTC nosedived, your maximum loss will be capped at $200.

If BTC dipped to $6,000 on Settlement Date, you will lose $1,000 value from your BTC. However, your put option will have an intrinsic value of $1,000 and can be sold for that amount thus offsetting potential losses and limiting your loss to your Premium Payable.

Summary

Options can be used as an effective hedging tool — as a protection against market volatility for cryptocurrency holders or as part of a wider trading strategy for professional traders.


Source: Sparrow Exchange Blog