Options (Options) - Multi-Dimensional Trading Tool to Expand Profit Opportunities

In the world of cryptocurrency and global finance, Options (options) are becoming an increasingly popular tool among investors. Unlike direct asset trading, Options trading allows you to leverage price volatility without holding the underlying asset itself. Today, let’s explore this derivative instrument in detail and how it can expand your investment strategies.

What Are Options? Understanding This Powerful Derivative Tool

Options or quyền chọn are derivative contracts that give the holder the right (but not the obligation) to buy or sell a specified amount of the underlying asset at a predetermined price, on or before a certain date. The underlying asset can be Bitcoin, Ethereum, stock indices, or ETFs.

The essence of Options is a conditional contract where the decision-making power lies entirely with the buyer. For example, if you believe Bitcoin will rise from the current level of $28,000, you can buy a call option at this price. When the contract expires, if BTC’s price drops to $20,000, you simply choose not to exercise the option. However, the premium (premium) you paid will not be refunded.

The main difference between Options and Futures:

Futures require the holder to execute the transaction at expiration, while Options only grant the right to choose. This makes Options a more flexible tool, suitable for those who want tighter risk control.

Key Features of Options Trading

1. Access to Assets Without Ownership

As a derivative instrument, Options allow you to have “rights” over an asset without purchasing and storing it. For cryptocurrencies, you can profit from Bitcoin or Ethereum price fluctuations without managing technical wallets or worrying about security issues.

2. Financial Leverage Power

Thanks to leverage, you can control a much larger amount of assets with a small capital. For example, with 1:100 leverage, just $1,000 can give you “rights” over $100,000 worth of Bitcoin. This creates higher profit opportunities but also proportionally increases risk.

3. Profit in Bear Markets

Unlike traditional trading, Options enable you to profit even when the asset price drops sharply. You can buy put options when you anticipate a decline, thus earning from downward trends.

Detailed Structure of an Options Contract

To clarify, imagine opening a Bitcoin Options contract. Currently, BTC is at $27,800, and you expect it to reach $30,000 by 30/4/2025.

Main components:

• Expiration Date (Ngày Hết Hạn): 30/4/2025 is the date the options contract ends. This is the deadline for deciding whether to exercise or abandon the right.

• Strike Price (Mức Giá Thực Hiện): $30,000 is the “locked-in” price in the contract. If you decide to exercise, this is the price you will pay/receive. This price remains fixed throughout the contract’s validity.

• Premium (Phí Bảo Hiểm): This is the cost you pay to open the contract. This fee is non-refundable if you choose not to exercise the option.

• Contract Size (Quy Mô Hợp Đồng): The quantity of the underlying asset that can be traded in one contract. This parameter is fixed for each asset.

Call Options vs Put Options - The Two Basic Types of Options

On the Options market, you mainly encounter two types: Call (quyền mua) and Put (quyền bán).

Call Options - Call Rights

When you buy a Call option, you are granted the right to purchase the asset at the strike price. Call buyers usually expect the price to rise.

Profit/Loss mechanism:

• Max loss = premium paid
• Unlimited profit (as the asset price can keep rising)

Classification of Call Options based on status:

• In The Money (ITM): Strike price lower than current market price → Profitable contract
• At The Money (ATM): Strike price close to current market price, with premium → Break-even
• Out Of The Money (OTM): Strike price higher than current market price → Worthless contract

Put Options - Put Rights

Put options give you the right to sell the asset at a predetermined strike price. Put buyers generally believe the price will decline.

Profit/Loss mechanism:

• Max loss = premium paid
• Unlimited profit (but realistically limited as prices cannot go below zero)

Classification of Put Options:

• In The Money (ITM): Strike price higher than current market price → Profitable contract
• At The Money (ATM): Strike price close to current market price, with premium → Break-even
• Out Of The Money (OTM): Strike price lower than current market price → Worthless contract

Comparison table: Call vs Put

Practical Trading Strategies with Options

To use Options effectively, you need to understand some basic strategies.

Covered Call - Generate Additional Income

You already own an asset (e.g., Bitcoin), and sell a call option on that asset. This way, you earn extra premium from selling the option, while still holding the asset if the price does not exceed the strike price.

Expectation: Asset price remains below the strike price at expiration.

Long Put - Portfolio Protection

You buy a put option expecting the asset price to fall. If the price drops sharply, you can profit multiple times. The downside is paying the premium if the price does not decline.

Expectation: Asset price will be below the strike price at expiration.

Married Put - Full Insurance

You own the asset and simultaneously buy a put option. This is a defensive strategy: if the price rises, you profit from owning the asset; if it falls, the put option compensates for the decline.

Expectation: Price will rise, but you want protection against downside risk.

Key Advantages of Options Trading

High flexibility: You have the right to exercise or not, not obligated. This helps better risk management compared to Futures.

Profit from multiple directions: Options allow profits whether the market goes up, down, or sideways. You can choose strategies aligned with your forecast.

Predefined risk: For buyers, maximum loss is limited to the premium paid. You know exactly how much you can lose.

High leverage: With less capital, you can control large assets, creating high profit opportunities.

Diverse strategies: You can combine various Options to create complex positions tailored to specific goals.

Challenges and Risks

High complexity: Options are not beginner tools. They involve many technical concepts, legal terms, and regulations. Proper education is essential before starting.

Expensive costs: Options trading fees are generally higher than stocks or Futures. Additionally, margin requirements can be significant.

Unlimited risk for sellers: If you are the writer (writer) of Options, your risk can be unlimited. You may have to buy/sell the asset at the strike price with substantial losses.

Liquidity risk: Not all Options are highly liquid. You may face difficulties closing positions.

Margin call risk: If your position suffers heavy losses and you cannot add margin, the exchange has the right to close your account.

System issues: Major exchanges have experienced problems; during such times, margin calls may lead to mass liquidations, causing heavy losses.

Options in Vietnam - Current Situation

In Vietnam, Options lack specific legal regulations. However, this form still follows Decree 158/2020/ND-CP on derivatives securities. Currently, the Vietnamese stock market only allows trading futures contracts on the VN30 index.

Development statistics: According to HNX data, as of late November 2022, there are over 1.15 million derivative trading accounts in Vietnam. The trading volume of VN30 futures increased from 10,954 contracts per session in 2017 to nearly 250,000 contracts in the first 11 months of 2022.

Prospects: With this growth rate, the Vietnamese stock market is likely to expand derivatives products, including Options on stocks and indices in the future.

Where to Trade Options

Since the Vietnamese market does not yet fully support Options, investors often turn to international platforms. Forex brokers are a popular choice.

Criteria for choosing a good broker:

• Regulated by international financial authorities (ASIC, CySEC, CIMA, FSC…)
• Provides risk management tools, supports negative balance protection
• Professional customer service
• User-friendly trading platforms supporting Web/Mobile
• Flexible leverage and competitive costs

Advice for New Investors

Thorough learning: Before investing real money, spend time studying Options. Understand concepts, strategies, and risks thoroughly.

Start small: Don’t go all-in from the beginning. Start with small amounts, increasing as you gain experience and confidence.

Focus on one asset: Initially, choose an asset you understand well (e.g., Bitcoin or Ethereum) and master it before expanding.

Create a trading plan: Set clear goals, define risk/reward ratios, and follow your plan with discipline.

Risk management: Never allocate too much capital to a single position. Use stop-loss and take-profit orders to protect your account.

Conclusion

Options (Options) are powerful derivatives tools that open new opportunities for investors. However, their power comes with complexity and high risk. Success depends on thorough education, strict risk management, and patience.

Trading Options is not a quick path to wealth but a skill to develop over time. If you are willing to invest in learning and put in effort, Options can certainly become a valuable tool in your investment portfolio.