What are options contracts?
Options contracts are a type of derivative product that give you the right, but not the obligation, to buy or sell an asset at a specific price.
In other words, a call option gives you the right, but not the obligation, to buy the underlying asset at a specific price. A put option gives you the right, but not the obligation, to sell the underlying asset at a specific price.
What are American Options?
Binance lets you trade what are called American Options. This means that you can exercise your option any time before the expiration date.
Another popular style of options contracts are called European Options. These can only be exercised on the same day of expiry, or within a short timeframe of the expiration date.
What are options contracts used for?
Now you have a brief understanding of what options contracts are. However, they can be very complicated to use. Be sure to understand the implications of your actions before you jump into trading them. It could be worth starting with smaller amounts to test out the waters.
Things to know before trading on Binance Options
Please note that there’s no order book on Binance Options. If you buy an option, it will remain valid until you either exercise it any time before the expiry date, or when the option expires.
Let’s go through some of the most fundamental concepts you’ll need to understand before trading:
- Premium – This is what you’ll pay to buy the options contract. It’s deducted from your Binance Futures Wallet Balance.
- Expiry Date – The duration of time until the option expires. You can choose between 10-minute, 30-minute, 1-hour, 8-hour, and 1-day options. So, if you buy a 30-minute option, you’ll have a 30-minute window to exercise it. If it expires, you’ll only lose the Premium you paid.
- Strike Price – The price at which you’ve bought the option.
- Close Price – The price at which you’ve exercised the option. This is also known as the Settlement Price.
How to trade options contracts on the Binance mobile app
1. Download the Binance app
2. Activate your Futures account
3. Start trading options contracts
Navigate to the Trades tab, and click on Options at the top.
Make sure you have funds in your Futures Wallet. If you don’t, click on the arrow icon on the top right to transfer funds from your Exchange Wallet to your Futures Wallet.
You can choose between options with 10-minute, 30-minute, 1-hour, 8-hour, and 1-day expiry. Select which one you’d like to buy. In this example, we’re going to buy a 1-hour call option, so we’re expecting the price to go up within the next hour.
Next, specify the contract size in the Quantity field.
Note that you’re defining it in the underlying asset of the contract which, in this case, is BTC. However, you’ll pay the Premium in USDT.
When you are ready, click on Buy Call.
Next, you will see a confirmation window. If everything looks good, click on Confirm.
4. Monitoring and closing positions
You can monitor your open positions under the Positions tab. Amongst what we’ve discussed earlier, you can check how much time you’ve got left until the option expires, and a current estimation of your unrealized PnL (profit and loss).
If you’d like to close the position (exercise the option), click on Settle on the right side of the Positions tab.
The option will be exercised once you click on Confirm.
You can check your previous options trades under the History tab.