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Introduction to Options Trading

Introduction to Options Trading

2023/09/18 18:29:05

1. Definition

Options trading, as a financial derivative transaction, allows holders to buy options based on various underlying assets such as stocks, commodities, cryptocurrencies, and other derivative products, and users have the right to exercise the options at a predetermined price and date.

FameEX options trading is a derivative investment tool with cryptocurrency as the underlying asset. As a new type of options, FameEX options trading involves users forecasting the price movements of the underlying asset’s opening and closing values during a fixed trading period. By accurately predicting these price trends, users can secure profits. FameEX options trading is categorized into three types based on the user’s prediction about the direction of the underlying asset: Call Options, Put Options, and Range Options. This means that users anticipate the price trend of the underlying asset to potentially rise, fall, or remain unchanged (ideal state) during a fixed trading period. 

(1) Profit Mode: If the user predicts that the price change trend direction of the underlying asset is consistent with the actual price change direction in a fixed trading period, they become the profit party. As a result, the profit party can share the premium paid by the losing party.

(2) Premium: A certain amount of premium is required when users trade options.

(3) Profit Ratio: The premium of profit parties when buying options / all premiums of profit parties when buying options * 100%.

(4) Profit Amount: Profit ratio * the premium of all users in this period when buying options.

(5) Loss Amount: all premiums and trading fees paid by the user.

2. Features

(1) Zero-sum mode increases the fairness of options: Users act as counterparties to each other in FameEX options trading, and the FameEX platform does not interfere with the trading. And each user can predict the direction of options based on market conditions. Besides, the data transparency among users demonstrates the equity of options trading.

(2) Backtesting data indicates the options trends: FameEX will conduct backtesting based on historical data to obtain the proportion of the future trend of options and display it to users. But this data is only for user reference. Therefore, if the final result is inconsistent with the predicted direction and causes any loss to users, FameEX will not be liable for compensation.

(3) Orders automatically canceled or new orders restricted by the system during the unilateral market conditions to reduce users’ losses. When the possibility of a unilateral market is greater than 70%, the direction selectivity of options will decrease, and the profitable amount allocated to users may not cover the trading fee cost. In this case, FameEX will cancel the order or restrict users from placing the order to reduce the user's trading fee loss.

3. Advantages

(1) Controllable risks: Users can check the maximum potential loss amount (premium and trading fees) before trading.

(2) Easy operation: FameEX makes trading easier and users only need to understand the concept of price movement (up or down) of cryptocurrencies to predict the direction of Options.

(3) High profit potential: Compared with traditional American-style and European-style options, FameEX options offer higher profit potential as they are zero-sum options.

(4) Range Options for greater flexibility: To adapt to the volatility of cryptocurrency prices, FameEX introduces Range Options. Instead of the opening price being equal to the closing price, a price range is considered. If the price of the underlying asset fluctuates within this range during the Options period, it is considered a Range Option. Whether Range Options are supported will depend on the market condition

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