Explain the Concept of ‘Leverage’ When Trading Cryptocurrency Options.
Leverage in options trading allows a trader to control a large amount of the underlying cryptocurrency with a relatively small amount of capital (the option premium). Since the potential percentage return on the premium can be much higher than the percentage change in the underlying asset's price, options offer amplified gains.
However, this also amplifies losses, as the entire premium can be lost if the option expires worthless.
Glossar
Maximum Loss
Value ⎊ Maximum Loss represents the absolute worst-case financial outcome, expressed as a specific monetary value, that a derivatives position can incur over its entire life cycle.
Options Trading
Stewardship ⎊ Involves utilizing these contracts to manage exposure to assets whose underlying technology or governance may evolve, ensuring capital is not locked into potentially obsolete systems.
Delta
Parameter ⎊ In options theory, this measures the rate of change of an option's price relative to a one-unit change in the price of the underlying asset, often termed the first derivative of the option price with respect to the asset price.