Buying a crypto Put option (Buy Put)
Introduction
What does buying a Put option do?
Buying a Put gives you the right to sell the underlying asset at your Strike Price on your Settlement Date
Why would I buy a Put option?
You believe the price of the underlying asset (Settlement Price) on the Settlement Date would be lesser than your Breakeven Price
How do I calculate my Breakeven Price?
Breakeven Price [Put option] = [Strike Price] — [Premium Payable]
E.g. Buying a Put option with Strike = $10,000 will require you a Premium Payable of $200 ( In BTC equivalent = $200/$10,000 = 0.02 BTC), giving you the right to sell 1 BTC for $10,000 at settlement. Your Breakeven Price would be $9,800
How do I calculate my profit?
Profit = [Breakeven Price] — [Settlement Price]
Loss = Premium Payable
Scenario 1: P&L if Settlement Price (BTC settles at $5,000) < Strike Price
Profit = [Breakeven Price = Strike Price + Premium Payable] — Settlement Price
= ($10,000 — $200 -$5,000) / $5,000
= 0.96 BTC
Scenario 2: P&L if Settlement Price (BTC settles at $15,000) ≥ Strike Price
Loss = Premium Payable
= -$200
What is my maximum profit?
Buying a Put option gives you the opportunity to enjoy substantial profit during a bear market. If the underlying asset goes to zero, you profit from the entire Strike Price minus the Premium Payable for the Put option
What is my maximum loss?
Buying a Put option limits your loss to the Premium Payable
Buying a Put option on Sparrow
- Go to Options > Simplified
- Click/Tap TradePROTECT Buy [it will turn Green if correctly activated]
- In the Customization Panel on the right
- Enter a Strike Price that is lesser than the Current Price to set a Put option
- Enter the Settlement Date and Amount Protected
- The Premium Payable will be displayed at the bottom
- Click/Tap Confirm to place the order
Example
- You are bearish and expect BTC to trade below $9,000 on 27 March 2020
- You decide to buy a Put for 1 BTC with Strike Price at $9,000, Settlement Date on 27 March 2020
- The cost for making this position will be 428.19 SP$ (Premium Payable)
- Breakeven Price will be $8,571.81 (9,000 [Strike Price] —428.19 [Premium Payable] )
How do I profit?
- The lower BTC trades below your Breakeven Price at $8,571.81, the greater your profit
- However, if BTC trades above $8,571.81, your maximum loss would be 428.19 SP$ (Premium Payable), no matter how high BTC rises
FAQ
Why are premiums paid in SP$?
SP$, as the settlement token in Sparrow, helps in simplifying and standardising the trade settlement process for greater liquidity despite the customized nature of the contracts. Traders can easily value and make better decisions across Sparrow Option contracts.
Learn more about
-
Buying a Crypto Option Contract
– Buying Crypto Call Option (Buy Call)
– Buying Crypto Put Option (Buy Put) - Selling a Crypto Option Contract
– Selling Crypto Call Option (Sell Call)
– Selling Crypto Put Option (Sell Put)
DISCLAIMER
The information provided here is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs.
Sparrow does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.
To the maximum extent permitted by law, Sparrow disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.
Content contained on or made available through any of our communication channels is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on any of our communication channels is at your own risk.
