Selling Crypto Put Option (Sell Put)
Introduction
What does selling a Put option do?
You are selling the buyer the right to sell the underlying asset at your Strike Price on your Settlement Date
Why would I sell a Put option?
You believe the price of the underlying asset (Settlement Price) on the Settlement Date will not be lower than your Breakeven Price
How do I calculate my Breakeven Price?
Breakeven Price = [Strike Price] + [Premium Receivable]
E.g. Selling a Put option with Strike Price = $10,000 will entitle you a Premium Receivable of $500 ( In BTC equivalent = $500/$10,000 = 0.05 BTC), obligating you to buy 1 BTC for $10,000 at settlement. Your Breakeven Price would be $10,500
How do I calculate my profit?
Profit = Premium Receivable
Loss = [Settlement Price] — [Breakeven Price]
Scenario 1: P&L if Settlement Price (BTC settles at $13,000) ≥ Strike Price
Profit = Premium Receivable
= 0.05 BTC
Scenario 2: P&L if Settlement Price (BTC settles at $6,000) < Strike Price
Loss = Settlement Price — [Breakeven Price = Strike Price + Premium Receivable]
= ($6,000 / $6,000) — [($10,000/$6,000) + 0.05 BTC]
= -0.62 BTC
What is my maximum profit?
Your profit is limited to the Premium Receivable for selling the Put option
What is my maximum loss?
Your loss is theoretically unlimited to the upside. However, Sparrow Options are 100% collateralised with the amount of underlying asset, so your losses are pretty much capped with the amount of underlying assets collateralised
Selling a Put option on Sparrow
- Go to Options > Simplified
- Click/Tap TradeBOOST Sell [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 Call option
- Enter the Settlement Date and Amount Monetized
- The Premium Receivable will be displayed at the bottom
- Click/Tap Confirm to place the order
Example
- You are bullish or neutral and expect BTC to trade above $9,000 on 27 March 2020
- You decide to sell a Put for 1 BTC with Strike Price at $9,000, Settlement Date on 27 March 2020
- Premium Receivable is 324.95 SP$
How do I profit?
- As long as $9,000 (Strike Price) and below is not hit, you will get to profit fully from the Premium Receivable. Your profit will be capped by the Premium Receivable
- However, if the market trades against the downside and your Strike Price is hit, your maximum loss will be capped to the pledged collateral, 9,000 SP$
FAQ
Why are Sparrow options fully covered?
Sparrow options are fully covered as the seller of the option has to pledge 100% of the underlying asset upon trade initiation. Likewise, the buyer of the option will be required to pay a non-refundable premium to compensate the seller’s risk of pledging the underlying asset. This negates counterparty risks.
Why are selling Puts pledged in SP$?
Sparrow has specially designed this pledging system to account for extreme market situations such as drastic price dips. This will help to protect both buyer and seller by preventing counterparty risk, where there is a possibility that either the buyer or seller might default on his or her contractual obligation.
Example: If you place a BTC/USD sell Put option trade and the price of BTC drops drastically and becomes worthless — With SP$ as the pledged collateral instead of BTC, counterparty risk will be negated as the SP$ previously pledged by the seller will still be able to settle with the buyer at the agreed upon rate of equivalence.
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.
