Huobi Warrant Trading Tutorial--European Option Spreads

1. About European Option Spreads

Huobi Warrant European option spreads have two types, namely call spreads and put spreads. Different from traditional European options, Huobi Warrant European option spreads allow users to close their positions before expiration. Users only need to pay the option premium during the product period, without additional fees.

 

2. Advantages of European Option Spreads

In addition to high rates of return, small potential losses and no liquidation requirement, European option spread pricing is simpler and more direct. As long as the parameters are determined, investors can calculate the value of the option spread themselves by using a formula. European option spreads are exercised on the expiration date, which makes them relatively simple and easier to operate.

 

3. Types of European Option Spreads

Call option spreads

With European call option spreads, users can set a low strike price and a high strike price for a specific time period or point in time, and then simultaneously sell a call with the low strike price and buy a call with the high strike price to make a profit. When the underlying price rises and reaches the high strike price, users can reap the highest profits. With Huobi warrants, the underlying assets are not delivered, and users can benefit from the rise in the underlying price. Also, users can close the position in advance to lock in profits.

 

Put option spreads

With European put option spreads, users can set a low strike price and a high strike price for a specific time period or point in time, and then simultaneously buy a put with the low strike price and sell a put with the high strike price to make a profit. When the underlying price drops and reaches the low strike price, users can reap the highest profits. With Huobi warrants, the underlying assets are not delivered, and users can benefit from the drop in the underlying price. Also, users can close the position in advance to lock in profits.

product name

European Option Spreads

Product Type

Put/Call

Transaction currency

BTC

Related assets

BTC/USDT

Buying and selling direction

Buy

Expiry Date

the expiration date set by the user

The Low Stike Price

To set the low strike price

The High Stike Price

To set the high strike price

Par Value

Buy-in denomination

Breakeven price

Profit line, the part where the index price exceeds the price is profit

Settlement price

Product expiration Huobi contract index price

Delivery method

Difference Settlement

Expenses payable

Option premium, also known as premium, is the amount the option buyer spends to purchase an option

 

4. Trading Guidelines

By choosing product type, low strike price, high strike price, expiration date, and quantity, a variety of different trading strategies can be carried out. As for the expected maximum net profits for a particular strategy, they would equal the estimated maximum returns minus the expenses payable.

 

As shown in the figure below, user A expects that the BTC price will rise and remain stable between 55,000 and 60,000 on October 1, 2021, so he/she spends $5015 to buy a call spread on 5 BTC. If the BTC spot price reaches $60,000 on that day, the user can maximize his/her profits, (income 25000-expense 5015 = net profit 19985). The user can receive a net income of 19,985 USD, which is five times the premium. If the BTC spot price is less than 55,000 USD on that particular day, the option spread would expire and the user would only lose 5015 USD (premium).

 

5. Settlement rules (in USDT)

If the liquidation/expiration settlement price is between the low strike price and the high strike price, the expected exercise return = order quantity * (liquidation price/settlement price - low strike price).

 

If the liquidation/expiration settlement price is greater than the high strike price, the expected exercise return = order quantity * (high strike price-low strike price)

 

Note: The warrant can be liquidated before expiration and will be automatically settled upon expiration, in accordance with the system rules.

 

For example:

If the current BTC price is $48,600 US dollars, Client A is bullish on BTC and thinks that “it will be higher than $49,000 but less than $50,000” in one day, so he/she buys a 49,000-50,000 European call spread with a quantity of 1 BTC that expires in one day.

 

Scenario 1: If the liquidation/expiration settlement price is between 49,000 US dollars and 50,000 US dollars (assuming it is 49,500 US dollars), the estimated exercise return = order quantity* (liquidation price/settlement price-low strike price) = 1*(49500-49000)=500.

 

Scenario 2: If the liquidation/expiration settlement price is greater than US$50,000 (assuming it is US$50,500), the estimated exercise return = order quantity * (high strike price-low strike price)=1*(50000-49000)=1000.

 

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Huobi Global reserves the right in its sole discretion to amend or change or cancel this announcement at any time and for any reasons without prior notice. The above is for information purposes only and Huobi Global makes no recommendations or guarantees in respect of any digital asset, product, or promotion on Huobi Global. Prices of digital assets are highly volatile and trading digital assets is risky. Please read our Risk Reminder text here.