Case study for option trading

With European option spreads and American standalone options, users can create many option strategies in actual trading. The following are actual trading cases that are for reference only and do not represent any investment advice. Traders are advised to refer to them and invest wisely.
 
Huobi Derivatives Warrant has the following advantages:

  • Compared with traditional option service providers, liquidity is better guaranteed;
  • The option can be exercised in advance to lock in profits (exercise/liquidate);
  • Compared with other derivatives, there is no transaction fee, no exercise fee, and no liquidation;
  • Unique quotation strategy, supporting customization for multiple price levels and multiple option types;
  • Provides large volume transactions and numerous product types, and supports option purchases of large amounts and for long periods;

Across diverse financial products, users can invest small amounts and enjoy a high rate of return, thereby enjoying flexible and strong leverage.
 
Case analysis:
1. When the market is hot and the price is volatile, use European option spreads for investment allocation to avoid the risk of liquidation of contracts and other derivatives;
 
2. With the market expected to trade sideways, users can choose European option spreads to lock in profits;
 
3. With upward/downward movement (but not the peak/bottom) expected, users can choose American standalone options to leverage up appropriately for maximized returns.
 
4. With upward/downward movement (but not the end of the cycle) expected, users can choose European option spreads as a short-term strategy, reasonably set the price range, and lock in the most profit at the lowest cost.
 
Case 1: When the market is hot and the price is volatile, some users are worried about the risk of contract liquidation, so they choose more secure European option spreads for investment allocation.
 
At this time, the price of the BTC/USDT contract index is US $45,000. User A thinks that the price will continue to rise through comprehensive analysis of factors such as time, price level, and direction of movement, and that the price will reach a small peak in two days, with the expected price ranging from US$48,000 to US$53,000.
Hence, the user buys the European call spread (48000-53000) that expires in two days (as shown below), with the option premium of 274.89 USDT. If the judgment is correct, the maximum return is 5,000 USDT.
 

  
Client B holds an opposite view and believes that "it will be lower than 43,000 but higher than 38,000" in two days, so he/she buys a 43,000-38000 European put spread that expires in two days (as shown in the picture below), with the option premium of 429.45 USDT. If the judgment is correct, the maximum profit is 5,000 USDT.

 

When the option expires two days later, if the BTC/USDT contract index is higher than US$48,000, client A makes a profit. If the index price is greater than or equal to US$53,000 at expiry, the maximum gain will be about US$5,000, with a maximum return multiple (times) of 18.18. When the BTC/USDT contract index is lower than US$43,000, client B makes a profit. If the index price is less than or equal to US$38,000 at expiry, the maximum return is about US$5,000, with a maximum return multiple (times) of 11.64.
 
Case 2: In the case of a market trading sideways or with expectations of the same, users can buy European option spreads to make profits.


At this time, the BTC/USDT contract index price is US$45,000. User A believes that the market will fluctuate within a narrow band in the near future based on comprehensive factors such as time, price level, and direction of movement. Also, user A expects that BTC price will fall slightly in two days, so he/she buys the 44000-45000 European put spread that expires after two days (as shown in the picture below), with the option premium of 454.91 USDT. If the judgment is correct, the maximum return is 1000 USDT. If the judgment is wrong, the loss is 454.91 USDT.
  
Client B holds an opposite view and believes that "the BTC price will go up slightly in two days and stay between 47,000 and 48,000 in two days”, so he/she buys a 47000-48000 European call spread that expires in two days (as shown in the picture below), with the option premium of 194.63 USDT. If the judgment is correct, the maximum profit is 1000 USDT.
 

The BTC/USDT contract index price is US$46,300. Client C is bearish on BTC and believes that “it will be a sideways market in five days", so he/she buys the 45,000-46,000 European call spread that expires in five days. At the same time, he/she buys the 47,000-48,000 European put spread that expires in five days, with an option fee of 1,180 USDT. If the judgment is correct, and the price is between 46,000-47,000 at expiry, the maximum return is 2,000USDT (net profit of 820USDT). If not in that range, he/she will have earned a minimum of 1,000 USDT, a loss of 180 USDT.


Case 3: Strong leverage without liquidation. Users can use American standalone options to leverage up appropriately by analyzing the trend and setting a reasonable exercise price and date.


When the BTC/USDT contract index is US$45,000, client A is bullish on BTC, so he/she buys an American option with an exercise price of 35,000 that expires the next day (as shown in the picture below). The option premium is about 10,167 USDT, and the leverage is about four times. At expiry, if the spot price rises to $46,000, the client will get 11,000 USDT in return, and the final profit will be 833 USDT after deducting the option premium of 167 USDT. If the index price fluctuates sharply during the exercise period, or even goes lower than 35,000, there is no risk of liquidation for the client's position. When the price rebounds to above 35,000, the client can still get returns by exercising in time and will not suffer losses due to transient price movements.


The BTC/USDT contract index price is US$45,000. Client B is bearish on BTC, so he/she buys an American option with an exercise price of 55,000 that expires the next day. The option premium is about 10,004 USDT. At this time, its leverage is about four times. At expiry, if the spot price falls to 44,000, and the customer receives 11,000 USDT in return, the profit is 996 USDT after deducting the option premium. If the price is highly volatile and rises above 45,000 during the period, there is no risk of liquidation for the client's position. When the price returns to below 45,000, the client can still receive payment and will not suffer losses due to transient price movements. 

 

At the same time, customers buying American options do not need to worry about the deterioration of the liquidity upon liquidation, and they can exercise their rights at any time to lock in profits.

Case 4: In a market trading sideways, the user thinks that the market will become more volatile, but is not sure when the sideways trend will end
 
The BTC/USDT contract index price is US$45,000. Client A is bullish on BTC and believes that “it will rise, but does not know how long the market will continue trading sideways”, so he/she buys a 41,000-51,000 European call spread that expires in three days. If the price rises and the return is 10,000 USDT, the net income is 5,740 USDT. If the market continues to trade sideways, the return is 6000 – 4260 = 1,740 USDT. With proper strategies, you can trade in various market scenarios.

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