Huobi Options Trading Tutorial – Touch Options

What are Touch options?

Touch Options are a set of exotic options of which the earnings depend on whether the price of the underlying asset touches the target price (also called barrier price). Hence they are called “Touch options”. Compared with vanilla calls and puts, Touch options allow users to profit from a simplified yes-or-no market forecast—Will the price of an underlying asset reach or pass a certain level before expiration? If the user’s forecast is correct, the user will get a payout higher than the options premium. Huobi Options now offers two Touch options on Huobi Global website: Double One-Touch and Double No-Touch.

 

How to buy Touch options?

1. Go to Huobi Global’s official website: https://www.huobi.com/en-us/, move the cursor to “Derivatives” on the upper navigation panel, and click “Options”. Or go directly to this link: https://www.huobi.com/en-us/otc-option/exchange
2. Click “Touch Options” from the Option Selection Bar.
3. Click on the Asset icon located at the upper left corner to select the underlying asset of the options contract.
4. Set up Touch options contract specifications, such as Double One-Touch or Double No-Touch, Lower and Upper Barrier Price, Expiry Date, and Payout Amount.
5. Check the box to agree to the OptionsAgreement, click "Get a quote" to get a price offering for the options contract. If you think it’s a good deal, click “Buy” to purchase the options contract.

Double One-Touch option

A Double One-Touch option is an exotic options contract where the buyer receives a fixed payout if the price of the underlying asset touches or exceeds the barrier levels (either above or below) at any time prior to expiration. If the underlying price remains within the price boundaries until expiration, the option expires with no value, and the buyer loses what they paid for the option—the premium.

 

Two outcomes for a Double One-Touch option:

1. Either lower or upper barrier price is reached at any time before expiration, and the buyer immediately collects the full payout amount.
2. Neither lower nor upper barrier price is reached all the way through expiration, and the buyer loses the amount originally paid for the option.

 

What determines the premium of a Double One-Touch option?

If the payout amount is fixed, the higher the chance for the underlying price to touch the barrier prices, the higher the Double One-Touch option’s premium is. Generally, the likelihood for the underlying price to reach the barrier prices increases when the barrier prices are set closer to the current price or the time to expiration is longer. For example, let’s say Bitcoin currently trades at 50,000 USDT. With the same time to expiration, a BTC/USDT DOT option with 47,000 & 53,000 lower and upper barrier prices costs more than one with a 45,000 & 55,000 lower and upper barrier prices. With the same lower and upper barrier prices, a BTC/USDT DOT option with 7 days to expiration costs more than one with 3 days to expiration. In addition to the barrier prices and time to expiration, the price is also affected by implied volatility and other factors.

 

Case study for Double One-Touch option

$ETH is currently trading at 4,625 USDT. Alexa believes in 3 days’ time, $ETH price will drop below 4,000 USDT. She buys a DOT option for 51.62 USDT with the following terms:
Lower Barrier Price: 4000
Upper Barrier Price: 6000 (Choose a high Upper Barrier Price to lower the cost)
Expiry Date: 3 days from today
Payout Amount: 100 USDT

 

Scenario 1: $ETH price has been fluctuating within the barrier levels. At a certain time on day 2, $ETH price drops to 3,950 USDT. At that moment, Alexa receives the payout of 100 USDT. PNL = 100 – 51.62 = 48.38 USDT

Scenario 2: $ETH price remains within the barrier levels until expiration. On the expiration date, Alexa receives nothing. PNL = 0 – 51.62 = -51.62 USDT

 

Double No-Touch option

A Double No-Touch option is an exotic options contract where the buyer receives a fixed payout if the price of the underlying asset remains within the barrier levels until expiration. If the underlying price touches or exceeds the price boundaries (either above or below) at any time prior to expiration, the option becomes null and void immediately, and the buyer loses what they paid for the option—the premium.

 

Two outcomes for a Double No-Touch option:

1. Either lower or upper barrier price is reached at any time before expiration, and the buyer immediately loses the amount originally paid for the option.
2. Neither lower nor upper barrier price is reached all the way through expiration, and the buyer collects the full payout amount.

 

What determines the premium of a Double No-Touch option?

If the payout amount is fixed, the lower the chance for the underlying price to touch the barrier prices, the higher the Double No-Touch option’s premium is. Generally, the likelihood for the underlying price to reach the barrier prices increases when the barrier prices are set closer to the current price or the time to expiration is longer. For example, let’s say Bitcoin currently trades at 50,000 USDT. With the same time to expiration, a BTC/USDT DNT option with 47,000 & 53,000 lower and upper barrier prices costs less than one with a 45,000 & 55,000 lower and upper barrier prices. With the same lower and upper barrier prices, a BTC/USDT DNT option with 7 days to expiration costs less than one with 3 days to expiration. In addition to the barrier prices and time to expiration, the price is also affected by implied volatility and other factors.

 

Case study for Double No-Touch option

$BTC is currently trading at 62,844 USDT. Bob believes a sideways market is here, and there is a good chance that the price will stay within the range of 59,000 to 67,000 USDT in the coming 7 days. He buys a DNT option for 13.12 USDT with the following terms:
Lower Barrier Price: 59,000
Upper Barrier Price: 67,000
Expiry Date: 7 days from today
Payout Amount: 100 USDT

 

Scenario 1: $BTC price has been fluctuating within the barrier levels. At a certain time on day 4, $BTC price reaches 59,000 USDT. At that moment, the option becomes null and void, and Bob receives nothing. PNL = 0 – 13.12 = -13.12 USDT

Scenario 2: $BTC price has been fluctuating within the barrier levels. Just before expiration, $BTC price temporarily goes over $67,000 USDT. At that moment, the option becomes null and void, and Bob receives nothing. PNL = 0 – 13.12 = -13.12 USDT

Scenario 3: $BTC price remains within the barrier levels until expiration. On the expiration date, Bob receives the payout of 100 USDT. PNL = 100 – 13.12 = 86.88 USDT

 

Restricted Jurisdictions

Users based in the following jurisdictions will not be permitted to purchase Touch Options due to regulatory concerns: United States of America, Canada, Japan, Cuba, Iran, North Korea, Sudan, Syria, Venezuela, Singapore, Crimea, Mainland China, Taiwan China, Hong Kong China, Macao China, Israel, Iraq, Bangladesh, Bolivia, Ecuador, Kyrgysztan, Sevastopol, UK (retail users), and countries in the European Union. 

 

Contact Us

Telegram:https://t.me/Huobi_D_Warrant
Twitter:https://twitter.com/Huobi_Options
E-Mail: [email protected]

 

 

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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.