If 2019 is the prevailing year of digital options, then 2020 is the main battleground. Since the launch of the first Bitcoin option contract by BitOffer in October 2019, digital options spread quickly through the market. With many exchanges successively launching option businesses, and the volume of transactions has been hitting new highs with the extreme situation at the beginning of the year under the impact of the Bitcoin halving.
Currently, according to the exercise methods, there are two kinds of options in the market. One is the "
American option" which initiated by BitOffer as the industry standard, the other is the "
European option" which launched by exchanges like Deribit and OKEx.
What are the main differences between American options and European options, and how should we choose?
According to Lucian, BitOffer's chief analyst,
BitOffer's American options are significantly more flexible and have lower transaction costs than European options, which are mainly reflected in the following three aspects, exercise time, transaction cost, and option period.
Exercise TimeBitOffer American options allow holders to exercise the option rights at any time before and including the day of expiration. European options only allow holders execution on the day of expiration.
In terms of exercise time, BitOffer's American options give investors the rights to be in control. When the market fluctuates greatly, the holder of American options can close the position at any time after obtaining sufficient profits. European options’ holders cannot unwind it at any time, which means they have to watch the profits slip away.
Besides, due to the fixed exercise time of European options, the holders would be led like a lamb to the slaughter once the market's main force deliberately operates the market on the exercise day.
Transaction CostBitOffer’s American options only require the payment of option fee, which means 0 margins, 0 commission. In addition to the option fees, European options require to pay an additional fee for the platform.
For investors, the extra costs will reduce the profits, which may even turn profits into losses.
Option PeriodBitoffer options provide 7 choices from 2 minutes to 7 days. At present, most of the European options only have three choices, current week, second week, and quarterly. Generally, the longer the period is, the higher the cost will be. BitOffer American options provide multi-cycle options according to customer demand, which enables customers to keep up with the market, and greatly reduces the operating cost.
From the perspective of actual trading conditions, for example, on June 2, bitcoin surged back and fell by 800 points in 5 minutes. Investors only need $5 to buy a 5-minute short option on BitOffer and can close out their positions at any time, easily locking up a profit of $800 with a return as high as 160 times.
From the perspective of actual trading conditions, for example, on June 2nd, bitcoin surged back and fell by 800 points in 5 minutes. Investors only need $5 to buy a 5-minute short option on BitOffer and can close out their positions at any time, easily locking up a profit of $800 with a return as high as 160 times. However, if investors are buying European options, they will have to buy at least one option for that week, which wastes the trading costs, and also leaves them unable to close positions and lock in profits. Then they have to wait until June 5 to close the option, which makes the profits shrinkage.
In conclusion, as the recent market downturn, and the market volatility in a short period, with 0 margins, 0 handling fee, and no need to exercise BitOffer’s American options more suitable for investors.
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Topic: BitOffer：American options and the advantages which European options don't have (Read 2628 times)