What is a Bitcoin option?
A Bitcoin option allows you to profit when Bitcoin's price goes up or down and gives you the right to buy or sell at a certain price. Bitcoin options have leverage built-in which means small price movements can dramatically affect the value of your option. For example, if Bitcoin moves up by 5%, your option value can increase by 50%.
What is the difference between a call and a put option?
If you think the price of Bitcoin will go up, you buy a call option, and a put option if you think it will go down. For example, Bitcoin is trading at $9,000 and you think it will go to $9,500 in 30 days. You would buy a call option with a strike price (target price) that expires 30 days from now for $50. If Bitcoin starts to go up, your call option value will also go up and you can close (sell) it anytime.
How much does an option cost?
Prices of options are set by the market and can change drastically. For example, if Bitcoin is trading at $9,000 and there's a call option expiring in two days with a strike price (target price) of $9,500, that option will be much cheaper than a call option with the same strike price expiring in 3 months. This is because the option expiring in two days has very little time to move to $9,500 thus people will sell that option very cheap.
How do I profit?
First, you need to buy a call or put option. Then you simply wait for the option value to increase to desired return and make a close order. For example, if you bought a call option for $40 a contract, you would make a "close" order at $80. Your other choice is wait until the option expires, but the current market price needs to be higher than the strike price you picked plus the price you paid for the call option to profit.
What happens on expiration?
When an option reaches the strike price, you then have the right to buy or sell Bitcoin at that price on expiration date. If the option is out of the money at expiration, the option expires worthless.