Comparison with options

Options trading is a traditional financial strategy that has found a place in the digital asset market in recent years, allowing traders to speculate on the future value of a cryptocurrency. Contract purchasers pay a premium for the right to buy (known as a call) or sell (known as a put) at a pre-agreed ‘strike price’ on a particular expiry date. The outcome of the contract can either be 'in the money' or 'out of the money', depending on whether the price at the expiry date is above or below the strike price.

However, options trading is inherently complex, requiring a comprehensive understanding of financial markets. This complexity can deter many, particularly newcomers to the crypto arena. Furthermore, the cost associated with crypto options trading can be substantial, especially in volatile markets, which can erode potential profits and make it less efficient than other investment strategies.

The Emergence of Crypto Options Trading Platforms

Over the last few years, a number of crypto-based options trading platforms have sprung up, offering an appealing financial strategy for generally more sophisticated traders. However, these platforms may not be universally accessible due to regulatory restrictions, thereby excluding a number of potential users. Furthermore, crypto options trading platforms are not too dissimilar to traditional options platforms, and for many, the complexity of this type of financial instrument is a major barrier.

Understanding Options Premia

The options premium is the price that a buyer pays to the seller to acquire an options contract. It represents the cost of the rights that the contract grants to the buyer. The premium is determined by several factors, including the underlying asset's price, the strike price of the option, the time until expiration, and the volatility of the underlying asset.

One of the most common methods for calculating a 'fair' price on options desks is the Black-Scholes formula, developed in the 1970s. This mathematical model attempts to discover the actual value of an option based on implied volatility. However, it makes a number of assumptions and has been criticised by some top investors, especially for its limitations in highly volatile markets like crypto.

Bumper Versus Options

Options trading and Bumper both offer ways to manage risk in volatile markets, but they do so in very different ways.

Complexity vs Simplicity

Options trading is inherently complex, requiring a deep understanding of financial markets, options contracts, strike prices, and expiry dates. On the other hand, Bumper is exceptionally user-friendly.

Users simply set the price at which they wish to protect their asset and the term length. If the market crashes, their asset's value will not sink below this price.

Cost vs Efficiency

Options trading can be costly, especially in volatile markets. The options premium can erode potential profits and make options trading less efficient than other investment strategies.

In contrast, Bumper offers a safety net for crypto investments without the substantial expense or complexity associated with options contracts.

Accessibility vs Universality

Top-tier crypto options platforms may not be universally accessible due to regulatory restrictions, excluding many potential users. As a decentralised protocol, Bumper isn't bound by the same regulatory limitations, making it accessible to users globally.