The derivatives wing of Huobi Global – Huobi Futures – plans to launch its crypto options on September 1, 2020, an announcement shared with Coingape confirms. The new option contracts will join a host of exciting and high liquidity trading derivative products on Huobi Futures including futures and perpetual swaps.
According to the statement, Huobi Futures will offer European styled call and put Bitcoin (BTC) options, allowing users to place bets on the future price of the top crypto asset.
Huobi’s BTC options will be settled in Tether stablecoin, USDT, with the minimum contract size set at 0.001 BTC (roughly $114, as of writing). Huobi Futures states the latest move bids to enrich the derivatives market for both its individual and institutional investors.
The exchange will offer three short-term option contracts i.e. weekly, bi-weekly and quarterly options. The options will be delivered every Friday (or on expiration at 16:00 (GMT+8) calculated as in-the-money options.
Huobi’s first USDT-quoted BTC options
Unlike the inverse options offered on rival derivatives exchanges OKEx and Deribit, Huobi offers the pioneer USDT-quoted option prices. This is expected to keep the price stable compared to the BTC-quoted option prices. The statement reads,
“The price of the stable coin USDT is steady without huge price down or up. Comparing with the index of BTC or other cryptocurrencies, the premium value of USDT-quoted options is stable.”
The exchange aims to shake the options market by targeting retail customers by offering low barriers to entry – the BTC/USDT options have a face value of 0.001 BTC. A leading team of option experts, sturdy risk management system, and a fraud-detection system aims at unmatchable security.
Understanding Huobi BTC options
An option works in similar fashion to futures contracts but allows the owner of the contract an “option” to exercise the contract or not. A European call option limits the buyer of the contract to exercising the contract only on the expiration date – not earlier (American option).
European put options offers the trader the right to sell an asset at the expiration date, without obligation – call options, calls in short, offers the buyer a right to buy an asset at a predefined time.
Options trading is favorable to spot trading as it provides a hedging opportunity, multiple profit-maximizing strategies, less risk and cost efficiency.
Huobi’s BTC price index will be derived from five of the top crypto exchanges with equal weighting. The five exchanges include Huobi, Binance, OKEx, Poloniex and HitBTC(20% respectively) to lower the risk of price manipulation.
Huobi Futures’ options will compete with incumbent companies in the options market such as Deribit, which dominates 78% of the daily options trading volumes, according to Skew Markets.