Do you think that a cryptocurrency is about to have a massive rally? If so, you might want decent exposure, but equally not want to bet the house, so you want a known or limited amount of risk, and the way to do it is to use options as a kind of insurance plan to make sure you dont miss out on A big move, in fact in this video ill, actually refer to it as insurance, just to keep things simple, heres how it works. Well, use bitcoin as an example, but the principles apply to options on other cryptocurrencies too. First, you need to be clear on the size of the price rally that you think could happen. For example, maybe you think bitcoin could double in price. The second thing you need to work out is a time frame. Will this rally take place in the next few weeks? Are we talking months now? This part is crucial. Time is literally money because you pay more for insurance, which lasts longer the end date of the time frame, youre looking at is called the expiry date and, finally, you have to decide what kind of insurance you want to pay for. This is where you pay to make sure you dont miss out on a big move and, like any other form of insurance, this is called the premium and, of course, the earlier you want to get on that price move, the more you pay. Do you want to pay extra to make sure you make the most out of even a small rally in price, or do you want to pay less and accept that it might mean missing out on the early stages of a price rally? Lets imagine you think the price of bitcoin will double lets say fifty thousand to a hundred thousand in the next three months.

You have your price expectation and time frame, so you just need to choose what kind of insurance cover you want. You could buy the expensive insurance which pays out if bitcoin has made any kind of move above 50 000 by the end of your time period or you could buy the much cheaper insurance which only pays out if it goes over. 70 000. By the end of the time period now, lets use some extremely simplified prices for this example, because prices are always changing the expense of insurance costs, five thousand the cheaper insurance costs, one thousand and before you decide, let me explain something if you are really confident in Your feelings about the price rally to 100k: you can actually buy more than one insurance contract. So, given that you expect the price to breeze past 70k on its way to 100k, instead of paying for one contract at a thousand, you could buy five contracts. Now lets run the numbers to explain this in more detail. Your expensive cover costs five thousand and will pay out fifty thousand. If bitcoin hits your price target of 100k. Your net profit is forty. Five thousand, your cheaper cover costs, one thousand and only pays out if bitcoin goes beyond seventy thousand, giving you just thirty thousand, but you bought five of these contracts because theyre cheaper each one can pay out 30 000. If bitcoin hits your price target of 100k, so thats a total payout of 150 000 and your net profit is 145 000.

youve spent the same amount on insurance, 5, 000, but the potential return is 45 000 versus 145, 000., now thats a huge difference, which is Why your view on bitcoin is so important, the more confident you are about what might happen, the more you can take advantage of these opportunities on ledger x. So what could go wrong? Well, bitcoin could sell off and you could lose the premium you paid. I mean that 5 000 would be long gone, but thats all you could lose because the contracts were your insurance, yes, its a bit frustrating but its better than being long, bitcoin only to see a crash to 25 000 and in that scenario, youd be sitting on A twenty five thousand dollar loss and not a five thousand dollar loss, and now you know why its referred to as a form of insurance. You were able to calculate your maximum cost up front 5. 000. In this example, while still giving yourself the opportunity to participate in a big upside move, all you have to do next is your homework on how option prices can change over time and see if you can spot the catalysts for the next big price move? Because now you know one way to participate in an extremely steep rally in bitcoin and all of it is made easy on ledger x.