In the space of a few years, Bitcoin has surged—fromꦍ something that couch potatoes trade for a slice of pizza via a Reddit thread, to one of the hottest commodities on the market.

In the last five years, total daily transactions in the Bitcoin market have risen 900%—from 33,800 to over 335,000, according to CoinDesk. As the cryptocurrency has become more popular, so have the instruments to trade it. More exchanges are opening up, and Bitcoin 澳洲幸运5官方开奖结果体彩网:exchange traded funds (ETFs) may be on their way. But one tool that is already up and running is Bitcoin options. For years, Bitcoin option trading was not regulated in the U.S., but this looks set to change with a recent decision by the 澳洲幸运5官方开奖结果体ꦺ彩网:Commodity Futures Trading Commissওion (CFTC). 

However, trading Bitcoin options is not for the fainthearted. They are extremely volatile and very expensive.

Bitcoin daily transactions

How Bitcoin Options Trade

Bitcoin options trade the same as any other basic call or put option, where an investor pays a premium for the right—but not the obligation—to buy or sell an agreed amount of Bitcoins on an agreed date. Additionally, various offshore exchaꦆnges offer binary options, where traders bet on a yes-or-no scenario—for example, whet✅her or not Bitcoin will rise or fall, or whether or not it will be above or below a specific price on a specific day. 

Why Are They So Expensive?

One major difference in trading B🍌itcoin options at the moment is the price. Bitcoin is one of the most volatile assets—if not the most volatile asset—trading at this time, meaning to buy an option is very expensive. Take a look at the pricing screen below for June 7, 2017.

An important tool in pricing an option is 澳洲幸运5官方开奖结果体彩网:implied volatility (IV). As IV rises, so does the price of an option. The above pricing screen for options with a June 30 (22-day), 2017, expirꦡy show implied volatility ranging from 90% to above 200% for strike prices from 2,000 to 3,300. How expensive is this? Very.

For example, on Oct. 2, 2017, the 30-day IV for the 澳洲幸运ꦆ5官方开奖结果体彩网:Standard & Poor’s (S&P) 500 was nearing record lows at 6.7%, according to data from the 澳洲幸运5官方开奖结果体彩网:Options Industry Council (OIC)—and even in the height of the Great Recession, IV did not reach the types of levels that we are now seeing in Bitcoin trading. On Nov. 14, 2008, two months after the collapse of 澳洲幸运5官方开奖结果体彩网:Lehman Brothers, short-term IV reached record highs of 65%.

Bitcoin Options Trading in the U.S.

After months of lobbying, Bitcoin options are soon to be legal in the U.S. On Oct. 2, 2017, the CFTC a🌄nnounced the approval of LedgerX for clearing derivatives. LedgerX, a digital currency platform, announced in May 2017 that it had raised $11.4 million via its parent company, Ledger Holdings, in the hope that the CFT♋C would rule in its favor—which the agency did. 

“A U.S. federally-regulated venue for derivative contracts settling in d♊𝔉igital currencies opens the market to a much larger customer base,” Paul Chou, CEO of LedgerX, said in a press release. 

Chou said he expects the company to begin Bitcoin options trading in the fall of 2🐬017 and hopes to 🦹extend to Ethereum later in the year.

Growing Acceptance

The push for options was given further validity in October 2017, when the 澳洲幸运5官方开奖结果体彩网:Chicago Mercantile Exchange (CME) announced that it plans to launch Bitcoin futures in the fourth ꧙quarter of 2017.

“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a [B]it🏅coin futures contract,” Terry Duffy, CEO of the CME, said in a statement. 

As cryptocurrency popularity grows, the products to trade the underly♕ing asset will widen. Despite being relatively new, Bitcoin options trading is available in a handful of countries, which s⛦oon will include the U.S. 

However, for thoseౠ looking to dabble in options, be warned: They are expensive and volatile. So, buckle up.