Trading in cryptocurrencies is both thrilling and challenging, especially for beginners. Many people are attracted to the volatile market because of its potential for high returns. A significant benefit of crypto options is that it offers multiple ways to earn profits and reduce potential losses.
However, there’s a high risk that traders who do not know what they are doing end up making mistakes. If you have been thinking of venturing into crypto trading, it would be helpful if you are mindful of the top crypto options trading mistakes.
<h2>Crypto Options Trading: A Brief Overview</h2>
First, let’s go over how crypto options trading works. It is an advanced strategy that enables traders to speculate on the underlying crypto’s price movements without owning them. 
An option is basically a financial contract that provides a buyer the right to buy/sell an underlying asset (cryptocurrency for a crypto option) at a predetermined price and time. Usually, people buy a call option if the price of an underlying asset will go up and a put option if they believe that prices will go down. 
If you wish to limit risk and exposure to volatile markets, options are an efficient tool to achieve your goals. Moreover, you can use leverage which is an important advantage of crypto options trading. In other words, you can use a small sum to trade a large number of tokens. But, be aware of the fact that it can lead to massive losses if you are not careful. 
<h2>5 Mistakes You Must Avoid During Crypto Options Trading</h2>
Ensure to avoid the following crypto options trading mistakes: 
<ul>
<li aria-level="1">Buying Options Without Assessing Market Volatility </li>
</ul>
It’s the most common mistake made by beginners. Remember that options pricing depends on their implied volatility. This metric shows the current market sentiment for a cryptocurrency but does not forecast its direction. Considering that an option’s implied volatility is theoretical data, the metric can be highly unpredictable.
It may lead to the crypto options being overpriced. It may also lead to the options incurring a loss despite the trader making an accurate directional assumption. Suppose the market movement is insufficient to offset the premium that has been paid, it will lead to a loss. So, don’t forget to account for the unpredictability of the market while buying crypto options.
<ul>
<li aria-level="1">Placing a Lot of Directional Bets </li>
</ul>
Even seasoned and knowledgeable traders can make this options trading mistake when their analysis gets affected by emotional decisions. Moreover, don’t forget that it is possible for even those strategies which have consistently delivered profits to result in drawdowns. If you face such a situation, remember that it’s important not to take decisions in haste. 
That said, you shouldn’t change your trading strategies from long to short or short to long just because the market is unfavourable. Understanding the fundamentals and maintaining a long-term mindset is a better alternative.
<ul>
<li aria-level="1">Selling Options Without Hedging </li>
</ul>
It’s not a good idea to rely on naked shorting which is selling Out-of-the-Money (OTM) options without proper hedging. Potential losses from naked shorting can be unlimited, which means you can lose more than your initial investment.
Indeed, option selling usually provides a positive expected return. But, it’s important to have a proper risk management strategy in place while undertaking short positions in a highly volatile market. Otherwise, it can result in significant losses, sometimes even bankruptcy. 
<ul>
<li aria-level="1">Avoiding Long-Dated Options </li>
</ul>
Hesitating to trade long-dated options by their price is another common crypto options trading mistake. While it’s not the perfect strategy to gain from short-term price action, long-dated options are ideal for hedging your long-term crypto holdings. 
Always remember that a shorter expiration date makes it very challenging for risk control. Check the amount the option will lose each day on average instead of looking at the total premium. Check if it will be worth paying the price and then take your decisions. 
<ul>
<li aria-level="1">Using Complicated Trading Strategies </li>
</ul>
Avoid making the mistake of adopting complex crypto options trading strategies at the very beginning. Start simple and as you gain more knowledge and experience, adopt complex trading strategies. 
The common crypto options trading strategies include long straddle, short straddle, bull call spread, bear put spread and iron condor. Experienced investors may employ long butterfly spread, modified butterfly spread, seagull and jade lizard. 
If you are already a seasoned investor, read our blog on <a href="https://www.delta.exchange/blog/advanced-crypto-options-trading-strategies-for-seasoned-investors">advanced crypto options trading strategies</a> to brush up your knowledge.
<h2>Important Tips for Crypto Options Trading</h2>
If you have decided to get into crypto options trading, these are the things you should do: 
<ul>
<li aria-level="1">Don’t Lose Grip on Fundamentals </li>
</ul>
A common crypto options trading mistake is a lack of research. Learn about the fundamentals of cryptocurrencies before you even set up a crypto wallet. If you’re a new trader, know about how crypto projects operate and their long-term utilities. Check the supply and demand dynamics of a coin to have a better understanding of its sustainability. 
<ul>
<li aria-level="1">Don’t Ignore Technical Analysis </li>
</ul>
Before you decide to undertake crypto options trading, don’t forget to study price charts, and identify support and resistance levels. Following proper analyse will allow you to avoid crypto-based fraud. 
<ul>
<li aria-level="1">Set Stop Losses </li>
</ul>
Failure to set stop losses is a very common crypto options trading mistake. This feature would sell off the options if the price falls below a certain level, thus minimising losses. It is especially beneficial if the market starts moving unfavourably. 
<ul>
<li aria-level="1">Try Not to Trade Frequently </li>
</ul>
Avoid trading too frequently as it may lead to poor decision-making. You might get emotionally exhausted which can negatively impact your trading performance. Create a trading strategy after a lot of research and then stick to it. 
<h2>Benefits of Crypto Options Trading</h2>
Despite the risks of crypto options trading, it remains an effective way to deal with the high volatility of the market. Here are some of the notable benefits of crypto options trading:
<ul>
<li aria-level="1">Increases Purchasing Power with Leverage </li>
</ul>
You can improve your ability to purchase with leverage and get access to many more crypto assets. It takes only $10 to start trading crypto options on Delta Exchange. This enables you to take larger positions to multiply your investments.
<ul>
<li aria-level="1">Crypto Options Trading Is Quite Flexible </li>
</ul>
Timing indeed plays an important role but you don’t have to be 100% precise while working with crypto options. As long as you follow a logical strategy and stay patient, you will be able to make overall profits even if a few trades do not work in your favour.
<ul>
<li aria-level="1">Offers the Potential for Huge Profits </li>
</ul>
A major benefit of crypto options trading is that it can help you earn huge profits at a relatively low-risk level. There have been cases when traders have made 1300% in minutes by trading crypto options. 
Do you wish to trade in crypto options? Choose Delta Exchange for quick withdrawals, high liquidity and lowest settlement fees. 
<h2>Points to Remember While Crypto Options Trading</h2>
Remember these points before participating in crypto options trading: 
<ul>
<li aria-level="1">Possibility to Lose the Principal Amount </li>
</ul>
While it seems that purchasing options are associated with low risk, no good thing ever comes for free. For every option you purchase, you will have to pay a premium, which can add up. Moreover, the crypto options market can be quite harsh for new traders. 
<ul>
<li aria-level="1">Selling Options Is Risky </li>
</ul>
Selling or writing crypto options carries more risk than purchasing. Another point you need to remember is that trading crypto futures carries the same level of risk as that of selling unhedged options. 
<ul>
<li aria-level="1">Options Lose Value over Time </li>
</ul>
Don’t forget that crypto options will lose their value over time. This is also the reason why most options strike prices expire OTM with zero value. 
<h2>Final Word</h2>
To sum up, crypto options trading is quite beneficial but you need to be aware of the common options trading mistakes. While there are limitations, options trading is immensely beneficial for crypto traders as it allows them to make profits in volatile market conditions. But you should always remember to do thorough research on market conditions, analyse technical data and avoid making emotionally-charged decisions.

Options trading offer high returns but also comes with high risks. Avoid these common mistakes when trading crypto options.

5 Crypto Options Trading Mistakes You Must Avoid

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