Complete Guide to Options Trading on the Bybit Platform

An option is a financial instrument that grants the right (but not the obligation) to buy or sell an asset at a predetermined price at a specific point in time. This right is acquired by paying a premium, which is the cost of the option itself. In turn, the option seller commits to fulfilling the contract terms if the buyer chooses to exercise it. Thus, options create an asymmetric risk distribution between the two parties involved.

Basics of Options: How It Works

Options provide traders with a flexible tool for risk management and potential profit enhancement. Unlike futures, where both parties are obligated to execute the contract, options give the right to choose. The buyer pays a premium for this right and can decide whether to exercise it at the time of expiration. The seller of the option earns the premium but assumes potential losses.

There are two main types of options: call and put. A call option gives the right to buy the asset at the strike price, while a put option gives the right to sell the asset at that same price. The choice between them depends on the trader’s forecast regarding the future movement of the price.

Distinctive Features of Options on Bybit

The Bybit platform offers cash-settled options in USDT, simplifying profit and loss calculations. All options on the platform are European-style, meaning they can only be exercised on the expiration date.

Key characteristics of Bybit options:

1. Scheduled Exercise — contracts are executed only on the expiration date, with no early exercise option.

2. Cash Settlement Only — since transactions are conducted in cryptocurrency, there is no physical transfer of the underlying asset. Instead, settlement is based on the difference between the market price and the strike price.

3. Automatic Exercise — the platform system automatically executes contracts upon expiration without requiring manual intervention from the trader.

4. Fair Valuation — the settlement price is determined as the average of the index over a 30-minute period before expiration, ensuring objectivity and protection against manipulation.

Advantages of Using Options in Trading

Options open up many opportunities for traders that are unavailable with other instruments.

Risk Management with Potential for Profit. Option buyers have a clearly defined maximum risk — the amount paid as the premium. Losses cannot exceed this amount, allowing for risk planning in advance. At the same time, potential profits can be significant, especially with call options, where gains are theoretically unlimited. Put options are widely used to hedge portfolios against falling prices.

Strategic Flexibility. By combining different types of options with various strike prices and expiration dates, traders can create complex strategies tailored to different market scenarios. The same approach can be profitable in rising, falling, or sideways markets.

No Financial Fees or Liquidation Risks for Buyers. Option buyers do not pay financing fees nor face liquidation risks. This reduces additional costs and allows traders to focus solely on their trading strategy. It’s important to note that sellers of options face different risks and potential liabilities.

Trading Tools: Explore, Easy, and Pro

On Bybit, there are three different interfaces for options trading, each designed for traders with varying levels of experience.

Explore Platform is aimed at beginners taking their first steps in options trading. It offers a filtered list of the most traded options contracts based on 24-hour volume and open interest. The system also allows tracking the actions of experienced traders, helping newcomers learn from successful players. The interface is highly simplified, with order entry based on historical data.

Easy Platform suits traders with basic knowledge of options and those who prefer simplicity. It provides comprehensive information on profitability, costs, and price dynamics. The interface is organized to make data easily accessible and interpretable, with clear analysis of potential profits and losses.

Pro Platform is geared toward experienced traders who want to utilize the full range of options tools. All options contracts are available without restrictions, supporting both buying and selling. Traders can place single-step and multi-step orders, use advanced profit and loss analysis, and create custom orders for specific trading strategies.

Key Terms and Notations in Options Trading

Before starting trading, it’s important to familiarize yourself with the basic terminology used in options:

Call Option — a tool used by traders expecting the price of the underlying asset to rise.

Put Option — a tool for those predicting a decline in the asset’s price.

Underlying Asset — the cryptocurrency or other asset underlying the options contract, which is the subject of the right or obligation.

Strike Price — the predetermined price at which the option can be exercised.

Expiration Date — the exact moment when the contract becomes effective and can be exercised.

On the Bybit platform, each options contract is identified by a special code that includes all key parameters. For example, BTCUSDT-8NOV23-32000-P decodes as follows: BTC-USDT indicates Bitcoin quoted in USDT; 8NOV23 is the expiration date (November 8, 2023); 32000 is the strike price in dollars; P indicates a put option.

How Call and Put Options Work

Understanding how call and put options operate is crucial for successful trading. Let’s analyze their logic separately.

In call option trading, participants take opposite positions. The buyer expects the asset’s price to rise above the strike price, enabling profit. The seller expects the price to stay below the strike or not rise enough to justify the increase.

For the call buyer: the maximum profit is theoretically unlimited (the higher the price, the higher the profit), and the maximum loss is limited to the premium paid. For the seller: the maximum profit is limited to the premium received, while potential losses are unlimited.

At expiration, the scenario depends on the relationship between the strike price and the market price. If the market price exceeds the strike, the buyer exercises the option and profits; the seller must sell at the strike price. If the market price is below the strike, the option expires worthless for the buyer, and the seller keeps the premium.

Put options work in the opposite way. The buyer profits if the asset’s price falls below the strike price. The maximum profit is limited to the difference between the strike and the premium paid, while the maximum loss is the premium. The seller expects the price to stay above the strike, with profit limited to the premium, but potential losses can be significant.

If, at expiration, the market price is below the strike, the put buyer exercises the right to sell at a favorable price and gains profit. The seller must buy at the set price. If the market price is above the strike, the put expires worthless, and the buyer only loses the premium.

Types of Orders in Options Trading

Options trading involves four basic order types: buy call, sell call, buy put, and sell put. Each is used depending on the trader’s forecast and strategy.

Practical Example 1: Trading a Call Option

Suppose in early November 2023, Bitcoin trades around $35,000. Anna is bullish (expects growth), while Ivan is bearish. They enter into the following options contract:

• Type: Call
• Strike Price: $37,000
• Expiration: November 31, 2023
• Underlying: BTC

Anna buys a call for $1,000, giving her the right to buy 1 BTC at $37,000 at expiration. Ivan is the seller, receiving the $1,000 premium.

Scenario 1: Bitcoin price reaches $40,000 by November 31.

• Anna (buyer): exercises the call, profit = $40,000 − $37,000 = $3,000. After subtracting premium: $2,000 net profit.
• Ivan (seller): must sell BTC at $37,000, while market price is $40,000, incurring a loss of $3,000. After premium, net loss: $2,000.

Scenario 2: Price drops to $34,000.

• Anna: the call is not profitable to exercise; she loses only the premium of $1,000.
• Ivan: the option expires worthless; he keeps the premium as profit.

Practical Example 2: Trading a Put Option

In early December 2023, BTC trades around $38,000. Ivan expects a decline, Anna expects further growth. They enter into a put contract:

• Type: Put
• Strike Price: $37,000
• Expiration: December 31, 2023
• Underlying: BTC

Ivan buys a put for $800, giving the right to sell 1 BTC at $37,000. Anna sells the put and receives $800 premium.

Scenario 1: BTC drops to $35,000.

• Ivan (buyer): exercises the put, selling BTC at $37,000 while market price is $35,000, profit = $2,000 minus premium = $1,200 net.
• Anna (seller): must buy BTC at $37,000, while market is $35,000, incurring a loss of $2,000 minus premium = $1,200.

Scenario 2: BTC rises to $39,000.

• Ivan: the put expires worthless; loss limited to premium $800.
• Anna: keeps the premium as profit.

These examples illustrate the core logic: buyers have rights, pay premiums, and face limited losses; sellers accept obligations and potential unlimited losses but receive premiums. On Bybit, options enable each trader to choose roles aligned with their market outlook and risk appetite.