Limited Loss and Infinite Profit
In the wake of procurement of call options, the profit depends on the margin between the present market price and the exercise price. If the exercise price was $10,000 and the BTC price soared to $30,000, the post-execution profit would be $20,000. The profit would be $90,000 if the BTC price rose up to $100,000. The bigger the amount of increase is, the more profit it will be.
Then what if the BTC price declined? The loss of option would not exceed its procurement cost at most. If the procurement cost of the call option at that time were $1,000, the largest loss would be $1,000. The loss would be no more than 1,000 yuan, no matter the BTC price dropped to $5,000 or $100.
In a word, option boasts the advantage of limited loss and infinite profit.
Rapid Growth and Slow Decline
A unique property of option is the asymmetry of the right. For an option buyer, he enjoys the right to execute or not to execute when the option is due. In the case of non-execution, there would be no extra loss, apart from the option procurement cost. So prior to the expiration date, the option price would not be lower than $0, no matter how much the spot price declined. Therefore, option features rapid growth and slow decline, a super investment property. Just like the example mentioned above, the price of option might just a decrease of $500, namely from $1,000 to $500, even if the BTC price plummeted from $10,000 to $9,000.
But if the price of BTC rose from $10,000 to $20,000, the option price would keep the same increase rate with the spot price, with the exercise profit rising from $0 to $10,000. Thus the super investment property of call option: slow decline and rapid growth.
A Super Lever with No Risk of Margin Call
As mentioned earlier, the buyer could enjoy the profit of price increase, after purchasing the call option. Since the option was substantially priced below the market price, the buyer actually won a lever. Just like the previous example, when the BTC was priced at $10,000, the buyer bought one option of BTC with $1,000. He could enjoy the profit increase of one BTC, with only an investment of $1,000. That equaled a lever of 10 times.
All the prior levers in the market, be it capital and currency raising or futures, are faced with the risk of blasting. If you’re in a long position and the price drops till it touches the blasting line, your trading positions will be compulsively closed by the exchange. Without trading positions, you have to suffer deficit, even if the price rose up later.
But there is no such problem as blasting in the field of call option. Prior to the expiration date, the option price will never drop to 0 yuan, no matter how much its market price drops. And the existence of your option contract ensures that your profit will promptly come into being, as long as the price soars up again.
In other words, there is no need to worry about the price fluctuation in the whole process and the occurrence of blasting, as long as you’re sure you’ve invested in the right direction. In the future, people will not lose money any more, as long as they make the right decision about the investment direction.
Option is, in essence, a lever without risk of margin call.