Major crypto exchange Binance claims to have become the largest options venue in the cryptocurrency market, having hit $295 million in traded volume as of Apr xx.

In an interview with Cointelegraph on April 23, the vice president of Binance Futures, Aaron Gong, said that the platform had overtaken its counterparts by daily traded volume on April 14 — simply i day afterward its official launch.

Gong explained that the contract had been designed to tackle what Binance perceived to be the key drawbacks of existing crypto options products — low liquidity, high premiums and large spread.

An options contract offers traders the chance to purchase either a right to purchase (a "call option") or sell (a "put selection") on a given nugget at a specified "strike toll."

Gong noted that existing crypto options on the market typically offering a wide range of expiration dates and strike prices, including long-term durations that can extend upwards to 100 days and fifty-fifty longer. He said:

"This market structure creates a fragmented liquidity landscape, where contracts that are far out-of-the-coin and furthest away from the expiration date are notoriously illiquid. Every bit such, trading with those contracts may pose challenges to transaction costs and trade execution."

Binance's Bitcoin (BTC)/Tether (USDT) options contracts are designed to offer a shorter fourth dimension-frame, ranging from 10 minutes to one day. Moreover, Binance itself is the primary liquidity provider of the product, meaning that the options take an uncapped supply and users will take quotations at any given time.

Gong said that the contract is a simplified version of traditional options and is catered to retail users specifically, with the aim of lowering barriers to entry for derivatives trading.

The substitution has chosen to offer the American, as opposed to the European, version of options, in which traders can settle the contract at the chosen strike price at whatever fourth dimension before — and including — the expiry date itself.

Gong gave a concrete case of how an options contract works, outlining that:

"If a buyer buys a Binance Call selection with a strike price of $7,000 and a premium of $100, the breakeven price will exist $7,100 - the sum of the strike price and premium. To get out the trade profitably, the underlying asset should motion beyond $vii,100 [...] Conversely, if the underlying asset fails to move beyond the breakeven price at expiry, the choice volition expire worthless."

He noted that, in this instance, if the price of the underlying asset reaches $vii,200, the heir-apparent would pocket a net profit of $100 — a 100% return on investment (ROI). If the price of the underlying asset reaches $7,300, the buyer would have a cyberspace profit of $200, or a 200% ROI.

In the immediate future, Gong added that derivatives like futures and options could prove to be a useful hedging tool, not only for retail and institutional investors but also for miners who are facing intense economic pressure level ahead of the May 2022 Bitcoin halving.