Bittime - In-the-money and out-of-the-money are options trading mechanisms that allow investors to benefit from additional tools for working with the market. Let's look at the complete explanation below.
What is In-the-money and out-of-the-money?
In traditional investing in the stock market, options trading is one of the most frequently used tools that allows traders to bet on positions related to the price of a stock. With the rise of cryptocurrencies, many exchanges have also started trading options for tokens.
In-the-money (ITM) and out-of-the-money (OTM) are terms used to describe the type of position a trader takes in relation to the current price of an asset or cryptocurrency.
Options trading allows investors to bet on the future price of an asset and consequently take profits if their predictions are correct.
The ITM options trading mechanism is used when an investor bets his money on a price that the asset has exceeded.
This type of options trading is usually used when a trader wants to hedge his funds against a position.
One of the main benefits of trading ITM options is that they have time value and intrinsic value.
This means that ITM options typically experience smaller price fluctuations, making them a less risky investment. There are several trading tools that allow investors to place ITM options such as puts and calls.
OTM options trading is relatively similar to ITM trading, but investors bet on prices that the asset or token has not yet reached.
In this case, the OTM investment only has time value, because the asset has not yet reached the investor's chosen price.
Given the lack of intrinsic value, OTM options are usually cheaper than ITM options. OTM options are generally the preferred choice of investors who have good reason to believe that the price of an asset will increase in the future.
Options trading is becoming an increasingly sought-after opportunity for cryptocurrency traders. Given the highly volatile nature of crypto projects and large price fluctuations, options trading can be very profitable.
Cryptocurrencies such as Bitcoin and Ethereum experience significant volatility, making them perfect assets for options trading.
Although cryptocurrency trading is very different from trading on the traditional stock market, some trading principles and tools apply to both markets.
ITM and OTM are the two most important mechanisms in the world of trading, and this is why they are also introduced in cryptocurrency trading.
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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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