Options & Perpetual Swaps

Beyond standard futures, two derivative types dominate crypto trading: options and perpetual swaps. Each serves different purposes and carries unique risk profiles.

Crypto Options

An option gives you the right, but not the obligation, to buy or sell a cryptocurrency at a specific price (the "strike price") before a certain date.

Call Option: The right to BUY at the strike price. You buy calls when you're bullish.

Put Option: The right to SELL at the strike price. You buy puts when you're bearish (or to hedge).

Key terms:

• Premium: The price you pay to buy the option. This is your maximum loss if the option expires worthless.
• Strike price: The price at which you can exercise the option.
• Expiry: The date the option expires.
• In the money (ITM): The option has intrinsic value (profitable to exercise).
• Out of the money (OTM): The option has no intrinsic value (would lose money if exercised).

Perpetual Swaps (Perps)

Perpetual swaps are the most traded crypto derivative. They work like futures but have no expiry date. You can hold a position indefinitely.

The key mechanism that keeps perps close to spot price is the funding rate:

• When funding is positive: Longs pay shorts. This happens when the perp price is above spot (too many bullish traders).
• When funding is negative: Shorts pay longs. This happens when the perp price is below spot (too many bearish traders).
• Funding is typically paid every 8 hours.

Funding rates are a powerful sentiment indicator. Extremely high positive funding often precedes corrections (too much bullish leverage), while negative funding can signal bottoms.

Options vs. Perps: When to Use Each

Feature	Options	Perpetual Swaps
Max loss (buyer)	Limited to premium paid	Can lose entire margin + liquidation
Expiry	Yes	No
Best for	Hedging, defined-risk bets	Short-term trading, leverage
Complexity	High (Greeks, volatility)	Medium