How to Trade Ethereum Options: Complete Guide to ETH Derivatives

Understanding how to trade Ethereum options can be tricky given the complexity of the instrument. The total trading volume of the cryptocurrency market hit $2.78T in 2024, and derivatives (futures and options) accounted for about 72.7%.

Clearly, there’s a huge demand for crypto derivatives. However, only a few traders know how to effectively trade $ETH options to churn out consistent profits.

In this article, we’ll take a deep dive into Ethereum option trading—what they’re about, the platforms you can use, and some effective options trading strategies you can take live today.

We’ll also shed light on some common options trading mistakes to avoid and how you can be a more disciplined trader.

What Are Ethereum Options?

Options are financial instruments that give you the right (not obligation) to buy or sell an underlying asset at a specified price on or before a specified date.

Note that options fall under ‘complex Instruments’ under the EU MiFID II rules. This means that:

• They’re risky instruments with non-linear returns
• Involve margins and leverages, and can result in higher losses than initial investments.

The rules also mandate ‘appropriateness client tests’ before allowing anyone to trade in these instruments, along with adequate risk disclosures.

Even in the US, options are ‘complex instruments’ under FINRA Regulatory Notice 12‑03. The exchange platforms offering option trading must comply with several regulatory requirements.

This includes collecting customer information (i.e., financial status, investment objectives, employment status, and risk tolerance). Based on this assessment, the traders are classified on a level between 1 and 5 – the higher the level, the riskier the trade you can execute.

This is done to prevent retail investors from the pitfalls of options trading. While options trading is lucrative due to its low capital requirement, over 70% lose money when trading with margins.

$ETH Options Trading — A Working Example

Let’s say $ETH is trading around $2.8K, and let’s say you expect the price to go up. You can buy a call option with a strike price of $3K, which expires 30 days from now. This means that you have the right to buy Ethereum at $3K within the specified 30 days.

But let’s say Ethereum’s price reaches $3.2K within this time. In this case, you can still buy it for just $3K, making a profit of $200. To buy this call option, you’ll have to pay an upfront premium of, say, $100.

However, if Ethereum stays at $2.8K, you obviously wouldn’t want to exercise the right to buy it at $3K, and the option will expire worthless. You’ll end up losing the premium amount, i.e., $100.

In this example, you’re actually exercising the option to buy $ETH, which makes it a physical delivery contract. However, in real life, most options are cash-settled instruments. This means that you don’t need to buy or sell actual $ETH on contract expiry.

Instead, the difference in the value of the option premium is settled as profit or loss. For example, you paid $100 as a premium when Ethereum’s price was $2.8K for a strike price of $3K. As Ethereum’s price increases, the value of this premium will also increase.

Let’s say Ethereum rises to $3K, and the option premium rises to $135. Now you can sell this option contract itself and make a profit of $35 instead of actually buying physical $ETH.

This is how most of the actual option trading occurs – by trading in option premiums. This is also why options trading is a low-cost, high-risk trading strategy.

If you’re new to crypto options, the mechanics can be overwhelming. In that case, you can choose a simple platform like Coinfutures.io, where you only have to predict the short-term price movement of $ETH (long or short) and cash in profits when the market moves in your direction.

How Do Ethereum Options Contracts Work?

So far, we’ve discussed only one aspect of option trading – buying a call or put option. However, you can also sell a call or put option depending on your market expectations.

Let’s say you expect Ethereum to reach $3k by the end of 30 days from its current price level of $2,800. In this case, you can sell a put option instead of buying a call option. If Ethereum’s price increases, the premium of the put option will decrease, making you profit.

Let’s say you receive a $100 premium today by selling a put option, and when it reaches $3k, the premium drops to $20. This way, you make a profit of $80.

However, unlike when you’re buying an option, the losses can be unlimited when you’re selling an option. If the Ethereum price drops and reaches $2.6k, the price of your put will increase – let’s say the premium reaches $200. In which case, you’ll make a loss of $100.

A key thing to note here is that there’s no upper cap as to what the premium price can be. If $ETH experiences a significant drop and reaches $2k, the put’s premium may swell multifold and may reach $600 or $700, resulting in a significant loss.

However, you had only deposited $100 in your account and sold that put option, but your losses now exceed $500. So, to cover these losses, the broker will require you to maintain an initial margin when you’re selling the option.

Mark-to-Market Mechanism

Option instruments are settled on the day of their expiry. However, exchanges follow a daily settlement procedure known as the mark-to-market mechanism.

Under this, the profits or losses at the end of each day are credited or debited to your trading account to protect you from sudden price volatility and fluctuations. This means you’ll need to keep extra funds in your account to cover daily losses while selling an option.

For instance, if you’ve sold a put option with a premium of $100, which increases to $110 at the end of the first day, $10 ($100-90) will be debited from your account on the same day. If the premium reaches $90 the next day, a total of $20 ($110-90) will be credited to your account.

What are the Fees Involved With Trading Ethereum Contracts?

Here are some costs associated with $ETH options trading:

Spreads – The difference between the price the buyer wants to pay (bid price) and what the seller asks for (ask price).

Commissions – This is the fee charged by the broker. The commission may be fixed per option lot or charged as a percentage of the trade value, usually between 0.01% and 0.60%.

Withdrawal and deposit – Some brokers charge a withdrawal and deposit fee. Deposits are usually free, besides the network fee you’ll pay if you’re using crypto. Withdrawal fees may range between $2-$20, depending on the amount and mode of transfer, including network fees, if any.

Inactivity – If you haven’t traded with a broker for a set period of time (6-12 months), you’ll be charged an inactivity fee. This could range between $10-$20 for every six months (or 1 year).

Spot vs. Futures vs. Options: Which Ethereum Trading Method Suits You?

If you want to trade Ethereum, you’ve got three options: 1) spot trading, 2) futures trading, and 3) options trading.

1. Spot Trading – Under this, you buy $ETH through your crypto wallet. If $ETH’s price is $2,800, you’ll have to actually pay $2.8k (plus gas fees) to buy an $ETH. You own the asset and can use it to stake or interact with DeFi apps.

However, this is a capital-intensive method, and you won’t be able to short $ETH if you expect prices to go down.

2. Futures trading – A future is a derivative instrument that derives its value from the underlying asset (in this case, $ETH), with the prices moving almost proportionately with the asset.

Plus, you won’t have to invest the entire $2,800 to buy an $ETH, since you can use leverage to do so. For example, if you’re using a 10x leverage, you can buy 1 $ETH for $280.

A futures contract may expire on a future date or may be perpetual (without an expiry). Beyond this, futures do not require as much capital as spot trading. That said, you don’t own the asset and can only make a loss or profit from its price movements.

Coinfutures.io is a platform that simplifies futures trading for you by mimicking real crypto volatility; crypto futures deliver a high-speed experience.

3. Options trading – Here, you can buy or sell a call or put option, depending on your future price expectation on a given expiry date.

Unlike futures, an option contract cannot be perpetual and has a fixed expiry date. This is the least capital-requiring instrument, as you only pay a premium for the option.

If the asset doesn’t hit the strike price of the option on or before the expiry date, the option will expire worthless and you’ll lose the premium paid. You do not own the asset here.

How to Choose an Ethereum Options Trading Platform

Wondering how you can choose the best crypto exchanges for Ethereum options trading? Here are a few factors you should look into while making a decision. We used these same factors to finalize our list of the best $ETH option platforms, ensuring you can trust our reviews and recommendations.

Where to Trade Ethereum Options? Best Platforms Compared

Confused as to where you can trade these Ethereum options? Here are some of the best $ETH option trading platforms:

Editor’s Choice — ByBit

ByBit is our top pick for the best Ethereum option trading exchange. It offers USDT and USDC options for $ETH, $BTC, and $SOL, along with futures contracts for 200+ cryptocurrencies. This allows you to build complex strategies with these instruments and hedge your position on a single platform.

Plus, we love the advanced trading tools ByBit offers, such as its TradeGPT, which gives you AI-based crypto analysis for better decision-making. And you can choose from several trading bots to automate your strategy or build a custom one based on your needs.

The fees on the platform are also quite low – 0.0200% for makers and 0.0300% for takers. It’s a very strong option for traders, but whether you choose ByBit will depend on your specific needs.

Other platforms, like Kucoin, are ideal for beginners as you only have to decide if $ETH will go up or down, and it’ll automatically suggest the best options to buy. OKX is a go-to for pro traders looking to save on trading costs, as it only charges a 0.01% maker fee – one of the lowest in the industry.

If you’re new, you can also choose Coinfutures.io, where you only need to choose if ETH is going to go up or down, without worrying about instrument technicalities.

How to Trade Ethereum Options: Step-by-Step Guide

We’ll now see how you can go about executing your first $ETH options in a detailed step-by-step guide.

Step 1 – Select an Exchange

The first thing you’ll need to do is choose an exchange for options trading. We’ve chosen ByBit since it offers different options and futures contracts to diversify your strategy and risk.

Plus, there are a lot of trading tools on the platform that help you simplify market research and automate your trading approach.

Step 2 – Create an Account

Next, you’ll need to create an account on the exchange – ByBit only requires your email ID to do so. Once you enter this, Bybit will send a confirmation code to your email. Enter that code and choose a password for your account. You’re done – your account is now ready for trading.

Step 3 – Navigate to the $ETH Options Section

Once you’re all set up, head to the $ETHUSDT options section on ByBit. You’ll find it in the ‘Trade’ section on the bar at the top. Click on it and choose ‘Options’ > ‘ETHUSDT-Options’.

Step 4 – Choose Strike Price

You’ll now see the option chain – a table containing all the details about various $ETH options at various strike prices.

You can view all the option greeks, premiums, ask and bid prices, and volume in a single dashboard-like view. Once you’ve done your analysis, choose the strike price you want to trade in.

Step 5 – Review and Confirm Your Order

Once done, enter the quantity of the $ETH option you want to buy – it can be as low as 0.1ETH. Review your order and click ‘Buy’.

You’ll then see a confirmation window with a summary of your order along with the option greeks. Confirm the transaction to execute the trade.

Step 6 – Manage and Exit Your Trade

You can then view your trade and the running profits or losses at any time. You can set up an automatic stop loss or target, or manually exit your trade as per your strategy.

Note that you’d be required to complete your KYC verification before you can place an options trade on ByBit. Since options are ‘complex instruments’ under FINRA rules, this is an essential regulatory step to mitigate high retail losses.

Options Trading Risk Mitigation Techniques and Tips

Option trading is an inherently risky business that calls for meticulous and disciplined risk management practices. Here are a few tips to help you manage your risk better.

Position Sizing and Capital Allocation

You shouldn’t allocate more than 1% to 2% of your total capital in a single trade. So if your capital is $10,000, you shouldn’t buy $ETH options worth more than $200 at one given time. Experienced traders may push this up to 5% of their capital.

Keep Margin Below 50% of Available Funds

If you’re selling options, don’t use over 50% of your account size as initial margin. This means that if you have a $10k account, you shouldn’t sell $ETH options that require over $5k of margin.

Since crypto is a volatile instrument, a sharp movement can lead to account liquidation if you’re over-leveraged.

Stop-Losses and Exit Strategies

You need to place strict stop losses for your trade, which is the price at which you’ll exit your trade in case of losses. You can use instruments like support and resistance levels or moving averages to set your stop losses. This prevents you from facing excessive loss in a single trade.

Diversification

It’s vital to mitigate and minimize risk through diversification. You should employ various trading strategies, such as:

• Swing trades — Where you hold the trades for more than 1 day
• Scalping — Quick profits through small price movements.

Plus, don’t only trade in cryptos, as all crypto assets have a positive correlation. Instead, choose other segments such as commodities and forex to diversify your risk.

Monitoring Option Greeks

Option premiums aren’t just determined by the underlying asset’s price (in this case, ETH). Option greeks play a crucial role in option pricing. Monitor these regularly to better manage your trade:

• Theta — Time-based price decay, and
• Delta — The percentage of change in premium compared to the change in price of the underlying asset

Psychological Discipline

It’s also important to be psychologically disciplined in your trading approach:

1. Avoid sentimental and random intuition-based trades.
2. Stick to your trading strategy even if it results in losses in the short term.
3. Follow strict stop losses and target levels, and don’t try to micromanage your trades.

Popular Options Contract Trading Strategies

Let’s now discuss some options trading strategies you can use while deciding your trade setup.

Directional Strategies

A very simple rule of trading any instrument is to always trade in the direction of the trend. So, if $ETH is in an uptrend, you should usually buy calls or sell puts and vice versa. Moving average is one of the most basic trend indicators.

For example, if the asset’s price is above the 50 or 200 Exponential Moving Average (EMA), the asset is in an uptrend. You can use a crossover of two EMAs, such as the 50 EMA and the 200 EMA, to confirm your entries and exits.

As you can see in the image above, the green box shows that $ETH has started trading above the 50 and 200 EMA, suggesting a bullish shift. Now, you have to wait for a bullish trade confirmation. Soon after, the two EMAs cross over, as shown by the arrow.

This is where you can enter a 1:1 trade, which turns out to be successful in this example.

Breakout Trading

Breakout trading is another simple strategy where you can buy a call or put option when the asset breaches key resistance or support levels.

A support is a price level below which the asset has not traded during a specified period. In the image below, Ethereum’s price hasn’t closed below $2,380 for three weeks, making it a crucial support.

Similarly, resistance is a price level above which the asset has not traded. As you can see, $ETH has not closed above $2,739, making it an important resistance.

Now, you can execute your trade whenever the asset closes above (or below) any of these price bands. In this example, Ethereum has closed above its resistance, giving a bullish breakout. You can either buy a call or sell a put at this level.

Mean Reversion Scalping

This is an anti-trend strategy based on the assumption that the price of an asset cannot stay too far from its mean price for too long. This means that if the price of an asset (ETH, here) has overextended and is trading too far from its average price, it’ll come back to the average.

The ‘average’ can be any short-term indicator, such as 9/15 EMA or Bollinger bands. We’ve used the 15 EMA on the 15-minute chart in our example below. As you can see, in the first green box, $ETH deviates too far from the 15EMA and pulls back to the average in the next 45 minutes.

You can buy a put option or sell a call in this instance. The same happens in the second green box, when $ETH plummets too far from its average. Here, you can buy a call.

Mean reversion is essentially a scalping strategy and is executed on lower time frames, such as 5 or 15 minutes, to profit from volatility. However, this is also a slightly risky strategy and requires experience.

Spreads

Instead of just buying or selling options, you can use a combination of the two to build ‘options spreads’. A ‘spread’ is an options strategy where you buy and sell different options with the aim of minimizing losses.

Two of the most popular spreads are the bull call spread and the bear call spread.

Common Mistakes to Avoid

Here are some common mistakes you should avoid while trading in Ethereum options:

• Don’t over-leverage – A higher leverage trade will give you higher profit, but can also result in magnified losses. Only risk a set percentage of your capital in a single trade.
• Never go all-in on a particular trade – Remember you’re trading, not gambling. Only take trades that fall within your trading system and avoid FOMO trades.
• Set daily loss limits – If you face two or three losses in a day, it’s best to stop and try again tomorrow. Emotional or revenge trading isn’t the best way to recover losses.
• Avoid Correlation blindness – This happens when you diversify and take multiple crypto positions that move simultaneously. For example, if you buy an $ETH call option and a $BTC call option, that’s not diversification as both assets will fall or rise together.

Wrapping Up Our Guide on Ethereum Options Trading

Ethereum options are derivative contracts that let you benefit from the price movement in $ETH without owning the asset.

If you expect $ETH’s price to go up, you can buy a call option; if you expect it to go down, buy a put option. These options expire on a set date, so your expected price movement should happen on or before the expiry.

Trading $ETH options requires less capital than spot or futures trading, as you only pay a premium to buy the option. Plus, you can use a mix of buying and selling options to minimize losses.

ByBit is one of the best exchanges for Ethereum options trading, owing to its advanced trading tools, AI-driven insights, and advanced bots that automate your trading method.

That said, it’s inherently risky — 71-89% of traders lose money trading options. Besides the price of the underlying asset, factors like time-based premium decay can result in huge losses.

Please note that this is not financial advice. Do your own research before putting any money into options trading.

FAQs

1. Can you trade Ethereum options?

Yes. You can trade Ethereum options on exchanges like ByBit and Kucoin. An $ETH options contract lets you benefit from the price movement of Ethereum without owning the asset.

This requires less capital and can result in multifold gains. However, options are risky due to volatility and time-based premium decay.

2. Where can you buy Ethereum options?

Popular exchanges like ByBit and OKX offer $ETH option trading contracts. You’ll need to sign up on any of these platforms, add funds, and buy an option contract to execute your first trade.

3. How to trade Ethereum options?

To start trading Ethereum options, you need to:

1. Create an account on an exchange. We’ve selected ByBit due to its deep liquidity, advanced trading tools, and diversification opportunities.
2. Deposit funds and select the $ETH option you want to buy or sell.
3. Enter the quantity of options and review the trade before confirming it.

You’re done – you can now review your trade for the perfect exit.

4. Is there an Ethereum ETF with options?

Yes, the Securities and Exchange Commission (SEC) on April 9, 2025, approved options trading on Ethereum ETFs. These include:

• BlackRock’s iShares Ethereum Trust (ETHA),
• Bitwise Ethereum ETF (ETHW),
• Grayscale Ethereum Trust (ETHE),
• Grayscale Ethereum Mini Trust (ETH), and
• Fidelity Ethereum Fund (FETH).