The world’s leading cryptocurrency exchange Binance has launched a “European-style” Vanilla Bitcoin Options contracts priced and settled in Tether (USDT) aimed at institutional and advanced investors.
The Malta-based cryptocurrency exchange announced the latest addition to its portfolio of digital asset products in a press release shared with CryptoPotato.
The announcement reads that Binance has completed a testnet trial of the new BTC options contracts in November 2020 after gathering public feedback to optimize the margin and improve the risk control mechanisms.
The new European-style Vanilla Bitcoin Options contract on Binance will be priced and settled in USDT.
Options are a class of derivatives contracts typically employed in traditional finance to hedge against large price fluctuations. However, they can also be used for speculation, especially within the cryptocurrency field.
There are two basic types of options contracts. Call options enable the contract holders the right, not the obligation, to buy the underlying asset, while the put options confer the right to sell. This is the most significant difference with futures contracts, which oblige the holder and the issuer to fulfill the contract.
European-style options can be executed by the holder at the predetermined date of the contract (expiration date). The term “vanilla” refers to how the contract arrangement is typically simpler, contrasting with more “exotic” products.
On the other hand, American-style options can be executed at any time before the expiration date. As reported in April, Binance already launched American-style Bitcoin options on its futures trading platform.
Speaking on the launch of the new product, Binance’s CEO Changpeng Zhao (CZ) attributed the need for such innovative products to the latest developments within the cryptocurrency field. More specifically, he outlined bitcoin’s significant rally that resulted in almost tripling its value since October 2020.
“Bitcoin’s new high of crossing $28,000 underscores the research and hard work invested into the ecosystem, which enabled this current rally. The crypto industry’s growth is in good part attributable to a combination of factors, including wider public education and institutional interest, innovations in DeFi protocols and smart contracts, and development of a robust derivatives market.”