Physical Delivery

Understanding Physical Delivery in Cryptocurrency Options Trading

The term Physical Delivery may not sound familiar if you are new to options trading with cryptocurrencies. Yet, it plays a crucial role in this field. So, what exactly is Physical Delivery? It's time to lift the veil of mystery.

Defining Physical Delivery

In the context of cryptocurrency options trading, Physical Delivery refers to the actual transfer of the underlying cryptocurrency asset from the seller to the buyer when the option contract expires. In simple terms, if you have a "call" option and decide to exercise it, you'll receive the actual cryptocurrency, not the cash equivalent.

How Physical Delivery Works

The mechanics of Physical Delivery aren't too complex. Imagine you've purchased a Bitcoin call option, predicting that the price will rise. If you're right, you can exercise your option, and instead of receiving the cash difference, you will receive the actual Bitcoin in your cryptocurrency wallet. This method of settling trades contrasts with cash settlements, where the profit or loss is calculated in cash instead of the actual asset.

The Importance of Physical Delivery

Physical Delivery presents certain advantages. For traders who aim to enlarge their cryptocurrency portfolio, this method can be beneficial because they can acquire cryptocurrencies below market price if their predictions are correct. Furthermore, it allows traders to directly hold the asset, asserting ownership and potential for further monetary gain.

Conclusion

Whether it's the standard call option on Bitcoin or an exotic barrier option on Ethereum, the option to opt for Physical Delivery introduces an additional layer of strategic planning to your cryptocurrency trading. However, as with all trading strategies, it also brings along its share of risk, so it's crucial to have a solid understanding before you dive in.