0DTEs: Stocks vs Crypto options

"Options provide the cheapest access to leverage."

After almost two years of down-only price action, the skies are clearing and the bulls are charging through the streets. Crypto options are so back.

Since the last bull-cycle, 0 Days to Expiration (0DTE) options have rocketed in popularity.

This blog will examine the differences between cryptocurrency options and those in traditional finance, through the lens of 0DTEs.

Crypto Options vs TradFi; a high-level comparison of 0DTEs.

Why is option pricing in Crypto so different to Tradfi?

"Volatility, leverage, and dynamic costs are the perfect storm for 0DTEs."

Unpredictable volatility

Both traditional finance (TradFi) and cryptocurrency markets experience significant volatility, making options attractive for their payoff structures. In TradFi, events like economic reports influence volatility, while the inherently volatile crypto market results in options with high implied volatility (IV) and theta, affecting premiums.

More leverage

When it comes to leverage, TradFi faces regulatory caps that limit potential gains, typically offering 25-100x leverage, whereas crypto markets, known for higher leverage, can offer 100x for 0DTE on at-the-money options, increasing both potential returns and risks.

Onchain costs

TradFi trading costs are more predictable but can accumulate, especially for active traders. Crypto trading costs vary with network congestion and exchange fees, with option costs influenced by underlying asset volatility.

How is market timing different between Crypto and Tradfi?

"Users want an instrument that reacts instantly and settles rapidly."

Crypto is 24/7

TradFi operates within set trading hours, restricting real-time global event reactions and increasing the reliance on options for hedging. Conversely, the crypto market's 24/7 nature enables immediate responses to market changes at any time.

Tradfi events are predictable

In TradFi, scheduled events like earnings reports and economic releases allow for advanced trading preparation. Crypto, lacking structured events like earnings reports, relies on developments like network upgrades and regulatory news, requiring swift trader reactions.

Crypto markets fluctuate more

TradFi's comparatively slower pace allows more time for market analysis and response. Crypto's rapid market movements demand quick decision-making and constant vigilance from traders.

Crypto markets settle faster

The funding and settlement processes in TradFi can be slow due to banking constraints. Crypto's use of blockchain enables almost instant funding and trading, facilitating rapid capital deployment.

How does market access effect Crypto vs Tradfi?

"Tired of gated access, users are researching independently and trading globally."

Global vs. Region Specific

TradFi options are often region-specific, with some international exposure through multinational corporations. Crypto's global nature introduces more variables but also a wider range of trading opportunities.

Crypto offers more edge

TradFi benefits from centralized, regulated information channels, offering structured and reliable news. Crypto's decentralized information landscape presents more opportunities to gain an "edge" but requires diligence in verifying news credibility.

Mature vs Fresh markets

TradFi markets are mature with established patterns, offering stability but lower growth potential. The evolving crypto market presents significant growth opportunities alongside higher risks.

So, how does this translate to 0DTEs?

We think crypto options come out on top for retail; buyers and sellers.

For buyers, unlike traditional markets where options often need to be purchased towards the market's close, the non-stop nature of crypto allows traders to engage at any time, reducing end-of-day volatility—a factor preferred by many in crypto. This convenience, coupled with the "free edge" any retail user can derive from their own research solidifies their choice for 0DTEs.

For sellers, the historical volatility in the crypto markets leads to increased prices for 0DTE options. This vol attracts many who profit from time decay (theta). In traditional finance these retail traders are known as "ThetaGang" and this behavior is beginning to emerge in crypto markets.

Considering the potential for wealth generation through options, crypto 0DTEs continue to grow as a more favorable arena for buyers and sellers. We are at the precipice one of the greatest shifts in financial freedom not seen in decades and users are leading the charge with crypto 0DTEs.

The storm provides ⚡ ⛈️ 🌪️