This newsletter is sponsored by PHEMEX, the only exchange that I use to trade crypto with leverage. Sign up with the link above and get some free Bitcoin. I really encourage you to check them out - you know that I never endorse a product that I do not use!Note: I have moved the charts back to the top of the newsletter. I have had a number of complaints about them being at the bottom and gmail truncating the emails. You can always click the link gmail provides to read the entire email.The crypto community is somewhat obsessed with leverage trading, taking huge bets with high leverage on the smallest of moves by Bitcoin and other assets. This begs the question of why derivate contracts exist, what their intended purpose is and how they should properly be utilized.The primary purpose behind derivative contracts is the transfer of risk without the need to trade the underlying asset. This allows for more effective risk management. In addition, the derivatives market plays a role in information discovery and market efficiency. The futures market aids in price discovery. Futures prices can be thought of as a forecast of future spot prices, but in reality, they only provide a little more information than the spot price. However, they do so in an efficient manner. A futures price also provides an indication of what price would be acceptable to avoid uncertainty. This can help to reduce volatility as traders can see the theoretical fair price of an asset in advance and bet accordingly.In the case of options, one of the characteristics of the asset underlying the option is volatility and by using option pricing models, the volatility of the underlying asset can be determined. This is the volatility implied by the price of the option. The level of implied volatility is a good measure of general uncertainty in the market or a measure of fear.There are also some operational advantages to the derivative market:Derivatives have lower transaction costs than transacting in the equivalent underlying asset.Derivatives markets typically have greater liquidity than the underlying market.Derivatives allow short positions to be entered into easily.Markets can be thought of as reasonably efficient. When prices do deviate from fundamental values, the derivatives market offers a low-cost way to exploit the mispricing. Less capital is required, transaction costs are lower, and shorting is made possible.Investors are also far more willing to trade if they know they can manage their risks. This increased willingness to trade increases the number of market participants which increases market liquidity.Why does this matter?Because most retail traders use options and derivatives to speculate with too much leverage on the short term price action of an asset. That is not the intended purpose.Options and derivatives are meant to be used as a risk management tool - a way to hedge against a larger spot position with lower fees, less risk and more flexibility.If I short an asset, I generally make far more money being wrong than being right, because I am shorting against something that I hold a large quantity of in the spot market.Understand the purpose of the products you are trading and use them accordingly.Sadly, there still aren't many great trades that I can find for the newsletter this week. The market is very shaky and most alts are sitting on support, threatening a break down. The minute they look good I will share some trades!Just a reminder to check out thewolfofallstreets.io. I try to “fill the gaps” between newsletter with more information and news on the site.A general note - whenever I draw a line on a chart, it should be viewed as elastic and not static. It is more of a zone. So the areas around those lines are usually more accurate. Further, I try to use multiple techniques and indicators on various charts, so if you are learning TA, you should read through all of these to see how I blindly look at a chart.If you are a new member, please refer to Issue 10 (you can click on it here - https://www.getrevue.co/profile/TheWolfDen/issues/the-wolf-den-crypto-newsletter-issue-10-219754 and have it sent to you) for instructions on how to make my charts your own.IMPORTANT NOTE - I will only accept requests on Wednesdays, between 8 AM and 1 PM EST. That will make sure that they are your most pressing requests. Please mark it in your calendar and email me by responding to this email!What’s In This Issue?Bitcoin Thoughts And AnalysisAltcoinsThe Power Of Dollar Cost AveragingTrading With MACD 101The Keely Motor CompanyA Crypto Bank In The United States!The Bahamas Adopting Digital CurrencyIndia Moves To Ban Crypto Trading (Again)Kiyosaki Predicts Post Vaccine Market CrashPomp Captures PortnoyThe Wolf Of All Streets Podcast Ft. Richard ByworthChart RequestsMy Recommended Platforms And Tools
The Wolf Den #96 - Why Do Options Exist?
The Wolf Den #96 - Why Do Options Exist?
The Wolf Den #96 - Why Do Options Exist?
This newsletter is sponsored by PHEMEX, the only exchange that I use to trade crypto with leverage. Sign up with the link above and get some free Bitcoin. I really encourage you to check them out - you know that I never endorse a product that I do not use!Note: I have moved the charts back to the top of the newsletter. I have had a number of complaints about them being at the bottom and gmail truncating the emails. You can always click the link gmail provides to read the entire email.The crypto community is somewhat obsessed with leverage trading, taking huge bets with high leverage on the smallest of moves by Bitcoin and other assets. This begs the question of why derivate contracts exist, what their intended purpose is and how they should properly be utilized.The primary purpose behind derivative contracts is the transfer of risk without the need to trade the underlying asset. This allows for more effective risk management. In addition, the derivatives market plays a role in information discovery and market efficiency. The futures market aids in price discovery. Futures prices can be thought of as a forecast of future spot prices, but in reality, they only provide a little more information than the spot price. However, they do so in an efficient manner. A futures price also provides an indication of what price would be acceptable to avoid uncertainty. This can help to reduce volatility as traders can see the theoretical fair price of an asset in advance and bet accordingly.In the case of options, one of the characteristics of the asset underlying the option is volatility and by using option pricing models, the volatility of the underlying asset can be determined. This is the volatility implied by the price of the option. The level of implied volatility is a good measure of general uncertainty in the market or a measure of fear.There are also some operational advantages to the derivative market:Derivatives have lower transaction costs than transacting in the equivalent underlying asset.Derivatives markets typically have greater liquidity than the underlying market.Derivatives allow short positions to be entered into easily.Markets can be thought of as reasonably efficient. When prices do deviate from fundamental values, the derivatives market offers a low-cost way to exploit the mispricing. Less capital is required, transaction costs are lower, and shorting is made possible.Investors are also far more willing to trade if they know they can manage their risks. This increased willingness to trade increases the number of market participants which increases market liquidity.Why does this matter?Because most retail traders use options and derivatives to speculate with too much leverage on the short term price action of an asset. That is not the intended purpose.Options and derivatives are meant to be used as a risk management tool - a way to hedge against a larger spot position with lower fees, less risk and more flexibility.If I short an asset, I generally make far more money being wrong than being right, because I am shorting against something that I hold a large quantity of in the spot market.Understand the purpose of the products you are trading and use them accordingly.Sadly, there still aren't many great trades that I can find for the newsletter this week. The market is very shaky and most alts are sitting on support, threatening a break down. The minute they look good I will share some trades!Just a reminder to check out thewolfofallstreets.io. I try to “fill the gaps” between newsletter with more information and news on the site.A general note - whenever I draw a line on a chart, it should be viewed as elastic and not static. It is more of a zone. So the areas around those lines are usually more accurate. Further, I try to use multiple techniques and indicators on various charts, so if you are learning TA, you should read through all of these to see how I blindly look at a chart.If you are a new member, please refer to Issue 10 (you can click on it here - https://www.getrevue.co/profile/TheWolfDen/issues/the-wolf-den-crypto-newsletter-issue-10-219754 and have it sent to you) for instructions on how to make my charts your own.IMPORTANT NOTE - I will only accept requests on Wednesdays, between 8 AM and 1 PM EST. That will make sure that they are your most pressing requests. Please mark it in your calendar and email me by responding to this email!What’s In This Issue?Bitcoin Thoughts And AnalysisAltcoinsThe Power Of Dollar Cost AveragingTrading With MACD 101The Keely Motor CompanyA Crypto Bank In The United States!The Bahamas Adopting Digital CurrencyIndia Moves To Ban Crypto Trading (Again)Kiyosaki Predicts Post Vaccine Market CrashPomp Captures PortnoyThe Wolf Of All Streets Podcast Ft. Richard ByworthChart RequestsMy Recommended Platforms And Tools