Options trading part 6: practice bonus

This article will be more of a practical article about how we make an options trade decision.

This one will be a little more difficult if you have read the previous articles. This article is more of a bonus article that goes into further detail. If this article gets too complicated, you are not required to read it. It is only a bonus.

We will try to figure out our PNL for options without an option contract simulator and use our head or our own calculator instead.

Everything in this article will be more abstract compared to the previous articles. That is one of the most boring articles I have written since it’s not fun to spend your day calculating the PNL of an option contract in your head.

It is not the most enjoyable subject to study and attempt to comprehend. Unless you are maybe FTX Sam, you would consider spending the whole day assessing risk to be enjoyable.

I also spent less effort in this article to break everything down, and I assume that most readers will stop reading at some point.

Also, some actual options traders will see some mistakes I’ve made. I didn’t let anyone do some proofreading.

This wasn’t the most exciting article to write and it won’t be the most exciting article to read for the reader.


You have learned in school, on television, or YouTube how to visualize atoms, protons, neutrons, electrons, etc.

This model is entirely inaccurate, yet we use it because it helps us visualize the specifics of these abstract subjects.

Consider everything in this article to be an oversimplification to assist you with more advanced reading about options trading

We examine the options chain to see if a suitable risk-to-reward trading opportunity exists. We analyze the market to see whether an options trade makes sense and what type of gains or losses are possible under certain circumstances.

Let’s pretend we are bullish on bitcoin. (we pretend for this article, okay)

Suppose that we are optimistic about bitcoin is buy an “at the money” call option contract, but the issue is what strike would we select and which expiry.

Prepare yourself for boring, I won’t even include more anime pictures in this article to make it more fun, because it’s hard to make this fun.

Let’s select June 24 as the maturity date.

This “at the money” call option with a “strike price” of 21000 costs $1154.70, which is nearly a 5.6% premium

since bitcoin is trading at $20630


Let’s look for the same “strike price,” 21000, with July 1 as maturity.

That call option costs us $1535

The price increase between the call option contract of June 24 and July first with a “strike price” of 2100 on June 24 and July 1 is a 32.93%


Therefore, let’s stay with short-term option contracts since we don’t want to pay an excessive amount of premium.

But what are the advantages and disadvantages of adopting various “strike prices”?

As delta decreases, so does the premium.

Checking the premium of the option contract for strikes with higher strike prices on the upside reveals that it is much cheaper.

The call option with a “strike price” of 23000 costs us $402 compared to the call option with a “strike price” of 21000, which costs $1154.70

(if we market buy instead of using a limit order)

That seems somewhat more feasible, at least in the amount of money we must spend.

But how much does bitcoin need to increase to get to 23000? Since bitcoin is trading at $20630, it needs to rally by $2370 within 7 days

23000 - 20630 = 2370

Which is an increase of 11.48%

For bitcoin, that might be doable, but for the higher upside strikes, which are more “out of the money,” the less probability there is.

The other thing we need to assess is the delta of the option contract.

The call option contract with a “strike price” of 23000 has a “delta” of 0.23 compared to the call option contract with a “strike price” of 21000, which has a delta of 0.49

Remember that the delta informs us about this. When the market rises, the option contract does not increase by one dollar or 50 cents for every dollar that bitcoin rises. It’s increasing by $0.023 per dollar.

How does the option contract participate in the price movement of the underlying (i.e., spot)?

Let’s suppose we like buying the upside calls in bitcoin expiring on June 24, which expires within 7 days with a strike price of 23000 and a delta of 0.23 for a cost of $486

Now let's look at the outcomes and figure out how much money we will make or lose.

Let’s pretend there are 3 outcomes.

Remember, the price of bitcoin while writing this article is $20630

  • outcome 1: bitcoin price falls by 17%
  • outcome 2: bitcoin price moves by 0%
  • outcome 3: bitcoin price increases by 17%

Delta PNL

Let’s refresh our memory again from part 2 of this options trading article series

The Greek option “delta Δ” is “directional risk.” The symbol to denote “Delta” is “Δ.”

Every options contract has a delta

between 0 and 1

or 0 and -1

If our call option contract has a delta of 0.5 Δ,

our call option contract will gain a $0.50 increase in value for every $1 that the underlying moves up.

The option greek “delta Δ” measures the change in the price of an option contract relative to the change in the asset’s spot price. The symbol to denote “delta” is “Δ.”

Assuming there is no market movement, the delta of the call option will be zero. Thus, the “delta” PNL of our call option will similarly be 0 or $0

Current bitcoin price: $20630

An increase in the price of bitcoin by 17% is $24137.1

The difference between $20630 and $24137.1

= $3507.1


Current price of bitcoin: $20630Call option expires June 24 (within 7 days)Strike price: $23000
delta: 0.24 Δ
theta: -62
premium: $486
Vega: 10.41

To calculate our delta PNL for our call option contract, we multiply the delta of 0.24 by the absolute price change, which is $3507.1

delta * change in price
0.24 * 3507.1 = $841.704

A decrease in the price of bitcoin by 17% is $17122.9

The difference between $20630 and $17122.9

= $3508

delta * absolute change in price = delta PNL
0.24 * -3508 = −$841.92

Our call option delta PNL will be −$841.92 but that makes no sense since we can’t lose more than we spent on the premium, which would make our maximum loss be $486

So we are missing something, our “delta” PNL should include the gamma PNL because the “delta” isn’t going to be constant if the underlying moves.


As the underlying moves, the delta moves because of Gamma.

Therefore, we must determine how much the delta will change when the underlying price fluctuates by $5792.9$3508

strike price - current btc price (underlying)
$23000 - $20630 = 2370

Now we need to look at a strike price that is $2370 lower

$23000 (strike price) - 2370 = $20630

Let’s look at what the delta is of a call option with a “strike price” of $20630

Well, the closest we get is $21000 as strike price with a delta of 0.48, which comes close to “at the money.”

(Normally, it would be 0.5, but since bitcoin prices keep changing in real-time, I can’t calculate it exactly since after every new screenshot since the price of bitcoin and options keeps changes)

So now we know if we get a $24137.1 move in the underlying if we include the change in the delta, which is the gamma of our call option contract.

So if the price moves in our favor, the delta would go up from 0.24Δ to 0.48Δ, and we can get the average.

(0.24 + 0.48) / 2 = 0.36 Δ

Remember the change in price from $20630 to $24137.10 is $3507.1

average delta Δ * price move = Gamma PNL 
0.36Δ * 3507.1 = $1262.556

So our gamma PNL is $1262.56

A decrease in the price of bitcoin by 17% is $17122.9

The difference between $20630 and $17122.9

= $3507.10

If the price of bitcoin falls by 17%, that’s the equivalent of moving the “strike price” up by 3507.10

$23000 + 3508 = $26507.10

Let’s look for a strike price close to $26507.10

The closest “strike price” we can find for $26508 is $26000 with a “delta” of 0.06Δ.

So a decline of 17% in price, our delta changes from 0.24Δ to 0.1Δ

Our average delta is

(0.24Δ + 0.06Δ) ÷2 = 0.15Δ

We also need

average delta Δ * difference in move = Gamma PNL 
0.15Δ * −3507.10 = -$596.207

So a 17% down move makes our call option “out of the money” and takes away most of our premium.

We call these “delta” scenarios, and they describe what will occur if the underlying market's price rises or falls, as well as how much we anticipate to gain or lose in each direction.


Now we need to consider “theta” or “time decay.”

Reminder: Theta, commonly known as the “time decay” of an option contract, is our third risk consideration while trading options

An option contract with a “theta” of -0.05 will lose 0.05 in value each day due to time decay and no underlying movement.

Let’s look back at the call option contract.

Current price of bitcoin: $20630Call option expires June 24 (within 7 days)Strike price: $23000
delta: 0.24 Δ
theta: -62
premium: $486
Vega: 10.41

It has a theta of -62, and this is important because a negative theta means we’re losing money every day that passes by.

Now, as time passes, we won’t know if that negative theta will become more negative or less negative.

Remember from the previous options trading articles.

In addition, the time decay accelerates as your option contracts approach “At the money” (ATM)

Our call option's “time decay” will become more negative as we get “at the money.”

The “time decay” will be less negative if we’re “out of the money”.

But for the sake of simplicity, let’s say our “time decay” will stay somewhat the same.

-60 * 7 = −420


To get an idea about how much risk there is, in the “implied volatility”, we need to look at the implied volatility's history.

We can use Deribit DVOL index for this.

That shows us where the implied volatility has been for bitcoin. The blue line represents DVOL (Deribit implied volatility index) which had been drifting down and reached lows around January.

But during the start of April, the implied volatility exploded higher, and the bitcoin price went down.

When we buy an option contract, we buy “vega,” and there’s some risk associated with the “vega.”

The “implied volatility” exploded, and if we blindly buy an option contract and don’t check the “implied volatility,” that can be an expensive mistake.

During the time of writing two days ago, DVOL was about 119; this screenshot is on June 19; however, the “implied volatility” has decreased to 108

.Let’s pretend we don’t know and expect the “implied volatility” to go down from 119 to 106, which is 13 vol points.

Current price of bitcoin: $20630Call option expires June 24 (within 7 days)Strike price: $23000
delta: 0.24 Δ
theta: -62
premium: $486
Vega: 10.41

Our vega exposure is 10.41, and we think we lose 13 vol points if we go up 17%

For the sake of simplicity, let’s not care about the vega if the market goes down since we assume we will lose our premium anyways.

days to expiration - vol points loss
10.41 * -13 = −135.33

We will lose $135 if implied volatility loses 13 vol points.

Now let’s add our Gamma PNL and our Theta and Vega losses together (assuming implied volatility drops as the market rallies higher)

Remember I mentioned that for simplicity, we kept the same theta and didn’t increase the negativity. The time decay should be a bit higher.

Gamma PNL:  $1262.65
Time decay: -$420
Vega loss: -$135.33
Combined: $751.65

Using Deribit simulator

It indicates upon expiration that we gain $728. (slightly off due to no changes in time decay en vega loss estimation as a guess)

By the way, this options trade “sucks” since the probability is so low and the cost of that call option was pretty high.

Why? Implied volatility increased a lot, which makes option contracts expensive to buy. Not only for put options but also for call options.

If you’ve been trading stock options, you probably noticed it’s really tough to buy call options during panic because the VIX spiked up. Making the cost of options pretty expensive. Things can go against you, like wrong direction, implied volatility going down (vega risk), etc.

If that call option cost us $486 and our reward is around $700 while most likely that our call option doesn’t expire “in the money”, you can consider this example is a bad trade but at least you know how to calculate and how things can go against you, like how many vol points you can lose.



Deribit is the largest cryptocurrency exchange for trading options. Deribit has European-style cash-settled options.

Sign up on Deribit and receive 10% discount on fees for trading futures & options: https://www.deribit.com/reg-572.9826

Deribit offers European-style cash-settled options.

If you want to trade bitcoin options, your collateral will consist of BTC. Similarly, your Ethereum collateral will be in ETH and Solana.

Due to the need to hedge your risk, it’s not the best platform for beginning options trading. Remember trading on Bitmex with Bitcoin collateral.

Trading platform: Delta exchange

Another new exchange called “Delta exchange” has options trading for multiple altcoins. You could use these options to hedge your portfolio for altcoins. Here we can see the options chain for Avax.

The fact that your collateral will be stablecoins rather than BTC or ETH is an additional incentive to favor Delta Exchange over Deribit, in addition to the availability of altcoin trading choices.

If you are new to options trading, I recommend Delta Exchange and ByBit over Deribit. After learning how to hedge your collateral on Deribit, you can use Deribit.

If you’re seeking to signup and want a 10% discount

You can use my referral link


They also have a great tool to model your options position.

Delta exchange

It’s a great alternative if you can’t acquire access to Deribit due to your location.

ByBit exchange

ByBit recently offers options trading for bitcoin & ethereum. If you are trading on ByBit, you can use options to hedge with options.

Options trading on ByBit is much easier than on Deribit. That would be simpler for beginners.

Why, you may wonder? When trading on Deribit, your collateral is in BTC, but on ByBit, it’s in USDC.

When new traders join Deribit, they typically forget that their collateral is in BTC, resulting in incorrect hedges and computations.

As some may recall, trading on Bitmex with 1x leverage is equivalent to 2x leverage since your collateral already exposes you to 1x leverage.

ByBit Options (Discount on fees and $100 deposit bonus): https://www.bybit.com/register?affiliate_id=6776&group_id=1653&group_type=1

Final words

Now you can see how each greek can impact our PNL and how changes in the options greeks can severely change the outcome of our PNL.

However, if you could estimate how much “implied volatility” would increase or decrease, you might get a more accurate result than the simulator would show you. That can be your edge.

To be honest, this was one of the most boring articles I wrote for options, and it’s a lot of thinking and correcting mistakes.

I’m sure that I have made several mistakes, like the loss estimation if the price of bitcoin would fall by 17%



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Romano RNR

Derivatives trading, investing, cryptocurrency, stocks, forex, options & volatility - programmer & sysadmin