CRYPTO DERIVATIVES: PERPS, FUTURES, OPTIONS
Plain English
Derivatives let you trade crypto without owning it. Perpetual futures (perps) are the most popular — leveraged contracts with no expiry, settled via funding payments. Options and dated futures round out the toolkit.
Going deeper
Perps trade on Binance, Bybit, and dYdX with up to 100x leverage. They use a funding mechanism to keep the perp price tethered to spot: if perp > spot, longs pay shorts every 8 hours, and vice versa. Dated futures (CME, Deribit) settle on a fixed date and trade in contango or backwardation depending on sentiment. Crypto options on Deribit are European-style and cash-settled in BTC or ETH; IV is typically much higher than equity options (60-120% vs 15-25%). Each instrument has unique risks — perps carry liquidation risk, options carry decay, futures carry rollover and basis risk.
Examples
Funding flip warning
When perp funding turns deeply negative (-0.1%+ per 8h), it signals over-leveraged shorts. Short squeezes typically follow within days.
Options for hedging spot
You hold 5 BTC at $60k. Buy 5 puts at $55k strike for $2k each. Total cost $10k = 3.3% insurance against a crash below $55k for 30 days.