Crypto Options Conventions and Inverse Contracts

A trader used to equity options who opens a Bitcoin options screen for the first time will notice something is off almost immediately: prices are quoted in Bitcoin, not dollars, and a losing position can eat into your Bitcoin balance in a way that has nothing to do with how many dollars Bitcoin is worth that day. Crypto derivatives markets grew up around a handful of quoting and settlement conventions that differ from traditional options in ways that matter for anyone actually trading them.

Quoting and settling in coin terms

The dominant crypto options venues quote option premiums in the underlying coin (e.g., in BTC) rather than in dollars, and many contracts cash-settle in the coin as well. A call option premium of "0.02 BTC" is worth a different number of dollars depending on where Bitcoin is trading — the option's dollar value moves for two reasons at once, the option's own Greeks and the coin's dollar price, which is a layer of complexity a dollar-denominated equity option doesn't have.

Inverse contracts

Many crypto futures and perpetual swaps are structured as inverse contracts: margin is posted in the coin, and profit and loss are also settled in the coin, even though the contract's price is quoted in dollars. Concretely, an inverse BTC perpetual contract pays out a fixed dollar notional per contract, but that payout is converted into BTC at settlement — meaning a trader who is long and profitable in dollar terms during a period when Bitcoin's price is falling can still end up with fewer coins than expected, because the payout formula divides by the (now lower) dollar price. This is the opposite of a standard "linear" contract, where margin and PnL are posted in a stable currency like a dollar-pegged stablecoin, and it means a trader's coin-denominated PnL and dollar-denominated PnL can genuinely diverge, not just scale together.

Why the distinction matters

A trader hedging a coin-denominated liability (say, a miner who is naturally long BTC and wants downside protection) may actually prefer an inverse contract, since its payout structure mirrors their coin-based exposure. A trader who thinks purely in dollar P&L, by contrast, can be caught off guard by an inverse contract's convexity — the way its coin-denominated payout curves relative to price is not a straight line, unlike a standard linear future.