Does Basis Risk Increase or Decrease as the Time to Expiration Shortens? ⎊ Path

Does Basis Risk Increase or Decrease as the Time to Expiration Shortens?

Basis risk generally increases as the time to expiration shortens, especially if the hedge is meant to cover a period beyond the option's expiry. This is because the option's delta, or sensitivity to the underlying price, can become volatile near expiry, and the potential for a large price divergence between the option and the underlying asset increases.

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Glossar

Basis Risk

Exposure ⎊ The core of basis risk within cryptocurrency derivatives, particularly options, stems from the imperfect correlation between the price movements of the underlying asset and its derivative contract.

Basis Risk Increase

Derivation ⎊ Basis Risk Increase, within cryptocurrency options and derivatives, signifies an expansion of the differential between the spot price of an underlying asset and the price of its corresponding derivative contract.