How Can a Crypto Option Be Used for Downside Protection?
A crypto option can be used for downside protection by purchasing a put option. Buying a put option gives the holder the right to sell the underlying crypto at a specified strike price.
If the market price falls below the strike price, the put option gains value, offsetting the loss on the physical crypto holding. This strategy sets a floor price for the asset.
Glossar
Downside Protection
Mitigation ⎊ Downside protection, within cryptocurrency and derivative markets, represents strategies designed to limit potential losses stemming from adverse price movements.
Protection
Countermeasure ⎊ Hedging strategies, such as purchasing protective puts or employing delta-neutral structures, serve as direct countermeasures against adverse price movements in crypto derivatives.