How Can a Pool Operator Hedge against Cryptocurrency Price Volatility Using Derivatives? ⎊ Path

How Can a Pool Operator Hedge against Cryptocurrency Price Volatility Using Derivatives?

The operator can sell futures contracts or buy put options on the mined cryptocurrency. Selling futures locks in a selling price for the future-mined coins, guaranteeing the fiat value of their fee revenue.

Buying put options provides the right to sell at a floor price, protecting against a price drop while retaining upside potential.

How Does the Choice of Strike Price Affect the Trade-off between Premium Income and Upside Potential?

How Can a Pool Operator Use a “Put Option” to Set a Minimum Price for Their Mined Coins?

What Is the Difference between a ‘Short Hedge’ and a ‘Long Hedge’?

How Do Crypto Miners Use “Put Options” as an Alternative Hedging Strategy to Futures?

How Does a Covered Call Differ from a Protective Put Strategy?

How Can an Options Contract Be Used to Hedge against the Risk of a Difficulty Increase?

How Does a Put Option Provide a Similar Hedging Function to a Short Futures Contract?

How Can a Pool Operator Use Derivatives to Hedge against the Risk of a Sudden Drop in Miner Participation?

Glossar

Straddle Options Strategy

Framework ⎊ A straddle options strategy, within the cryptocurrency derivatives space, represents a neutral market expectation ⎊ neither bullish nor bearish ⎊ anticipating significant price movement in an underlying asset, such as Bitcoin or Ethereum, irrespective of the direction.

Pool Operator

Function ⎊ The pool operator is the centralized entity responsible for coordinating the collective computational power of individual miners within a mining pool to increase the probability of discovering a block.