How Can a Synthetic Future Be Used to Hedge a Long Spot Cryptocurrency Position? ▴ Learn

How Can a Synthetic Future Be Used to Hedge a Long Spot Cryptocurrency Position?

A long spot crypto position (e.g. holding Bitcoin) exposes the investor to downside price risk. To hedge this, the investor would create a short synthetic future.

A short synthetic future is achieved by being short a call and long a put at the same strike price. This combination mimics the payoff of a short futures contract, providing a gain if the spot price falls, which offsets the loss on the physical crypto holding.

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