How Can a Trader Hedge against a Drop in Implied Volatility?
A trader can hedge against a drop in implied volatility (IV) by having a negative Vega position. This is achieved by selling options (short Vega).
Selling options means the position profits when IV falls, offsetting the loss from a long option position that would lose value due to the IV drop.
Glossar
Short Straddle
Strategy ⎊ A short straddle, within cryptocurrency derivatives, represents a neutral options strategy predicated on anticipating minimal price movement in the underlying asset.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Selling Options
Framework ⎊ Selling options within cryptocurrency derivatives represents a strategic framework for generating income or hedging risk, predicated on anticipating price movements.