How Can a Trader Use a Crypto Volatility Index to Hedge Their Portfolio? ▴ Learn

How Can a Trader Use a Crypto Volatility Index to Hedge Their Portfolio?

A trader can use a crypto volatility index (like BVIX) to hedge their portfolio by trading derivatives tied to the index, such as futures or options on the volatility index itself. For example, if a trader holds a large portfolio of Bitcoin and is concerned about a sudden market crash (high volatility), they could buy a call option on the BVIX.

If the market crashes, the BVIX will likely spike, and the profit from the call option can offset the losses in the Bitcoin portfolio, effectively hedging against unexpected price turbulence.

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How Do Market Makers Hedge Their Options Positions?

What Is the Effect of a Large Spike in IV on the Option Writer’s Margin Requirement?

Why Is a High VIX Reading Often Correlated with a Falling Stock Market?