How Can Options Be Used to ‘Hedge’ a Cryptocurrency Portfolio?
Options can be used to hedge a cryptocurrency portfolio by employing strategies that limit downside risk. The most common method is buying a put option on the underlying crypto asset.
This grants the right to sell the asset at a predetermined strike price, effectively setting a floor on the portfolio's value, even if the market price falls significantly. The cost of the hedge is the premium paid for the put option.
Glossar
Cryptocurrency Portfolio
Allocation ⎊ A cryptocurrency portfolio represents a diversified collection of digital assets, strategically assembled to achieve specific risk-adjusted return objectives within the broader financial markets.
Buying a Put Option
Strategy ⎊ Acquiring a put option on a cryptocurrency represents a directional trading strategy predicated on anticipating a decline in the underlying asset's price.