How Do Transaction Costs Affect the Frequency of Rolling a Hedge?
High transaction costs, including commissions and bid-ask spread slippage, discourage frequent rolling. Each roll incurs costs, which can quickly erode the benefits of the hedge.
Therefore, hedgers often prefer to use longer-dated options or roll less frequently to minimize the cumulative impact of these costs.
Glossar
Transaction Costs
Expense ⎊ Transaction costs represent the total expenses incurred when executing a trade or interacting with a financial protocol on a blockchain.
Frequency of Rolling
Roll Cadence ⎊ Frequency of rolling, within cryptocurrency derivatives, denotes the periodic adjustment of an expiring contract to a further-dated one, maintaining continuous exposure.
Transaction Costs in Crypto
Friction ⎊ Transaction costs in crypto represent impediments to seamless capital allocation, encompassing fees, slippage, and opportunity costs inherent in executing trades or deploying capital within decentralized finance (DeFi) ecosystems.