How Do Transaction Costs and Execution Fees Affect the Profitability of an Option Trading Strategy?

Transaction costs and execution fees (commissions, exchange fees, gas fees in DeFi) directly reduce the net profit of any trading strategy. For high-frequency strategies or those requiring frequent rebalancing, such as dynamic delta hedging, these costs can accumulate rapidly and make an otherwise profitable strategy unviable.

Traders must factor these costs into their pricing models and execution decisions to ensure a positive expected return.