How Does the Concept of ‘Cost of Carry’ Affect the Pricing of Long-Term Crypto Options?
The cost of carry includes the interest rate and any cash flows like staking rewards or dividends. For long-term options, a higher cost of carry (e.g. high stablecoin lending rates) increases the price of call options and decreases the price of put options.
This is because the forward price, which is used in option pricing, is higher due to the cost of carry.
Glossar
Long-Term
Horizon ⎊ Long-term perspectives within cryptocurrency, options trading, and financial derivatives necessitate a valuation framework extending beyond immediate price discovery, incorporating stochastic volatility models and anticipating shifts in regulatory landscapes.
Higher Cost of Carry
Cost ⎊ This term quantifies the net expense associated with holding a leveraged position, encompassing financing rates, funding costs, and the opportunity cost of collateral.
Cost of Carry
Holding ⎊ The cost of carry, within cryptocurrency derivatives and options trading, represents the aggregate expenses incurred while maintaining a position over a specified duration.