How Is Basis Risk Typically Managed in a Rolling Options Hedge Strategy?
Basis risk in a rolling hedge is managed by carefully timing the roll-over of the expiring contract into a new, longer-dated contract. The goal is to minimize the transaction costs and the market exposure during the short period between the expiration and the new contract initiation.
Using a "roll window" and monitoring the spread between contracts helps optimize the process.
Glossar
Rolling Options
Adjustment ⎊ Rolling Options is a dynamic portfolio Adjustment technique involving the simultaneous closing of an existing option contract and the opening of a new, similar contract with modified parameters.
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.
Rolling Hedge
Mechanism ⎊ A rolling hedge, within cryptocurrency options and derivatives, represents a dynamic strategy of systematically closing and reopening option positions prior to their expiration to maintain a desired level of exposure.