In Options Trading, What Is a Comparable Concept to Impermanent Loss in Terms of Unrealized Risk?
A comparable concept is the unrealized loss on a short option position when the underlying asset moves sharply against the position, specifically the risk associated with being short gamma. Short gamma means that as the underlying asset moves, the delta of the option changes rapidly, requiring the option seller to constantly rebalance their hedge at unfavorable prices.
This continuous, forced rebalancing mirrors the forced rebalancing by arbitrage in a liquidity pool.
Glossar
Underlying Asset Moves
Volatility ⎊ Underlying asset moves represent the primary driver of price discovery within cryptocurrency options and derivative markets, directly influencing implied volatility surfaces and option pricing models.
Short Gamma
Exposure ⎊ A short gamma position implies the portfolio's delta will decrease when the underlying asset price rises and increase when it falls, creating a negative convexity to price changes.
Unrealized Loss
Position ⎊ This represents the theoretical loss that would be realized if all open derivative or spot positions were closed immediately at the current market price, before any offsetting actions are taken.