What Is “Opportunity Cost” in the Context of Collateral for a Hedged Position?
Opportunity cost is the value of the next-best alternative that must be forgone when a choice is made. When capital is used as collateral or margin for a hedged options position, that capital cannot be used for other investments, such as staking or earning interest.
The lost potential return from those alternative uses is the opportunity cost of the hedge.
Glossar
Lost Potential Return
Opportunity Cost ⎊ Lost Potential Return, within cryptocurrency options and derivatives, represents the forgone profit from an alternative trading strategy or asset allocation not pursued due to a specific position or decision.
Hedged Options
Mitigation ⎊ Hedged options within cryptocurrency markets represent a strategic deployment of derivative instruments to curtail potential downside risk associated with underlying asset price fluctuations.
Opportunity Cost
Sacrifice ⎊ The concept of opportunity cost within cryptocurrency, options, and derivatives fundamentally represents the forgone benefit from selecting one strategy over another.