What Is the Concept of “Rolling the Hedge” and How Does It Relate to Basis Risk?
Rolling the hedge involves closing an expiring derivatives contract and simultaneously opening a new, longer-dated contract to maintain the hedge. This process exposes the trader to "roll risk," which is a form of basis risk related to the cost or gain realized when closing the old contract and opening the new one.
Glossar
Contango Market
Structure ⎊ Contango describes the typical upward-sloping futures curve, where deferred contracts trade at successively higher prices than the current spot price or the front-month contract.
Basis Risk
Exposure ⎊ The core of basis risk within cryptocurrency derivatives, particularly options, stems from the imperfect correlation between the price movements of the underlying asset and its derivative contract.
Cost of Rolling
Implication ⎊ Cost of rolling, within cryptocurrency derivatives, represents the incremental expense incurred when transitioning a futures contract or options position to a subsequent expiration date, effectively extending the holding period beyond the initial contract’s maturity.