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What Is the Main Risk of Using Options to Hedge a Long-Term Position That Is Not Perfectly Correlated?

The main risk is basis risk, where imperfect correlation between the hedged asset and the option's underlying leads to an imperfect hedge.
Greeks.Live14.11.25

What Is the Main Risk of Using Options to Hedge a Long-Term Position That Is Not Perfectly Correlated?

The main risk is basis risk. If the asset being hedged (e.g. a specific altcoin) is not perfectly correlated with the underlying asset of the option (e.g.

BTC), the hedge will be imperfect. The price of the hedged asset may move adversely while the option's value does not fully compensate, leading to unexpected losses.

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