A BTC Collar Trade is a sophisticated options strategy employed in crypto institutional options trading to limit potential losses and cap potential gains on an existing long position in Bitcoin. It consists of holding Bitcoin, purchasing an out-of-the-money put option, and simultaneously selling an out-of-the-money call option, typically with the same expiration date.
Mechanism
The put option acquisition provides downside protection, establishing a floor below which the Bitcoin’s value is insured, effectively hedging against price drops. Concurrently, the sale of the call option generates premium income, offsetting the cost of the put, but it also creates an upper limit on the potential profit if Bitcoin’s price rises significantly above the call’s strike price. This structure defines a bounded profit and loss range.
Methodology
This strategy is often used by institutions or long-term Bitcoin holders who desire to protect accumulated gains or mitigate short-term volatility without liquidating their BTC holdings. The premium received from the sold call can subsidize the cost of the purchased put, making it a cost-efficient way to manage risk, particularly in uncertain market conditions or prior to anticipated high-volatility events, while maintaining Bitcoin exposure.
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