A Crypto Options Collar is a risk management strategy employed by institutional investors to limit potential losses and define profit ranges on an existing cryptocurrency holding. This involves simultaneously buying an out-of-the-money put option and selling an out-of-the-money call option, typically against a long position in the underlying crypto asset. It structures risk exposure.
Mechanism
The mechanism establishes a price range where the investor’s profit or loss is bounded. The purchased put option provides protection against significant downside price movements, while the sold call option generates income to offset the put’s cost and caps upside potential. This constructs specific boundaries for the asset’s price movement within a defined period.
Methodology
This strategy requires precise selection of strike prices and expiration dates for both options, aligning with the investor’s specific risk tolerance and market outlook. It aims to reduce volatility exposure and manage portfolio risk in fluctuating crypto markets. The approach offers a structured method for hedging existing spot positions.
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