Crypto Options Collars represent a risk management strategy in which an investor holding an underlying cryptocurrency simultaneously purchases an out-of-the-money put option and sells an out-of-the-money call option. This creates a defined risk and reward profile.
Mechanism
This strategy establishes a specific price range, or “collar,” within which the crypto asset’s value is expected to fluctuate. The purchased put option provides protection against significant downside price movements, while the sold call option generates premium income to offset the put’s cost and limits potential upward gains.
Methodology
The core methodology aims to reduce portfolio volatility and hedge against substantial price declines in a held digital asset. This involves exchanging a portion of potential future appreciation for clear downside risk reduction, providing a structured approach to asset protection in volatile crypto markets.
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