Derivatives Inventory Management involves the systematic control and optimization of a firm’s holdings of crypto derivatives, including options and futures contracts. Its purpose is to balance liquidity requirements, manage risk exposures, and facilitate market making or proprietary trading activities.
Mechanism
This process entails real-time tracking of open positions, precise delta, gamma, and theta hedging across a diverse portfolio of derivatives. Automated systems dynamically adjust inventory levels and rebalance hedges in response to evolving market movements and incoming order flow.
Methodology
The strategic approach aims to maintain efficient capital deployment, control market risk, and ensure sufficient capacity to fulfill client requests or execute speculative strategies. This is achieved while minimizing inventory carrying costs and potential slippage during execution in dynamic crypto markets.
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