ETH Collar Pricing refers to the methodology for determining the cost of an options strategy involving Ethereum (ETH) where an investor simultaneously buys a put option and sells a call option, while also holding the underlying ETH. This structure typically hedges against downside risk while capping potential upside gains.
Mechanism
The pricing mechanism for an ETH collar involves calculating the premiums for three distinct components: the purchase of the underlying ETH, the purchase of an out-of-the-money put option, and the sale of an out-of-the-money call option. The net cost of the collar is derived from the difference between the premium paid for the put and the premium received from the call, adjusted for the ETH spot price.
Methodology
The strategic rationale behind ETH collar pricing is to define a risk-reward profile that limits potential losses from ETH price declines in exchange for relinquishing some potential gains. It provides a capital-efficient method for risk management in volatile crypto markets, offering a structured approach to portfolio protection for long ETH positions.
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