An ETH Collar Quotation refers to a specific request for quote (RFQ) for an options strategy on Ethereum (ETH) designed to limit both potential gains and losses for a holder of the underlying asset. This derivative construct typically involves buying an out-of-the-money put option and simultaneously selling an out-of-the-money call option, forming a protective band around the current ETH price. It is a common institutional risk management tool.
Mechanism
A market maker, in response to an ETH collar quotation, provides a bid and ask price for the combined options strategy. The premium received from selling the call option serves to partially or fully offset the cost of purchasing the put option, thereby defining the net cost of the hedge. The strike prices and expiration dates of both options determine the upper and lower bounds of the protected price range for the long ETH position.
Methodology
The methodology behind an ETH collar quotation involves sophisticated options pricing models, which factor in ETH’s spot price, implied volatility, time to expiration, and interest rates, adapted for crypto market characteristics. Risk management focuses on monitoring the strategy’s delta, gamma, and theta exposures, adjusting components as market conditions change. Institutional traders use these quotations to hedge large ETH holdings, defining precise risk-reward profiles for their digital asset portfolios.
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