Monthly Expiry, in the context of crypto institutional options trading, denotes the predetermined date each month when a derivative contract ceases to be valid, leading to its final settlement or exercise. This event marks the conclusion of the option’s life cycle, after which it can no longer be traded or held. The monthly expiry date is a critical reference point for valuation, risk management, and trading strategies within the crypto derivatives market, dictating the time horizon for all associated positions.
Mechanism
As monthly expiry approaches, option contracts undergo a specific settlement process, often at a pre-defined time on the designated date. For physically settled crypto options, holders of in-the-money calls or puts receive or deliver the underlying cryptocurrency. For cash-settled options, the difference between the strike price and the final settlement price is paid out in fiat or a stablecoin. This mechanism requires a robust oracle or index to determine the definitive underlying asset price at expiry, ensuring fair and transparent settlement across participants.
Methodology
Institutional crypto traders employ various strategies centered around monthly expiry to manage risk and generate returns. These methodologies include rolling over positions to the next month’s contracts to maintain market exposure, closing out positions to realize gains or losses, or structuring calendar spreads to capitalize on differing implied volatilities across expiry cycles. Anticipation of accelerated time decay (Theta) and potential volatility spikes near expiry often influences hedging adjustments and position sizing, forming a crucial component of active portfolio management in crypto options.
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