Options Expiry, in crypto options trading, signifies the pre-determined date and time when an options contract ceases to be valid. At this point, the holder must decide whether to exercise the option, if it is in the money, or allow it to lapse worthless. This event is a critical juncture that influences market dynamics and portfolio positioning.
Mechanism
The mechanism involves smart contracts or exchange systems automatically checking the option’s strike price against the underlying digital asset’s spot price at the precise expiry time. Depending on whether the option is a call or a put and its “in-the-money” status, the contract is either automatically exercised (cash-settled or physically delivered) or expires without value. Settlement procedures follow immediately.
Methodology
The methodology for managing options expiry involves continuous monitoring of underlying asset prices and volatility, particularly as the expiry date approaches. Traders employ strategies such as rolling positions, exercising, or allowing expiry based on market expectations and risk parameters. Institutional options platforms provide tools for automated expiry management and position reconciliation, critical for handling large portfolios and minimizing operational risk around these key events.
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