Premium capture is a trading strategy focused on profiting from the decay of an options contract’s time value, also known as theta decay. This involves selling options with the expectation that their value will decrease as expiration approaches. It is particularly effective in less volatile market conditions.
Mechanism
The strategy operates by selling options (puts or calls) and collecting the initial premium from the buyer. It benefits if the underlying crypto asset price remains within a favorable range, allowing the option to expire worthless or to be bought back at a lower cost. This realizes the premium as profit. The mechanism exploits the time-value component of option pricing.
Methodology
This strategy requires careful selection of options with appropriate strike prices and expiration dates, often within a defined risk management framework. Institutional options traders utilize analytical models to forecast volatility and time decay. Employing premium capture strategies generates consistent income or hedges existing positions in the crypto derivatives market.
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