PUTW, an acronym for “Put Writing,” refers to the options trading strategy where an investor sells (writes) a put option contract, obligating them to purchase the underlying crypto asset at a specified strike price if the market price falls below that strike before or at expiration. This strategy is typically employed by institutional investors in crypto options markets who anticipate the underlying asset’s price will remain stable or increase, seeking to generate income from the premium received.
Mechanism
The mechanism involves an investor initiating a short put position, receiving an upfront premium from the buyer of the put option. As collateral, the writer must hold sufficient capital or digital assets to cover the potential purchase obligation. If the underlying crypto asset’s price stays above the strike price until expiration, the option expires worthless, and the writer keeps the premium. Conversely, if the price drops below the strike, the writer is obligated to buy the asset at the higher strike price, incurring a loss proportional to the price difference, minus the premium collected.
Methodology
The methodology for put writing centers on careful analysis of implied volatility, market sentiment, and the support levels of the underlying crypto asset. Institutional participants using RFQ crypto platforms for this strategy typically select options with strike prices below current market levels, aiming for out-of-the-money puts to maximize the probability of premium retention while managing downside risk. Dynamic risk management, including monitoring portfolio delta and adjusting positions, is crucial to prevent substantial losses in the event of an unexpected market downturn.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
