A Rolling Options Collar is a dynamic options strategy that combines owning an underlying asset with buying a protective put option and selling a covered call option, with periodic adjustments to the strike prices and expiration dates. This strategy aims to manage risk and generate income.
Mechanism
Initially, the strategy involves holding an asset, acquiring a put option to establish a price floor, and simultaneously selling a call option to generate premium income, which can partially offset the cost of the put. The “rolling” aspect dictates that as the options approach expiration or market conditions change, the existing options are closed, and new options with adjusted strike prices or expiration dates are opened to maintain the desired risk profile.
Methodology
This strategy aims to limit potential downside risk while generating income, though it also caps potential upside gains, making it suitable for managing positions in volatile crypto assets. Systematic adjustments allow for continuous risk management and income generation, adapting to market movements while maintaining a defined range of potential outcomes for the underlying asset.
A rolling crypto options collar's primary risks are the systemic performance drag from cumulative transaction costs and the strategic failure from suboptimal strike repositioning during rolls.
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