Volatility Sales refers to the strategic offering and execution of financial products that derive their value from the expected or realized price fluctuations of an underlying cryptocurrency asset. This typically involves selling options, swaps, or other derivatives that are sensitive to volatility.
Mechanism
Market participants engaged in Volatility Sales aim to profit from an expectation that actual future volatility will be lower than what is currently implied by derivative prices. They achieve this by selling options contracts or other volatility-linked products, collecting premium income, and managing the associated risk exposure through hedging strategies.
Methodology
The methodology requires sophisticated quantitative models to forecast future volatility accurately and to manage the resulting delta, gamma, and vega risk of sold positions. This includes continuous monitoring of market implied volatility, real-time hedging adjustments, and careful selection of strike prices and expirations to optimize premium capture while controlling potential losses from unexpected volatility spikes.
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