Today I would like to focus on RISK MANAGEMENT. This is less of a “trade”, and more of a preservation of capital derivatives structure. It allows firms that are holding coin to minimize their downside risk, while potentially giving away some upside reward. With this recent run up in ETH, we believe it is prudent for commercial players to manage their risk for as little insurance premium as possible.
With this is mind, we are looking to purchase a Fence (aka a Risk Reversal or Collar) in ETH. The structure is the H (expiring 3/29/19) 100/250 Fence (ref $150ETH); Buying the $100 put and selling the $250 call against it for close to flat premium. This is a SHORT DELTA trade. Therefore, it is suitable for investors who are LONG ETH, and not looking to sell their coin at these elevated levels, nor spend too much in premium for the protection. This is how the performance of this trade would look:
The other route for an investor looking to deploy proper RISK MANAGEMENT, that still thinks there is major upside left to this most recent rally in ETH, is to simply buy PUTS. Yes, you would have to outlay more premium than the fence would allow you. However, there is NO limit to your upside on the coin you are long. This trade would purely be purchasing downside insurance on your digital assets.
If you would like us to walk you through a specific RISK MANAGEMENT structured to best fit your corporate needs, please do not hesitate to contact us.
Founder and CEO
Executive VP of Institutional Sales
Dr. Ilya Kurland
Chief Derivatives Strategist