“Synthetic options” refers to the prudent use of options and the underlying asset to recreate the risk and reward of a particular options position. 

Through the combined use of multiple financial instruments, experienced traders can maximize their use of 

 while establishing a desired trade or position. For those familiar with 

 contracts, synthetic positions have always been the preferred way of going 

 on a particular asset. However, the sheer complexity of it might scare beginning traders away, given that they can incur unlimited losses. 

Keen on finding out why traders would consider a synthetic long or short position, instead of directly buying or short-selling the asset? From understanding the rationale for a synthetic options trade to explaining how to do it as a step-by-step process, here's everything you need to know when exploring synthetic options strategies with Bybit.

Before going ahead with the use of synthetic options in your portfolio, it’s key to first understand how options work. 

Put briefly, options contracts are a popular way to invest in the stock market and act on certain financial strategies. They’re primarily used by experienced traders and investors to 

 their existing positions against potential losses. For those with larger risk appetites, crypto options contracts can be used to speculate on certain coins and tokens to take advantage of short-term market movements. 

An options contract gives investors and traders the right to either buy or sell a certain asset at a predetermined price and date. This gives them control over their investments and allows them to manage their risk more effectively. Options trading also provides greater leverage than traditional 

 transactions, meaning that traders and investors can potentially make larger profits with smaller amounts of capital because they’re dipping into margin to multiply their gains or losses. 

Synthetic options for crypto takes things one step further, as it involves two parts: an existing long or short position for the underlying asset, and the establishment of an opposing position with the use of an options contract. More on this will be explained below, as we highlight the use of synthetic call and put options strategies in the crypto space.

Synthetic options trades involve the simultaneous purchase of a call option and 

 with the same strike price. The underlying security and options are both bought at the same time, thus recreating the risk and reward profile of the desired option position.

The main benefit of using synthetic options is that they allow traders to limit their downside risk, while simultaneously creating unlimited profit potential. This makes synthetic options an attractive choice for more conservative traders who want to control their capital exposure. By having two positions instead of one, traders can also benefit from insurance against a loss in value due to changes in 

Moreover, synthetic options allow traders to replicate long or short positions on an asset without investing in the underlying asset itself. This means that traders don’t have to buy or sell shares of the stock to open an option position, which can be particularly useful for those trading assets where borrowing is difficult or expensive.

A synthetic call is a type of financial instrument that involves the combination of a long stock position with a long put option. This creates a pseudo-long call option. 

, synthetic calls allow an investor to take advantage of market movements without having to purchase the underlying asset. As such, synthetic calls let you tailor your investments to your specific needs and investment objectives, ranging from utilizing less capital to receiving dividends. Furthermore, they can be used as part of a hedging strategy by allowing investors to hedge against potential losses without taking on additional risk. 

For sophisticated crypto options traders, synthetic calls can easily provide more customized opportunities than standard call options, making them an attractive option for savvy investors.

On the opposing end of the spectrum are synthetic puts, which combine a short stock position with a long call option on that same stock to mimic the essence of a long put option. While you could instead just buy a crypto put contract, synthetic puts offer something a put can't — the ability to reduce capital outlay, since you’re only paying the premium of the call option. This makes them particularly attractive for traders who need to hedge against potential losses without making huge up-front payments. 

In addition, synthetic puts also allow for increased flexibility in terms of duration and strike price, enabling traders to tailor trades to their own investment objectives. Ultimately, synthetic puts can be a powerful tool for savvy investors looking to reduce risk while managing capital outlay.

Synthetic options provide traders with a wide array of benefits in terms of both cost and flexibility. 

Reduced Capital Outlay for Hedging Strategies

One of the advantages of synthetic options is that they can significantly reduce the capital outlay required for each trade. Instead of having to buy an underlying asset, synthetic options allow traders to pay only the premium of the call option at a much lower cost. This provides investors with greater flexibility, particularly those who may want to hedge their investments but are unable or unwilling to commit large amounts of money at once. 

With synthetic options, traders have the opportunity to reap the benefits of options trading while minimizing their financial risks.

Degree of Personalization to Fit Your Needs

Synthetic options offer greater customizability than other options, allowing traders to tailor their investments according to their unique goals and objectives. By adjusting expiration dates and strike prices, traders can effectively 

 while also keeping costs low. Synthetic options also enable traders to take advantage of specific market conditions, such as anticipated price shifts, with greater efficiency. 

Given these benefits, it's not surprising that synthetic options have become an essential tool for many investors seeking to optimize and tailor-fit their investment and trading strategies.

Synthetic options can involve complex strategies and high volatility, making them potentially riskier than alternative investment and trading strategies. 

Options Time Decay & the Need for Active Management

Theta decay is a vital aspect for options traders to consider when it comes to close-to-expiration options positions. For beginners, it’s key to understand that options gradually lose their value over time (hence, time decay), which accelerates as they get closer to expiration. Therefore, actively managing open options positions becomes crucial for traders as they seek to take advantage of the hedging protection offered by options.

The Endless Complexity of Synthetic Options

If trading cryptocurrencies weren’t already complicated enough, another risk that traders need to be aware of is that synthetic options throw an additional wrench into the mix when it comes to complexity. 

Without properly understanding the complexities of these financial tools, investors and traders may suffer additional losses due to unexpected shifts in market conditions or a lack of awareness about the different factors that can affect the value of their investments. These losses can range from extra trading fees to lowered profits because of a poor 

. Thus, it’s crucial for anyone planning to set up a synthetic options strategy to understand the potential losses involved before diving in.

How to Use a Synthetic Calls Options Strategy

For our synthetic calls options strategy, let’s go with the example of trading Ether (ETH), with a reference price of $1,800. 

As a long-term investor, if you're already holding Ether and want to mitigate your downside risk, then you can proceed with the synthetic call options strategy by purchasing an 

 put option. In this case, you would be purchasing the 1800p with a month to expiration. This would require you to pay for a put contract premium of about 0.0551 ETH if the contract were to expire on Jun 30, 2023. What this does is create the opportunity for unlimited upside, thanks to your long ETH position, while protecting your downside with the long put crypto option contract.

How to Use a Synthetic Puts Options Strategy

Conversely, for our synthetic puts options strategy, let’s utilize the reference example of trading Bitcoin (BTC) and a price of $27,000. The strategy is especially handy if you’re already holding a short position on Bitcoin and want to mitigate your downside risk. This can be achieved by purchasing an at-the-money call option. 

In this case, you would be purchasing the 27000c with a month to expiration, which would require a payment for a call contract premium of about 0.0548 BTC if the call option contract were to expire on Jun 30, 2023. What this does is create the opportunity for unlimited upside, due to your short BTC position, while protecting your downside with the long call crypto option contract.

Based on our considerations listed above, crypto synthetic options strategies are certainly worth trying if proper risk management strategies are utilized. Synthetic options are similar to traditional options, yet they allow traders to create almost any type of options position using a combination of long and short positions with call and put options. This flexibility makes these trading strategies useful for experienced traders who are aware of the risks when options contracts are involved, so that proper portfolio hedging can take place.

Experienced traders can also use these strategies to manage risk and take advantage of volatile markets. Whether there’s a bullish or bearish market trend, synthetic options can help create tailor-made trading positions to suit individual trading styles. Additionally, synthetic options provide a convenient way to hedge short positions. This can be extremely useful if you're a crypto trader expecting a 

Ultimately, whether or not synthetic options trading strategies are worth trying will depend on each trader's individual objectives and risk tolerance. However, with a little knowledge and the right tools, these tactics offer a smart way for traders to gain an edge in the options market.

When trading synthetic options, it's important to have a good understanding of the terms and conditions associated with the product — and to make sure that you’re comfortable with the level of risk. Setting clear goals upfront can help ensure that you’re making decisions based on your desired outcome. All in all, synthetic options provide a flexible way for traders of any experience level to gain exposure to markets without having to commit a large amount of capital.

Intermediate

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Synthetic Options: Understanding Synthetic Calls & Puts

Implied volatility (IV) is a metric that’s utilized to predict what the market is expecting from an underlying asset’s future price movement. Read more here.

Correctly anticipating the future value of an asset plays a significant role in both the profitability of an investment and in 

. For many types of investments, such as stocks and real estate, various factors can be reviewed, analyzed and monitored to project what the future value may be. The historical volatility, or realized volatility, of the crypto market has largely been rooted in speculation. Because of this, analysis of implied volatility can be useful in optimizing gains and minimizing the risk associated with 

Implied volatility (IV) is a metric that’s utilized to predict what the market is expecting from an underlying asset’s future price movement. While it cannot exactly predict price movement, it can provide a strong indication of what may happen in financial markets.

The crypto market is well-known for its extreme historical volatility, which has presented investors with incredible opportunities for financial gain. However, this potential gain is based on predicting whether the market price will go up or down and how far the price may swing. Because of the strong element of speculation that drives crypto price volatility, the risk of loss is also substantial. Implied volatility is a means of assessing price fluctuations while taking market risk into account. A decline in implied volatility typically occurs when the market is 

. An increase in implied volatility, on the other hand, occurs when the market turns 

Because implied volatility anticipates trading volume and market sentiment, it’s used for options trading rather than for traditional buy and sell orders. In the cryptocurrency market, the cryptocurrency volatility index, or CVI, is comparable to the 

, a 30-day projection of the overall market used in stock market trading.

When calculating implied volatility, you can gauge market risk and determine fair options pricing using the 

. You can also determine if the projected future volatility level is higher or lower than the realized volatility, and gain a deeper understanding of sentiment for that asset in the financial markets. 

High implied volatility usually means that market conditions are changing rapidly. This may be associated with sharp price dips and peaks. Lower implied volatility is often associated with less extreme dips and peaks. Implied volatility is used to gauge market sentiment so that an investor may better anticipate the profit potential for a specific crypto options contract.

How Is Implied Volatility (IV) Calculated?

Anticipating the price movement of an underlying asset is essential for risk management. To calculate IV, you use several key factors: The options trading price, the cryptocurrency’s price, the 

 and the option contract expiration date. Without knowing all of these factors, calculating implied volatility isn’t possible.

Calculating IV requires you to input these data points into an options pricing model. One such options pricing model that’s commonly used is Black-Scholes. Notably, this method can also be used to calculate the other factors in the equation if the implied volatility is known. The development of the Black-Scholes method several decades ago directly contributed to the rise in popularity of options trading.

In order to determine if the implied volatility for a specific asset is higher or lower than average, we use implied volatility rank, which looks at the implied volatility for a specific asset over the last 12 months in comparison to its current IV. An implied volatility rank 

 the current implied volatility is on par with the 12-month average.

How Does Implied Volatility Affect Crypto Options?

With options trading, investors predict whether an option's price will increase or decrease over a predetermined period of time. Compared to traditional buy and sell orders, options trading is generally less risky. The options premium is tied to both the time value and to the intrinsic value, which represents the equity in the option. 

 is $20 and the option's price is $30. You have the option to purchase at the strike price of $20 and can turn a $10 profit by immediately selling at $30. High implied future volatility is generally associated with a higher options premium. 

 value of a crypto asset is rooted in factors other than the market price. For instance, the time remaining until the expiration can drive extrinsic value. Generally, the extrinsic value increases when a market is more volatile.

Implied volatility can be used to anticipate how wide the market value movement of a crypto asset may be, and to better estimate the most strategic times for buying and selling. Higher implied volatility indicates the potential for higher options prices. As a result, an investor may pay a premium to buy a new option contract for that asset. On the other hand, when implied volatility decreases, lower options pricing may follow. Declining implied volatility means that demand for that asset is waning. 

When using implied volatility for options trading, be aware that 

 options or options with longer expiration times are typically more price sensitive. Higher price sensitivity means that the strike price is more likely to be on par with market value.

Why Is Implied Volatility Important to Crypto Traders?

Because of the crypto market’s extreme price volatility, the ability to time the market directly affects gains and losses. More than that, it affects the significance of those gains and losses. If you place your trade too early or too late, you could miss out on an otherwise lucrative opportunity, or could even lose money. 

As is the case with other types of assets, it’s impossible to know how the crypto market will move. However, IV gives you a much better idea of the expected movement over a specific period of time. It helps you know when to make a purchase, and what the risk may be.

While implied volatility is important to crypto traders, using it in the crypto market is more complex than using it in other financial markets. This is because there may be missing quotes, low trading volumes and other factors that could skew the results. Generally, ETH and BTC are the only assets with a well-developed options market that’s suitable for implied volatility.

Pros and Cons of Using Implied Volatility

Implied volatility can’t provide you with perfectly accurate market predictions, but it can help you make a highly educated guess based on multiple data points. As a result, it offers exceptional benefits for crypto options trading. However, there are a few downsides to be aware of as well.

Implied volatility is a predictor of market sentiment. When the financial market is bearish, IV typically declines. On the other hand, if a market is turning bullish, IV may be higher, and swings will typically be wider, even over a shorter period of time.

Pro: Strategize Your Entry Point and Investment Period

Crypto options trading lets you arrange a buy or sell order in advance at a predetermined price and time. A call option gives you the right to buy the asset, and a put option the right to sell. However, there’s no 

 to exercise the right to buy. Success with options trading is strongly based on your timing of buy and sell orders. Implied volatility provides an indication of sentiment for a specific period of time, which enables you to better strategize the timing for your buy and sell orders.

Con: Cannot Predict a Price’s Upward or Downward Movement

During a bull market, crypto prices tend to rise overall. But there are often extreme price fluctuations, and even in a bull market, where implied volatility is high, it’s possible for the market to swing in either direction. While IV can closely predict market sentiment for a given period of time, it cannot determine whether an underlying asset’s price will increase or decrease during that period.

Con: Various Other Factors Also Have an Impact on Prices

While the crypto market is strongly driven by speculation, there are many factors that drive price movement other than the key data points used to calculate implied volatility. For example, the regulation of cryptocurrencies in one country can have a huge impact on prices and volatility throughout the market. Other factors can drive options prices as well, such as social media hype and 

How to Use Implied Volatility in Crypto Options Trading

Implied volatility can be used to analyze different expiration times. By assessing the trend of different IV measures you can better understand future risk. For example, the 

, shows an overall inverted structure. This indicates increasing risk in the market.

You can also compare the IV for two different crypto assets over the same period of time. For example, a look at the at-the-money IV for both ETH and BTC over the same time period mentioned above reveals that the volatility spread between these assets was roughly 23%.

Implied volatility can also be used to analyze strike prices. For example, in-the-money options are typically more expensive because they may expire without adding value for the trader. At-the-money options have a higher implied volatility and a higher premium, presenting a greater risk to the investor. If the premium were lower, the loss to the investor would be lower given the same circumstances.

Options trading involves speculation on the direction of price movement for an underlying asset over a period of time, rather than the actual price of the asset. Implied volatility takes into account several factors in order to provide you with an educated guess on potential movement over a specific period of time. By doing so, it can aid in risk management and help you to determine the most strategic entry and exit points. As a result, implied volatility is a strong metric that can help you make better crypto options trades.

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What Is Implied Volatility in Crypto Options Trading?

Bybit Position Builder is an easy-to-use tool that helps you manage portfolio with various derivative products such as perpetuals, futures, and options. Learn how it works. 

Managing a diverse investment portfolio across various accounts can be a daunting and complex task for novice and experienced investors alike. Some common challenges users face include keeping track of their positions, maintaining a balanced risk profile and staying informed about market changes. Users may incur opportunity costs or make suboptimal investment decisions without a clear overview of 

 (P&L) or the flexibility to customize a trading template.

This guide introduces Bybit Position Builder, an innovative tool designed to help you manage your portfolio efficiently. Here, you’ll learn its key features and benefits and how to harness them to create a tailored and well-rounded investment strategy. 

Bybit Position Builder is an easy-to-use tool that helps you quickly create and manage portfolios with various 

With a built-in chart to show your custom portfolio's profit and loss (P&L), Position Builder lets you keep an eye on your contracts and control them all in one place. You can add positions on different contracts and use ready-made strategies to improve your trades. Additionally, you can place many orders simultaneously, saving you time and energy.

Position Builder simplifies the process of establishing, adjusting and overseeing portfolios, allowing traders to concentrate on executing their strategies and adapting to ever-changing market conditions.

To begin using Position Builder, first access its page on the Bybit trading platform, typically located within the Perpetuals or Options trading interfaces. From there, you can customize your portfolio by adding various contract types, selecting the desired coin, choosing contracts, determining the type and direction and specifying the position size and price.

Bybit Position Builder enables you to apply tailored strategies and 

 levels to your positions, ensuring your portfolio aligns with specific trading goals and risk tolerance. One of the tool's most notable features is its ability to place multiple orders simultaneously, providing a competitive edge in fast-paced markets.

With Position Builder, you can effortlessly adjust and monitor your positions, which enables you to set leverage, edit prices and position sizes and view order book status. It also enables easier 

 options exposure to changes in an underlying asset’s price. Maintaining a delta-neutral position requires regularly adjusting positions. 

Position Builder offers a comprehensive overview of P&L, margin occupied and 

 values, equipping you with the information you need to effectively track and analyze your portfolio's performance. You can also customize your P&L chart by selecting a strike price range, dragging the implied volatility (IV) range and modifying the expiration date. This helps you visualize your portfolio's performance under varying market conditions, leading to better trading decisions.

5 Reasons Why You Should Use Bybit Position Builder

Bybit Position Builder offers a wide range of features tailored to enhance your trading experience and optimize your results. Here are five reasons to try it out.

Here’s a step-by-step guide to quickly build your trading portfolio with Position Builder on Bybit. Before we dive in, ensure you upgrade your account to a 

 which can handle multiple orders. Also, note that only market and limit orders are currently supported.

Step 1: Access the Position Builder Page in One of Two Ways 

Step 2: Use Position Builder to Place Your Order

Position Builder supports up to 200 orders with various contract types and strategies. 

For additional customization, use Delta Hedging to maintain a delta-neutral position.

: Traders can customize their orders with no position limitations. However, only 20 legs of options are supported at one time. 

Personalize your P&L chart by selecting a strike price range, dragging the implied volatility (IV) range and modifying the expiration date.

Step 4: View Total P&L, Margin and Greeks

On the right side of the page, see important information such as overall P&L, margin occupied and Greek values. Click on 

For orders involving multiple legs with a long-short hedging relationship, it's recommended you use 

1. Is Position Builder free for all Bybit users? 

Bybit’s Position Builder is free for all users.

2. Can I use Position Builder for Bybit Spot trading? 

No, the Position Builder function is currently available only for Bybit Derivatives. However, we’re constantly innovating and more features will be added gradually. 

3. Are the estimated profits indicated by Position Builder guaranteed? 

No, the estimated profits indicated by Bybit Position Builder are not guaranteed.

Beginner

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Position Builder: What Is It & How to Manage Your Portfolio Efficiently

Delta hedging is an advanced risk management strategy that allows investors and traders to offset downside risk by using options contracts. Learn more here.

If you're new to long-term trading and investing, you'll likely encounter instances when a catalyst causes huge volatility in your portfolio. While this might be acceptable for risk-tolerant individuals who are investing in growth-oriented assets, it's often advisable for investors to take up hedges to mitigate the risk exposure in one's crypto portfolio. That's where 

Curious as to how hedging works and how advanced investors take this to the next level with delta hedging? Find out how fund owners are limiting their risk exposure and engaging the use of 

 with our beginner's guide to delta hedging in crypto portfolios.

Before diving headfirst into the world of delta hedging for crypto portfolios, it's key to first grasp the mechanics of hedging prior to discussing the use of derivatives to execute such a risk management strategy. 

For the uninformed, hedging strategies are similar to adopting an insurance policy for your vehicle in a road accident–prone area. While you can't entirely avoid the possibility of getting into a road accident when there's an inherent risk with driving in the area, you can cushion the potential blow with a hedging risk management strategy. Although mitigating the risk does cost a part of your profit, it's definitely a worthwhile cost if the volatility causes you to lose a huge portion of your portfolio.

While hedging includes the use of any financial instrument, investors often employ the use of derivatives because of the clear relationship between the portfolio asset and the contract from which it derives. By using derivatives like options contracts, delta hedging comes into play. From delta-neutral positions to hedging your underlying position, here's everything you'll need to know when it comes to learning about the in-depth mechanics of delta hedging your portfolio.

For those new to options trading, you'll certainly want to read up on our comprehensive 

 first before embarking on this journey to educate yourself about options. For starters, delta is one of the four 

, and is a useful risk metric that estimates the change in price of an options contract, given a $1 or basis point change in its underlying asset. This means that for every $1 that the asset rises, the option price rises by the delta amount. 

That said, it's important to understand how delta works for underlying assets and their derivatives. 

 have a positive delta that ranges from 0 to 1, with at-the-money calls having a delta of 0.5. Conversely, 

 have a negative delta that ranges from −1 to 0, with at-the-money puts having a delta of −0.5. Meanwhile, underlying assets like stocks and crypto have a delta of 1.

Now that we understand the basics of delta, let's move on to delta hedging a crypto portfolio with calls and puts. For the following section, we'll be classifying the options into three distinct categories and listing specific delta hedging examples so you're aware of how you can delta hedge your crypto portfolio accordingly.

In-the-money options refers to derivative contracts with both intrinsic and extrinsic value. When exercised, these contracts have strike prices that are favorable when compared to the current market price for an asset. This means that at expiration, traders who own the contract will be able to either buy the asset at a lower price or sell it at a higher price, depending on whether the option contract is a call or put contract. More on this will be explained below.

In-the-money call options are purchased by traders because they believe the market price of the asset is currently undervalued, and will exceed the current strike price of the asset at expiration. For example, if the current market price of ETH is $1,770, buying an in-the-money call means purchasing a call option with a strike price of $1,700 or less. When the call option expires, you'll be able to buy 1 ETH at a discount of $70 or more because the contract expired in-the-money.

Let's say you're already short 3 ETH. To hedge this position, we could look at an in-the-money contract, such as the 1500c ETH 28042023 option that has a delta of 0.81. To delta hedge your position, you'll want to buy 3 of these ETH calls. This is so the negative delta of the ETH short position is partially balanced out by the call you've just purchased. Specifically, your delta exposure is reduced to 0.57, or by about 81%.

Conversely, traders tend to buy put options because they think the market price of an asset will be lower than the strike price of the put contract at expiration. For example, if the current market price of ETH is $1,770, buying an in-the-money put means purchasing a put option with a strike price of $1,800 or more. When the put option expires, you'll be able to sell 1 ETH at a premium of $30 or more because the contract expired in-the-money.

As the price continues to fall for ETH, the premium for these put options will appreciate as they become more in-the-money. The reverse is also true, as the puts tend to become less valuable if the price of ETH appreciates.

Let's say you've already bought an ETH put, and want to delta hedge your ETH put contract. To begin, you'll first want to consider its delta. For reference, we'll be using the 2000p ETH 28042023 contract that has −0.67 delta. To properly delta hedge this position, you'll need to place a long order of 0.67 ETH.

As previously mentioned, at-the-money calls and puts have a delta of 0.5 and −0.5, respectively. Using the example of options contracts for ETH, buying an at-the-money call or put means purchasing contracts that have an $1,800 strike price. You'll notice that while both contracts don’t have exactly 0.5 and −0.5 delta, they still numerically add up to 1.

To set up a delta hedging strategy, simply short-sell 0.52 ETH if you're longing a call, or buy 0.48 ETH if you're longing a put.

Out-of-the-money options refers to derivative contracts with only extrinsic value. At expiration, if the current market price of the asset isn't above the strike price of the call option or below the strike price of the put option, then the option 

. This ultimately makes the price of these options contracts dependent upon their time to expiration. 

In terms of options Greeks, this is where theta comes into play, with each passing day contributing to the decay of the option. Understanding theta decay aside, here's how you can delta hedge your positions when trading out-of-the-money option contracts.

The good thing about trying to delta hedge out-of-the-money call options is that you'll require less capital to offset the directional risk of these option contracts. This is mainly because of their low delta value, whereby their option premiums vary less when there's a dollar change in the underlying asset price. In this case of ETH out-of-the-money calls, let's look at hedging a 2000c ETH 28042023 contract. With a delta of 0.33, you'll only need to short-sell 0.33 ETH in order to delta hedge your position.

Similarly, due to their low delta value, delta hedging out-of-the-money put options is less capital intensive. To delta hedge a 1500p ETH 28042023 contract, you'll need to buy 0.18 ETH to balance out your positions.

If you've gone through our previously mentioned examples, you'll realize they're a mix of partial delta hedging — where a percentage of the directional risk is mitigated — and full delta hedging, where the net delta exposure is zero. For portfolios with net zero delta, delta neutrality is achieved. Thanks to the careful balancing of positive and negative deltas, traders can end up with a delta-neutral position that takes into account potential upcoming catalysts and short-term risks.

Benefits of Delta Hedging Your Crypto Portfolio

The most important aspect of delta hedging your portfolio is that it can be profitable for you if you hedge strategically. By taking into account the aforementioned theta decay and lower implied volatility upon the passing of a major catalyst, option premiums tend to fall over time. This can play into your favor if you're using hedging options as a short-term way for you to mitigate volatility.

The second benefit of delta hedging is that it allows you to protect your portfolio from downside risk without causing you to close or trim your positions. After all, time in the market beats timing the market — so trying to constantly enter and exit positions can prove costly in the long run, as your portfolio can be affected by 

Risks of Delta Hedging Your Crypto Portfolio

That said, delta hedging does come with some downsides. Although it can be beneficial for your portfolio, delta hedging can prove costly, thanks to the constant position tinkering involved. This can result in costly transactional fees and wasted time as you're concurrently balancing deltas and making sure the portfolio is delta neutral.

Another understated risk of delta hedging is the fact that hedging is ultimately subjective — which can result in overhedging. This is a situation where traders preemptively overtime the downside risk and spend excess to hedge their portfolio. The end result is a huge delta hedge that eats into profits without taking into account the directional risk involved.

Is It Profitable to Delta Hedge Your Crypto Portfolio?

There's much discussion to be had when it comes to profitability from delta hedging one's portfolio. As previously mentioned, it can be healthy for your crypto portfolio if you're delta hedging, but it requires keen decision-making and knowledge of options mechanics to make it worthwhile. Ultimately, the decision to delta hedge your crypto portfolio comes down to your personal preference, and whether the potential profit and protection from volatility are worth the time and effort you put in.

All in all, delta hedging should definitely be attempted if you're well-versed in both options trading and the mechanics that go into their premium pricing. While seen as a huge time sink by some, delta hedging acts like actively managed insurance for more risk-conscious investors and traders. Since it requires constant vigilance and up-to-date information on the markets, delta hedging is certainly not for the faint of heart. However, look past its intricacies and you'll discover a hugely useful risk-mitigation strategy that shields your portfolio from downside costs, without the risk of unwinding your existing positions.

For more on learning about options, please check out our in-depth article that covers the mechanics of 

. Alternatively, if you're interested in mastering risk management, our guide to 

 will suit your needs. Get started with trading 

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What Is Delta Hedging & How Does It Work In Crypto?

Dopex is a decentralized options protocol that seeks to passively maximize liquidity for option buyers, minimize losses for option writers, and maximize gains for option buyers.

Ask most people their preferred investment vehicle in cryptocurrencies and stocks, and rarely will you find people going for options trading as their first choice.

Indeed, this investment niche has remained largely underpopulated, primarily due to the assumption that it's a complex niche best left to professional traders and wall street gurus.

Furthermore, the few who understand the basics of options find trading them on traditional exchanges and 

Let’s dig deep into the Dopex project and how it’s leveraging blockchain technology to simplify options trading.

Options are investment tools that allow you to either leverage or hedge a position in a given market to generate a return or limit downside risk

 is popular in the stock market. However, interest in crypto options trading has grown tremendously, especially among traders looking to survive the 

A crypto options contract is an agreement to sell or buy an underlying asset at a specific price (the strike price) within a given time frame or upon expiration

Essentially, there are two types of options: the 

the asset at the strike price. Usually, if an investor believes that the price of the asset will go up, they enter into a call option contract and go for a put option contract if they expect the price to go down.

For both calls and puts, you will pay an option price, the "premium," to the option writer in exchange for the right to the option contract. 

 writes an option by creating a new option contract to sell a trader the right to buy or sell an asset at the strike price on the expiration date, and collects the premium from the option buyer. 

You choose to trade crypto options if you want to make a considerable profit with limited downside risk, or when you’re tired of stop-loss hunting or constant liquidation, which is common in spots or futures crypto trading.

You can also choose to buy options if you anticipate a significant price movement due to increased volatility in the market. On the other hand, option writers also offer to sell options to collect premiums from buyers when they expect limited price movement.

Crypto options are similar to stock options in that they’re both used as 

, and you profit from the market moving in your favor. 

However, unlike stock options, you aren’t required to buy or sell the underlying asset upon the expiration of the crypto options contract.

Now that you understand the basics of options trading, let’s switch gears to Dopex and see why it’s a protocol to watch in the crypto options trading niche.

As an improvement of the current options market, Dopex offers a suite of 

 (DeFi) products, such as collateral borrowing and staking in option pools. It also utilizes a highly efficient pricing strategy to allow options traders to take advantage of immediate options 

Deribit, among the most prominent centralizedcrypto options exchanges, targets institutional investors and more seasoned traders. As such, there’s a gap in the ever-growing options retail niche that Dopex aims to fill by providing a retail-focused, user-friendly platform with products designed to suit even beginners in crypto options trading.

To achieve this, Dopex’s UX is clean and intuitive, with no needless complexities and lengthy onboarding processes.

 Ethereum scaling solution famous for its advanced security and fast transactions at dramatically low gas fees. However, Dopex also has 

 addresses that allow interaction with other blockchains, such as 

Powered by a dual token system consisting of DPX and rDPX, Dopex’s ecosystem allows its users to interact with the platform in a structured and synergistic way for a wholesome options trading experience.

Dopex’s architecture is designed to provide value for all the players in the ecosystem. As a decentralized protocol, Dopex has the advantage of composability, which allows it to package and interface multiple products to ensure capital efficiency 

 a more challenging feature for CEXs to enact.

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