How To Adjust 1 DTE Crypto Put option

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Options trading in the crypto market presents a myriad of strategies, and mastering the art of adjusting positions is a vital skill for navigating market fluctuations successfully. In this comprehensive exploration, we'll delve into the intricacies of adjusting a 1 DTE (Day to Expiration) Crypto Put Option, drawing insights from a real-world scenario involving the TerraMatris crypto hedge fund.

Before we embark on the journey of adjustment strategies, let's take a moment to revisit the fundamentals of options trading.

Put Options: These financial instruments grant the holder the right, without the obligation, to sell an asset at a predetermined price (strike price) before the option reaches its expiration date.

Adjusting the Strike Price on a Put Option

Managing risk in options trading often involves adjusting the strike price of your put option. Here's a step-by-step guide:

Regularly evaluating the market is the foundation of informed decision-making. Identify trends or reversals that might impact the value of your options.

Changes in implied volatility can significantly influence option prices. Adjust your strike price based on expectations regarding volatility, ensuring your positions align with market dynamics.

In the face of market movements contrary to your initial thesis, consider adjusting the strike price to realign your position with the evolving market sentiment.

Adjusting a Long Put Option

Adapting to changing market conditions is essential when managing a long-put option. Two primary strategies come into play:

Consider the option of rolling your position. This involves closing the current put option and opening a new one with a different expiration date. It's a strategic move to manage risk effectively.

Adjust your position size based on the evolving market situation. Scaling out can help lock in profits, while scaling in may be appropriate during favorable market conditions.

General Strategies for Adjusting Option Positions

Understanding broader strategies for adjusting option positions enhances your overall decision-making process. Let's explore three fundamental strategies:

1. Delta Hedging

This strategy involves adjusting the delta of your options position to offset changes in the value of the underlying asset. It's a proactive move to manage risk effectively.

2. Gamma Scalping

Fine-tune your options positions to exploit short-term price movements through gamma scalping. This dynamic strategy allows you to optimize gains in response to market fluctuations.

3. Theta Management

Monitor and manage the time decay of your options through effective theta management. This strategy is crucial for optimizing profitability over time.

Can You Use Put Options on Crypto?

Absolutely! Put options can be a valuable tool in the cryptocurrency market, providing a means to hedge against downside risk or capitalize on market downturns.

Considerations for Crypto Put Options:

  1. Liquidity: Ensure the options you trade have sufficient liquidity for effective execution.
  2. Volatility: Cryptocurrency markets are known for their volatility, making them suitable for options trading strategies.
  3. Research the Platform: Choose a reliable trading platform that supports crypto options and offers a user-friendly interface.

Real-world Scenario: TerraMatris Hedge Fund

Let me provide you with a more detailed account of how I navigated the adjustments for the TerraMatris crypto hedge fund after opening a 1-day to expiry (1DTE) trade on November 17, 2023.

On that day, I initiated a position by opening a 1.8 ETH large put option with a strike price of 1950, securing a premium of 1.9. At the time of entry, Ethereum's price stood at $2,051, and the trade seemed promising.

However, as the hours unfolded, the price of Ethereum experienced a dip, falling below the crucial $2,000 mark. This prompted a careful evaluation of potential adjustments. Here are the considerations that ran through my mind:

One option was to adhere to the initial plan and wait for the option to expire, holding onto the hope that the market would swing back in my favor.

Alternatively, I could opt for a strategic roll by closing the current put option and opening a new one with a different expiration date and a lower strike price.

Acknowledging the dip in the market, another option was to cut losses and close the trade, albeit incurring a small loss.

When the price of Ethereum reached 1963, I made the decision to take a proactive stance and adjust the trade. Here's how I executed the adjustment:

Trade Adjustment Details:

  • Bought back 1 ETH contract paying 6.6
  • Opened a new 0.5 ETH contract
    • Expiry: One week
    • Strike Price: 1900
    • Premium Received: 25.9

The decision to partially roll forward the trade was rooted in a strategic approach to risk management. By splitting the trade in half, I aimed to reduce exposure to potential losses while retaining the flexibility to capitalize on any favorable market movements in the upcoming week.

What Happens Next

Following this adjustment, the trade entered a new phase with the open position for 0.5 ETH at a lower strike price. The subsequent market dynamics and Ethereum's price movement would play a crucial role in determining the overall success of this adjusted strategy.

As the trade continued, diligent monitoring of market conditions became paramount. This included keeping a close eye on Ethereum's price, implied volatility, and any emerging trends that could impact the options position.

In the dynamic world of crypto options trading, adaptability is key. The adjustment made was not a one-size-fits-all solution but a tailored response to the specific circumstances of the market at that moment.

Adjusting a 1 DTE Crypto Put Option requires a nuanced approach, considering market conditions, strike price adjustments, and overall option position management. Whether you're adjusting the strike price, managing a long put option, or employing general option strategies, a comprehensive understanding of these techniques is crucial for successful options trading in the dynamic crypto market. The real-world scenario involving the TerraMatris hedge fund underscores the practical application of these strategies in navigating the complexities of crypto options trading. As you venture into the exciting realm of options, may these insights guide you in making informed and adaptive decisions for a resilient portfolio.