How To hedge Ethereum with short selling Perpetual Futures on Ethereum

Updated: 30 November, 2022 seen 30

In this article, I'm going to share how to hedge Ethereum coins with short-selling Ethereum perpetual contracts.

One of my favorite investing techniques is investing with covered calls, originally I mastered this trading strategy with stocks, like buying 100 shares, selling covered calls, pocketing the premium - depending on the price at the options expiry, letting your shares get assigned or roll forwards. 

Over the years I have mastered applying this options trading strategy to crypto market as well. But during the last past few months, it feels like 1 step forward, two steps back. I buy crypto, sell call options, and make some small gains, but the crypto drops another 10%, then again 10%.. in the end, i feel like a bag holder with the total value of my crypto holdings dropping more than 50% in just a few weeks. Well yes, I can hope for recovery.. but there should be a better approach. And there is.

Without further ado, how to hedge Ethereum (or any other crypto) with short selling futures on Ethereum

On November 27, 2022, I bought 0.06002404 ETH on Coinbase paying  $73.26 (ETH price $1,220.95), simultaneously I short-sold $74 worth of Ethereum Perpetual contracts on the Deribit trading platform. Short selling entry price $1,218.55

Short Selling Ethereum Futures
Short Selling Ethereum Futures

The next morning (November 28, 2022) Ethereum's price dipped $1,171, and my original investment shrank to $70.28 (-2.98), but the short futures contract gained + 0.0024 ETH or +$2.81. My investment at the end was worth 70.28+2.81 = $73.09. 

Now it was up to me, to keep the position open (hoping for deeper drop) or closing the posiiton with profit and looking for another opportunities. 

Hedging Ethereum with futures won't make you rich overnight, but at least could save your funds.  For any new buys with crypto, I would stick with this modified cash and carry approach.

Interested to learn more about trading options, short-selling futures? - visit my crypto coaching website at terramatris

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