Think Options Are Risky? Only If You Skip This Step.

Options trading offers traders the flexibility to manage risk more effectively than spot or futures trading. Spot trading exposes you to full market volatility, and futures come with the risk of liquidation due to leverage.

Options, however, limit downside to the premium paid, providing a safer way to speculate or hedge without risking your entire position.

1. Understanding Risk in Options Trading

In options trading, losses are capped at the premium spent, unlike spot or futures where losses can be substantial. Stryke’s auto exercise feature also ensures that any in-the-money options are settled automatically at expiration, securing profits without manual action.

Example Scenario: Let’s assume ETH is trading at $2,600, a trader can either take a bullish or bearish view and setup an options position on Stryke’s CLAMM accordingly.

A bullish trader might buy a call option, anticipating ETH’s price will rise. A bearish trader could buy a put option, expecting a dip below $2,600.

Here’s a step-by-step guide on how to buy and sell options on Stryke, ensuring traders know how to set up positions efficiently.

2. Why Risk Management Matters in Options

Options let you participate in the market’s upside or downside while controlling risk. This approach makes options ideal for managing exposure, especially in a volatile market. Beginners are encouraged to start small—placing low-cost trades to observe market behaviour and assess their risk tolerance.

Starting Small: Try buying a single call or put option on WETH/USDC to test your strategy and risk management approach.

3. Overview of Risk Management Tools on Stryke

Stryke’s risk management tools allow for a more strategic approach to options:

Volatility Indicators: Use implied volatility data to gauge potential price swings.

Note: When you’re buying an option on Stryke, all key details are shown in the Trade pane on the right side of the interface. This includes the expiry date, strike price, implied volatility, premium, fees, and options to toggle features like auto exercise — helping you make informed decisions before placing a trade.

PnL Tracking: Monitor profits and losses in real-time. Also, get estimated PNL before opening the position.
Auto Exercise: This feature automatically exercises in-the-money options at expiration, helping traders capture gains without needing to monitor positions closely.

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For beginners, this reduces the risk of missing profitable opportunities or leaving options to expire without value. By automating this process, Stryke ensures you don’t lose out on gains, particularly in volatile markets where timing is critical.

Limit Exercise: This lets you pre-set a price at which your in-the-money option will be exercised early if conditions are met. It’s a way to lock in profits ahead of expiry when your target price is hit.

Note: Here’s a quick look at the Limit Exercise feature in the CLAMM interface, which also displays the PnL tracking details. You can learn more about this feature here.

Options Greeks: Delta, Gamma, Theta, and Vega metrics give insights into how positions respond to price, time, and volatility changes.

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Quick Options Greeks Primer

Options Greeks are tools that help estimate how an option’s price might change:

Delta: Shows how much the option’s price might change if ETH’s price moves by $1.
Gamma: Tracks how much Delta might change, useful for understanding quick price moves.
Theta: Measures how much value the option loses each day as it gets closer to expiration.
Vega: Shows how the option’s price could change if market volatility shifts by 1%.

These Greeks on Stryke help traders manage and adjust their options positions better. We will discuss these fundamental concepts in detail in a future post.

4. Key Takeaways and Next Steps

Start with a Small Trade: Open a low-risk call or put option on ETH to get familiar with options trading dynamics.
Use Stryke’s Risk Management Tools: Keep track of your PnL and other key metrics to make informed adjustments.
Watch Market Trends: Monitor ETH’s price and adjust your exposure to stay aligned with your risk tolerance.

Risk management is crucial for success in options trading. In the next post, we’ll explore position sizing and diversification to help you manage risk across different assets.

About Stryke

Stryke is a decentralised options protocol that focuses on maximising liquidity and enhancing gains for option buyers while minimising losses for option writers—all in a passive approach.Stryke employs option pools that enable anyone to effortlessly earn yield. The protocol provides value to both option sellers and buyers by ensuring equitable and optimised prices for options at various strike prices and expiries, achieved through our proprietary, cutting-edge option pricing model designed to mirror volatility smiles.

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