This Simple Options Trick Could Save Your Portfolio in a Crash
Risk management in options trading is about more than just picking the right trade. In the first post of this series, we saw how options naturally cap downside compared to spot and futures, and in the second post, we explored how position sizing and diversification keep risk under control across trades. In this final post, we’ll look at hedging strategies i.e. how to use CLAMM options to protect your portfolio against unexpected losses while still leaving room for upside.
What Is Hedging? and Why It’s Important?
Hedging with options means taking an opposite position to reduce downside risk. Think of it like insurance, you pay a small premium to protect against a much bigger potential loss. Traders use it most during volatile markets, but the key insight is that hedging isn’t about being right on direction, it’s about staying in the game when the market moves against you.
Hedging Strategies on Stryke
Protective Puts are one of the simplest ways to hedge. By buying a put option on an asset you already own. For example, on WETH you create a safety net against downside moves while still keeping full exposure to the upside.
Protip: The goal isn’t to make money with the hedge. It’s to make sure you don’t blow up your portfolio when the market nukes.
Step by Step: Setting Up a Hedge on Stryke
- Identify Exposure: What asset do you want to protect? (e.g., WETH holdings).
- Pick a Hedge Option: Choose a put (for downside) or call (for upside protection).
- Check the Greeks: Learn how Delta, Gamma, and Theta work to understand how your option responds to changes. Here’s a quick primer.
- Execute the Trade: Follow Stryke’s walkthrough for clear steps.
Passive Trading Design: Because Stryke is built for passive strategies, you don’t need to babysit your hedge constantly.
This is especially valuable for hedging, since traders can set up protection and go about their day without staring at charts all the time.
Real World Scenarios: Hedging in Action
- Bull Market Protection: It’s tough to time tops. After a strong BTC run, you don’t want to sell, since price could still go higher in the midterm. But you also don’t want to be unprotected if there’s a short term correction.
- Planning an Exit with Premiums: If you already know the price where you’d be comfortable selling your asset, options let you turn that plan into income. By selling a call at your chosen strike, you collect premium up front. If the price never reaches that level, you keep both your asset and the premium. If it does, you still keep the premium and sell at your target strike. Essentially locking in your exit at a higher effective price than the market today.
Solution: Buy a put at your chosen strike (or a suitable “protection level”). The higher the strike, the higher the premium, just like paying more for better insurance. This cushions you if the market dips before continuing upward.
Protip: It’s easier to let winners run when you know the downside is capped.
Monitoring and Adjusting as Markets Shift
- Use Stryke’s tools: Track PnL and volatility to see if your hedge is working.
- Rebalance when needed: If the market keeps moving, roll your hedge to a new strike or expiry.
- Think cross chain: With Stryke’s cross chain support, you can hedge exposure across different assets and ecosystems, not just one chain. This adds an extra layer of flexibility.
Summary & Best Practices for New Traders
- Think Insurance, Not Profit: A hedge protects your portfolio, not necessarily grows it.
- Stay on Top of It: Even passive hedges need occasional review.
- Start Small: Practice with small positions before scaling up.
With this series, you’ve built a full toolkit for managing risk: starting with understanding why options themselves are safer than spot or futures, then learning how to size positions and diversify, and now adding hedging to protect your portfolio during volatility. Options aren’t just for speculation; they’re powerful tools for building a resilient strategy that can weather both crashes and rallies.
The next step is yours, take these insights and apply them to your own trading journey with Stryke.
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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