EP 36: Using Options as Volatility Hedge I DeFi Options Series
What are options?
Options are an agreement. Remember when you were young and you told your best friend “if we are both single by 40 years old, let’s marry each other.” It is an agreement to execute at that time. Similarly, you have that for financial products. Instead of marrying, you buy or sell financial products at a specific price.
Why use options?
There are a few reasons to use options, mainly because it is part of a trading strategy and it can be quite cost efficient with limited risks. It depends on how you use the option.
Another way is to see option as an insurance via a long put strategy. We discuss that in the video too.
CeFi vs DeFi
More importantly, this is to build up towards DeFi options. How are DeFi options different? DeFi options has a protocol (and maybe tokens) to manage transactions and trade within the ecosystem. And that is what we want to look at in the next few episodes.