AVAX Options for Hedging Spot and Generating Covered-Call Premium
Summary
This introduction describes AVAX options settled in USDC and explains the expiry payoffs of calls and puts. Buyers pay a premium for the right, but not the obligation, to transact at a strike price; their loss is limited to that premium, while call profits can grow without a stated cap. The examples show how a holder of AVAX can buy puts to limit losses below a chosen strike while retaining upside exposure, or sell calls against spot holdings to collect premium.
The put example frames protection as a tradeoff between premium cost and the selected strike and expiry. The covered-call example shows that premium lowers the effective cost basis, but gains above the call strike are surrendered and downside exposure remains. These are simplified expiry payoff illustrations rather than a comparison of live prices or a full account of option risks. The article also notes a contract size of 100 AVAX and that AVAX deposits and token offset currency were unavailable at the time described.
Key ideas
- A long call benefits from the underlying finishing above its strike, with the premium limiting the buyer’s loss.
- A long put can protect an AVAX holding below its strike while preserving gains if AVAX rises.
- A covered call earns premium but gives up gains above the sold call’s strike and does not remove downside risk.
- Strike and expiry choices depend on market views, risk tolerance, option prices, and desired protection.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.