Backtesting Bitcoin Options Positions Hedged with Spot or Futures
Summary
This introductory article describes a backtesting setup for European Bitcoin options on Deribit and explains how option contracts are identified by underlying asset, expiry, strike, and call or put type. It presents a short call combined first with a long spot position, then with a long futures position. The examples track option and hedge profits over time, illustrating how an option can offset some losses in a held Bitcoin position.
The discussion emphasizes that the hedge is partial: a falling spot price can still produce a net loss once the option premium is considered. It also notes that limited option-market liquidity can make counterparties hard to find. Replacing spot with futures can reduce capital tied up, while increasing risk. The article provides example backtest code and mentions bull call and bear put spreads as further combinations, but gives no detailed performance statistics or comparison across market conditions. Its examples are educational starting points rather than evidence that the strategies are profitable.
Key ideas
- Deribit contracts are described as European options, with each contract representing one BTC.
- A short call can be paired with long spot or long futures exposure.
- An option hedge may offset part of a decline, but losses can remain after accounting for the premium.
- Using futures may reduce capital use while increasing risk relative to spot.
- Limited liquidity can make option positions difficult to enter or exit.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.