In the past week, one of our ETH option positions came under pressure. We were short 1.7 ETH put contracts with a 4100 strike expiring on August 22. With ETH price action weakening, the trade started to look challenged.
At Terramatris, our primary focus is risk management. Collecting option premium is attractive, but holding onto a position that feels unsafe can quickly turn into a liability. We therefore took a hard look at our choices:
- Roll forward to a later expiry to keep premium income flowing.
- Hedge with futures to neutralize delta risk.
- Combination strategies, blending both approaches.
Why It Felt Unsafe
Near-dated puts carry high gamma risk. If ETH sold off aggressively before expiry, our margin exposure would spike, forcing reactive hedging at poor prices. That is not how we operate. Instead, we prefer to anticipate the risk and structure a plan before the market forces it.
The Strategies on the Table
- Pure Roll Forward
Would maintain income, but keep us exposed to downside if ETH broke below 4100 quickly. - Pure Futures Hedge
Would cleanly offset risk, but at the cost of giving up the premium opportunity. - Partial Roll + Hedge
A balanced approach: extend part of the position for more premium while hedging the rest to protect the book.
Our Decision: Partial Roll Down and Hedge
We chose the partial roll. Specifically, we rolled a portion of the puts forward and down in strike, pushing them out to the following week. This not only maintained the position but also collected additional premium due to the skew in ETH options.
For the remainder, we implemented a trigger-based short futures hedge. This hedge activates if ETH trades into specific downside levels, automatically reducing our exposure without tying up unnecessary capital upfront.
Why This Matters
This hybrid strategy accomplishes three things:
- Preserves Income – We keep harvesting option premium.
- Manages Tail Risk – Futures hedge protects against a sharp downside move.
- Keeps Flexibility – Rolling down improves risk/reward if ETH stabilizes or rebounds.
Key Takeaway
This trade illustrates how we operate at Terramatris: never passive, always adaptive. When a position feels unsafe, we don’t sit still. We evaluate the alternatives, choose the mix that balances reward and risk, and execute decisively.
The result: a position that continues to earn, but with downside risk contained. That’s the essence of our de-worrying strategy — turning a challenged trade into a controlled one.