After Detailing Bull Calls Spreads, PsyOptions Explains a Protective Collar

The options protocol continues updating its users about the various options strategies available as its launch draws near.

By
Utulu Hope
on
June 24, 2021
Category:
Breaking News

PsyOptions Unveils New Strategy 

After explaining its complex strategy known as the Bull Calls Spread, PsyOptions has continued its trend of keeping users updated with new options strategies amidst its imminent launch. Our last article about PsyOptions covered the Bull Calls Spread strategy and a brief explanation about options trading.  Like the previously explained strategy, the prospective Solana-based options protocol used Twitter to cover another options strategy on June 23rd. According to PsyOptions, the strategy is what users could use to secure their assets when they are unsure about what will happen due to the market’s volatility. The strategy is known as a “Protective Collar.” 


Protective Collar Explained

This options strategy is meant for users who want to keep their assets safe. The protective collar strategy can be likened to a dog’s protective collar. The strategy protects users’ positions from any further harm while also assisting in recovery. It allows users to protect themselves from short-term downside losses while also maintaining the ability to make money if the price increases. Let us clarify this strategy with a simple illustration. 

For instance, you are a SOL holder because you love Solana and want to make a profit. However, the price has been fluctuating at an uncomfortable rate. Instead of trying to time the market, you decide to use a protective collar to be on a safer side. In order to protect your underlying SOL long, you would need to purchase an Out-of-The-Money (OTM) put option to hedge against a potential price dump. After this is done, you would write an OTM call option with the same expiration as the put you purchased. 

Writing the call option essentially pays for the put, and in theory, you could even end up with a net gain using the protective collar strategy. However, if the price doesn't go down and surges past the written call’s strike price instead, you will be forced to sell your previous SOL to whoever you sold the call option to. Therefore, as good as this strategy is very efficient to protect one’s assets, it does not guarantee 100% protection. 


About PsyOptions 

Source

PsyOptions is an options protocol built on the Solana blockchain. The protocol boasts of flexibility and composability, thanks to Solana, and is entirely trustless. Options are represented as Solana Program Library (SPL) Tokens, ensuring that they are traded on decentralized exchanges (DEXes) that support SPL Tokens. 


Conclusion 

PsyOptions keeps explaining different options strategies to drive more adoption before its launch. The options protocol will likely present more of these strategies on Twitter to inform its future user base. Just like the Bull Call Spread strategy explained earlier, the Protective Collar is also complex - but PsyOptions is able to simplify the concept for interested investors. These explanations will go a long way in helping traders who have difficulties understanding complex options trading. These explanations are positive towards building a solid community, keeping in mind the upcoming launch of the protocol. 

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Utulu Hope

UC Hope is a passionate fan of crypto who could weave the latest event into sparks of inspiration and information. He leaves no stone unturned to get to the core of a story. Aside from writing, he spends his hours poring over algorithms and protocols, preparing for a future career as a computer programmer.