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Hedging — Protecting Your Holdings

Options aren't just for speculation. Their original purpose is insurance — paying a known premium today to define your worst case tomorrow. On Etcha, you can hedge crypto, commodities, and indices.

The Metaphor

Options Are Insurance

You pay a premium for protection you hope you'll never use. If the bad thing happens, you're covered. If it doesn't, you're out the premium. Both home insurance and put options work this way.

Home Insurance
Pay premium → Protected if house burns

Cost: Annual premium
Protection: Rebuilding cost covered
If nothing happens: You're out the premium
Why pay: You sleep at night
Put Option
Pay premium → Protected if price crashes

Cost: Option premium (SigUSD)
Protection: Floor on your portfolio
If nothing happens: You're out the premium
Why pay: Your bags have a floor
Strategy 1

Protective Put — A Floor Under Your Holdings

You hold ERG and buy a put to cap your downside. Your portfolio can still rise with no limit, but the put creates a floor — the worst case is defined.

P&L$0ERG Price at Expiry →put strike $0.25ERG only← THE FLOOR — max loss capped herepremium cost(gap from ERG-only line)max loss:$500 + 200 = $700breakevenERG only (no hedge)ERG + protective put10,000 ERG at $0.30 + $0.25 putPremium: 20 SigUSD · Floor: $0.25

You hold 10,000 ERG at $0.30. You buy a $0.25 put for 20 SigUSD. Your worst case: $500 unrealized loss + 20 premium = $520 maximum. Without the put? Unlimited downside if ERG collapses.

Strategy 2 — Advanced

Collar — Floor and Ceiling

Own the asset + buy a put (floor) + sell a call (ceiling). Your profit and loss is limited in both directions — you cap your downside AND your upside. The premium you earn from selling the call can cover the cost of buying the put, making the net cost near zero.

P&L$0put strike (floor)call strike (ceiling)↑ FLOORCan't lose more↓ CEILINGCan't gain more↕ Banded zoneERG onlyNet cost can be near $0if call premium offsets put cost

You give up moonshots to eliminate crash risk. The collar is zero-cost (or near it) when the call premium you collect equals the put premium you pay. It's the "I just want to survive the bear market" strategy.

Beyond Crypto

Hedging Real-World Assets on Etcha

Etcha isn't limited to crypto. Oracle price feeds enable cash-settled options on commodities and indices — all settled in SigUSD, no brokerage required.

Gold PutWorried gold will dropbefore you sell?→ Buy a gold put on EtchaWTI CallThink oil will spike?Hedge against fuel costs.→ Buy a WTI call on EtchaS&P 500 PutHedge your stockholdings on-chain.→ Settled in SigUSDAll settled in SigUSD via oracle price feeds. No brokerage. No KYC. No physical delivery.Commodities and indices are always cash-settled — you can't deliver gold bars on-chain.
Tradeoffs

Cost of Insurance — Picking Your Floor

The closer your floor is to the current price, the more expensive the protection. Deeper out-of-the-money puts are cheaper but only kick in after a bigger drop.

Put Strike (Spot: $0.30)PremiumProtection Level
$0.28 — 7% OTMLowLess protection, cheaper. Only kicks in on a 7%+ drop.
$0.25 — 17% OTMMediumModerate floor. Reasonable for longer-term holds.
$0.30 — ATMHighFull floor at current price. Maximum protection, maximum cost.
The TradeoffDeeper OTM = cheaper premium, but higher deductible. ATM = full protection, but expensive. Choose based on how much drawdown you can tolerate before the insurance kicks in.
Key Takeaway

Options let you define your worst case in advance for a known cost. The premium is the price of certainty. Protective puts create a floor under your holdings. Collars trade moonshot potential for crash protection. On Etcha, you can hedge crypto, gold, oil, and equities — all settled in SigUSD.

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