Institutions are increasingly leveraging established bitcoin options techniques on alternative cryptocurrencies to hedge against price fluctuations and generate additional returns, STS Digital, a principal trader focused on digital assets derivatives, informed CoinDesk.
“Our clientele includes token projects and foundations, investors with substantial holdings, and asset management firms preparing for liquidity events,” said Maxime Seiler, co-founder and CEO of STS Digital. “Increasingly, we’re also observing these players adopting option strategies, historically employed in Bitcoin, within the altcoin arena.”
Options are derivative contracts granting the buyer the right, but not the obligation, to purchase or sell the underlying asset at a specified price at a future date. A call option signifies a bullish position, allowing the holder the right to buy the asset at a designated price later. Conversely, a put option indicates a bearish position, shielding the buyer against a price drop.
The option writer effectively provides insurance against bullish or bearish movements in exchange for an upfront payment, termed a premium.
Entities holding bitcoin often sell options, issuing BTC calls at prices above the current market value and collecting the premium. This premium acts as extra income in addition to their existing BTC holdings.
This covered call strategy has been among the most favored institutional tactics since the downturn in early 2020. Institutions have also explored other approaches, such as writing bitcoin puts to enhance income during price rallies, purchasing puts as a safeguard against declines, and acquiring call options to benefit from market uptrends.
Currently, institutions and various entities, like project founders with significant altcoin holdings, foundations, venture capital firms, and individual players, are applying the same strategies to other cryptocurrencies or altcoins.
As noted by Seiler, these strategies have gained traction in altcoins following the crash on October 10, which led exchanges to forcibly liquidate even profitable positions (auto-deleveraging) to mitigate losses.
“In addition to covered calls, institutions are proactively employing put selling for yield, downside protection, and call buying to achieve upside with defined risk. These tactics are increasingly being directed toward altcoins as investors aim to manage risk without exposing themselves to forced liquidation (ADL) that contributed to the crash on October 10,” Seiler remarked.
“It’s a clear illustration of how options serve as a more robust method to express risk in volatile markets,” he added.
STS Digital is a regulated digital asset trading firm acting as a principal dealer for institutional investors, providing liquidity and quoting options, spot trades, and structured products across over 400 cryptocurrencies.
The diversity of its offerings allows the firm to meet the growing demand for altcoin options, while centralized platforms like Deribit concentrate on derivatives for major cryptocurrencies such as ETH, XRP, and SOL.
The firm processes billions in altcoin options volume each year through bilateral trades. All transactions occur directly between STS and clients, with STS taking the opposite side to ensure liquidity and immediate execution.
Seiler anticipates continued expansion in options linked to bitcoin and other tokens over the next few years.
“Looking forward, we expect strong and sustained institutional adoption to persist, driving demand for options as the preferred method to manage digital asset exposure. With adoption accelerating relentlessly over the past year, periods of consolidation and low volatility are increasingly perceived as attractive entry points ahead of the next phase of market catalysts,” he stated.
