Lesson 11 of 17Advanced8 min
How does hedging crypto options work on a sold Bitcoin option?
You hedge a sold option by buying a further out-of-the-money option of the same type. On Bitcoin, a sold call plus a higher bought call is a bear call spread: the loss above the strikes is capped at the gap between them, less the premium kept. The hedge costs part of your income.
Real Delta Exchange quotes · 8 Nov, 2:17 pm ISTFree, no account needed
Step 1 of 2
You sold a call. What if Bitcoin rockets?
You sold the call two strikes above and pocketed the premium. Above the strike the loss has no floor.
A hedge is one bought option that catches the fall. Buy the call two strikes higher. Look at both pictures at the same price.
Think of it like this. A seatbelt. It costs a little comfort every day. On the one bad day it is the only thing that matters.
Price at 80,483 → the trade sits at −₹2,214
With the hedge → loss capped at −₹576 (−₹576 here)
At 80,483: −₹2,214 without the hedge · −₹576 with the hedge. With the hedge is ₹1,638 better at this price.
Step 2 of 2
The price of the floor
The hedge costs premium, so the income drops. In return the worst case is fixed: the gap between the strikes, less the credit you kept.
This shape is a bear call spread. Every spread is this idea: one sold, one bought, the loss capped.
Profit or loss if the price is 82,001(your target)
| Date | Profit / loss |
|---|---|
| On target dateFri, 13 Nov | −₹576loss |
| On expiry dateFri, 13 Nov | −₹576loss |
Move over the graph to read any price; tap or click to set it as the target.
- The 77,000 call is worth 5,001 per BTC (82,001 − 77,000).
- The 78,000 call is worth 4,001 per BTC (82,001 − 78,000).
- Together the options are worth −₹850 to you on 0.01 BTC.
- You received ₹274 when you opened the trade.
- Result: −₹576.
Why did the credit drop when you added the hedge?
Answer the quick check to finish. Your progress stays in this browser.
Next: Hedging both sides: the iron condorKey terms
- Hedge
- A position that limits another position's loss.
- Wing
- The bought option that caps a spread's loss.
- Bear call spread
- A sold call plus a higher bought call.
- Maximum loss of a spread
- The gap between the strikes, minus the net credit.
Questions people ask
Does hedging reduce profit?
Yes. The bought option costs premium, so the income drops. In exchange, the worst case is known before you trade.
How far away should the hedge be on Bitcoin?
A closer hedge costs more and caps the loss tighter; a further one is cheaper but leaves more room to lose. Two strikes beyond the sold strike is a common starting point.
Can Algoclear add a hedge automatically?
Yes. An adjustment rule can buy a hedge the moment Bitcoin comes near your sold strike, at any hour.
Keep going
From a cliff to a floor
A naked sold call has a cliff: above the strike, the loss grows without limit. Add a bought call higher up and the cliff becomes a floor. Every spread in options is this one idea: one sold, one bought, the loss capped.
Why crypto sellers hedge
Bitcoin can move several percent overnight, on a weekend, with no closing bell to stop it. A hedge is the part of the trade that works while you sleep, which is why many crypto option sellers never sell without one.
Paying for the floor
The hedge's premium comes out of your income. The closer the hedge, the more income it costs and the smaller the worst case. The simulator above shows the position with and without the hedge at today's prices.
You do not have to hedge at entry. Many traders sell the option and add the hedge only if Bitcoin walks toward the strike, which is exactly what an automated adjustment rule does.
Written by the Algoclear team · Updated 22 September 2026 · Examples use Bitcoin options on Delta Exchange India.
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