How to Hedge Your NFT Collection With Ethereum Derivatives
The majority of the non-fungible token (NFT) market resides on Ethereum (ETH), tying the performance of the NFT market – to a degree – to the value of ether as most NFTs are priced in ETH.
Therefore, NFT collectors who are concerned about a potential market downturn could hedge the value of their collection using Ethereum derivatives.
Read on to learn how to hedge your NFT collection with futures and options.
If you are concerned about the NFT hype dying down, which would likely result in a drop in the value of your NFT collection, you could hedge your portfolio by selling Ethereum futures.
Futures are financial derivative contracts where two parties agree to exchange an asset at a pre-agreed price at a specific date. The original idea behind futures contracts is that you can lock in a price to buy or sell an asset in the future. That way, you will know how much you will pay or receive regardless of where the market for the asset is at the time.
You can trade ETH futures on numerous leading crypto exchanges or, if you prefer regulated derivatives, on the Chicago Mercantile Exchange (CME).
If you are expecting the NFT market to correct in the coming six months, but you don’t want to sell any of your NFTs, you could hedge your Ethereum-based NFT portfolio by selling ETH futures with a six-month maturity.
You can decide how much of your portfolio you want to hedge by calculating the hedge ratio of your portfolio. That way, you will know how many futures contracts to hedge a part of or your entire NFT portfolio.
Alternatively, you could also hedge your NFT collection using Ethereum options.
Options are derivatives contracts that give the holder the right but not the obligation to buy or sell an asset at a predefined price at a
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