What protecting $10,000 of ETH for a year actually costs
Hedging is asked for more than almost anything. Priced at every strike, spend and tenor, it lost in every single configuration tested.
“Put 10,000 USDC into WETH and protect it against a fall of more than 15% over the next year.”
That is a real request, typed by a real person, and it is one of the most common things anyone asks for. It is also the request where the honest answer is least welcome.
The short version
Insuring a long position at the money costs about a third of the position’s value per year on BTC and about two fifths on ETH. The premium is larger than the asset’s own drift, which means no choice of strike and no size of budget rescues it. There is no clever corner.
Every strike, every spend, every tenor — buying protection has not worked. Not “worked badly”. Not worked.
What was actually tested
This is not one backtest with a discouraging result. It is a sweep, and the sweep is the point: a single configuration that loses is an anecdote, and a single configuration that wins is usually a bug.
- Strikes
- 0.70, 0.80, 0.90, 0.95 and 1.00 — as moneyness, so the same shape prices on BTC at $90,000 and ETH at $3,000
- Premium budget
- 0.5% to 10% of the sleeve per roll
- Tenors
- 30, 90, 180 and 365 days
- Position weight
- 50% to 70% spot
- Windows
- Four, across both assets
Every combination lost. Repricing at the skew a live option chain actually showed did not change it.
It barely even protects
This is the part that surprises people who have already accepted the cost. The premium buys much less protection than it looks like it should.
- $8,363 a year of BTC puts
- Reduced the worst drawdown by 1.2 points — from 56.2% to 55.0% — and cost 4.7 points of annual return
- Heavy protection on ETH
- Made the drawdown WORSE. Paying premium every roll is itself a drawdown, and it arrives whether or not the crash does
- Through the 2022 crash
- Saved 1.8 points on BTC and 0.8 on ETH — after paying for four years to be holding it on the day
Two ways this measurement goes wrong
Both of these produced results we had to throw away, and both are easy to reproduce if you go looking for this yourself.
- Spending 100% of the sleeve on premium is not a hedge
Set the premium budget to the whole account and every roll spends everything on options. That reads as −96.6% and it is not a finding — it is a leveraged buyer of volatility, not somebody insuring a position. A buying structure is sized by its premium, so the budget is the whole trade.
- Never judge an option strategy at one placement
A 365-day put looked like +3.4 points on BTC at a single placement. Its drawdown saving was −0.1, which was the tell: that is a directional bet wearing a hedge’s clothes. Laddered across four placements the advantage vanished and it lost in six of eight windows.
What the prices are built on, exactly
We would rather you knew where the soft part is.
There is one measured input: DVOL, Deribit’s 30-day at-the-money volatility index. Strike is handled by a skew we set, tenor by a term structure we set. Historical option chains are not available from anyone, so this is model-priced and always will be.
One known bias, stated plainly: real volatility is a smile and this model is not, so it prices selling calls too cheaply. That means covered-call results are pessimistic by an amount we have not measured.
So what do you do instead
Three things, in order.
- Price it before you assume it is prudent
“I’ll hedge the downside” sounds responsible and costs a third of the position a year. Nine structures can be priced at once — protective put, collar, put spread, straddle, strangle, covered call and more — today and at every roll since 2021. That is one question and it spends nothing.
- Size the position instead of insuring it
If a 55% drawdown is unacceptable, holding less is free. Protection that reduces it to 54% is not a smaller position, it is the same position with a fee.
- Check what the other side pays
The side that worked in this data is the opposite one — selling puts with a regime filter rather than buying them. That is a different risk with a different failure mode, and it is not advice. It is the direction the measurement points.
The honest summary
If you came here to find out what a hedge costs, the number is 30–40% a year against the asset’s own drift, and it does not improve at any strike or budget we tested.
That is a real answer to a real question, and it is worth more than a tool that cheerfully builds you the position. The measurement takes one question and no money. The position takes a year and a third of your capital to reach the same conclusion.