Directional Hedging

Directional hedging involves taking positions that counteract the potential losses from adverse price movements in a specific direction. Traders use options to hedge their spot cryptocurrency holdings against downside risk by purchasing protective puts.

This strategy allows the holder to maintain exposure to the upside while limiting potential losses if the market drops. Unlike delta neutrality, which removes all directional bias, directional hedging is a tactical move to protect capital during uncertain market conditions.

It is a fundamental risk management tool for institutional investors and protocol treasuries.