Expiry Risk

Expiry risk is the risk associated with the final moments of an option contract, where the delta can change extremely rapidly and the value of the option is highly sensitive to the underlying price. This is particularly dangerous for traders who are short options, as they may be forced to close their positions or face assignment at unfavorable prices.

In crypto, where price volatility can be extreme, expiry risk is a significant concern for market makers and liquidity providers. It requires careful management, including the potential for early closing of positions or adjusting hedges to account for the gamma spike near expiration.

Understanding expiry risk is crucial for avoiding catastrophic losses that can occur when an option is deep in the money or near the strike price at the last minute. It is a final hurdle for any option strategy and requires a clear plan for managing the end-of-life of the contract.

By preparing for expiry risk, traders can protect their capital and ensure a smooth exit from their positions.