Risk Premium Harvesting

Risk premium harvesting is an investment strategy that seeks to capture the compensation investors receive for bearing specific types of financial risk. In the context of derivatives, this often involves selling options to capture the variance risk premium or engaging in carry trades.

The strategy assumes that certain risks are systematically overpriced by the market, allowing disciplined participants to earn a return above the risk-free rate. In cryptocurrency, risk premiums can be exceptionally high, reflecting the compensation required for liquidity risk and uncertainty.

However, harvesting these premiums requires the ability to withstand temporary drawdowns and manage extreme tail events. It is a systematic approach that focuses on long-term edge rather than short-term speculation.

Success depends on the ability to identify and quantify the risks that are being harvested.