Hedged Crypto Absolute Return Strategy

This strategy is designed to generate consistent absolute returns from Bitcoin while maintaining strict downside control. It combines active spot BTC trading with systematic options hedging, allowing participation in upside moves while limiting drawdowns during adverse market conditions.

Core Concept

The strategy trades Bitcoin on the spot market and continuously hedges risk using options. The hedge is not intended to eliminate volatility entirely, but to control tail risk and protect capital during sharp market moves. As a result, the return profile is asymmetric, with limited downside and positive skew.

Return Objective

The primary goal is stable, risk-adjusted growth rather than maximizing exposure to market direction. The strategy targets an average CAGR of around 30% with a controlled maximum drawdown of approximately 8%.

Risk Management

Risk is defined and managed at the trade and portfolio level. Each position is structured with predefined risk (R), resulting in a positive expectancy of about 0.6R per trade. Options hedging reduces large losses during extreme market events and smooths the equity curve.

The cost of hedging is approximately 20% of gross returns and is treated as an insurance premium for capital protection.

Performance Characteristics

 • Profit Factor: 1.6–1.9

 • Sharpe Ratio: ~1.5

 • Sortino Ratio: >3

 • Calmar Ratio: >3

 • Maximum Drawdown: ~8%

 • Return Distribution: Positive skew (losses are capped, gains are allowed to expand)

Market Exposure

The strategy is not fully dependent on a bull market. It can perform in trending, ranging, and volatile environments due to active position management and adaptive hedging. Returns are driven by trading edge and risk control rather than passive market beta.

Who This Strategy Is For

 • Traders seeking a systematic, risk-defined approach to BTC trading

 • Investors looking for crypto exposure with professional downside protection

 • Portfolios that require uncorrelated or low-drawdown return streams

Summary

This is a capital-preservation–focused crypto strategy with a clear emphasis on risk-adjusted returns. By combining spot BTC trading with options-based hedging, it aims to deliver stable growth, controlled drawdowns, and a structurally favorable return profile over full market cycles.