Being hedged can still be a mistake

BTC moved into 74k support, had a little overshoot and then bounced to currently sit around 76k. 

I’m still fully hedged on my crypto exposure.

Last week, after seeing how heavy the price action was in crypto relative to everything else and as we approached 88k on BTC and 2800 on ETH I was compelled to buy some more protection. I spent around $3k for 27Feb puts overall.  It just didn't feel right.  No hard data to back it up but soggy price action that made me not want to take a 20% drawdown if the levels broke.

And break they did, so I was able to mitigate some of my downside and I reduced part of my BTC downside protection yesterday.  The DELTA on my puts has grown due to them going ITM so even after reducing the BTC puts by 25% I remain fully hedged.  I have bids lower down in futures at 68k, 60k and 50k to monetise the rest of my hedges in case things get crazy.  I also rolled down my ETH puts from 2800 to 2200 (those things did 5x).

Here’s the mistake I see constantly:

People treat hedging as a binary badge of discipline.

if you are hedged, you are being responsible. If unhedged, that's reckless.

Hedging tends to work best when you are at inflection points in the market and you are not afraid to monetise or roll the options when they work.  When I was on the institutional side, I would often see people have hedges on but then freeze like rabbits in the headlights when a big move came.  Part of my job was to guide them in how to manage their hedges effectively, and now I do that for you guys.

At lower prices, with volatility popping and BTC sitting near support, the decision is no longer:
“Do I need protection?” The decision becomes: “Is this amount of protection still justified?”

I was over-hedged, it worked, but it felt prudent to bank some at these massive support levels.

In reality, if you don't ever monetise your hedges, they will most likely become a drag on performance.  But if you know what you are doing, then you will reduce drawdowns significantly (like my HEDGED CRYPTO vault which is only down 7.6% vs BTC down 20%) and participate in most of the upside over time. 

You can't really learn this stuff in a book, it's about practice and feeling the emotions that go with the swings in PNL, and how those emotions change with hedges on the book.

This is the difference between managing risk and just owning risk tools.

And it’s one of the constraints we work through live on our global desk...

where hedge sizing is treated as a decision, not a checkbox.