Institutions are borrowing from established bitcoin options strategies as they expand activity in altcoins, STS Digital noted.

Institutional investors are increasingly applying bitcoin options strategies to altcoins as they look to manage volatility and enhance returns, STS Digital told CoinDesk.

Maxime Seiler, co-founder and CEO of STS Digital, said the firm’s clients — including asset managers, token foundations, venture capital firms, and large holders — are extending approaches long used in bitcoin markets, such as covered calls, put selling, and downside hedging, to a broader range of cryptocurrencies.

“Historically, these strategies were concentrated in bitcoin,” Seiler said. “We’re now seeing institutions and other sophisticated participants apply the same playbook to altcoins.”

Options are contracts that give buyers the right, but not the obligation, to buy or sell an asset at a predetermined price on a future date. Call options provide upside exposure, while put options protect against downside moves. Sellers receive an upfront premium in exchange for taking on that risk, effectively functioning as insurance.

In bitcoin markets, institutions frequently use covered calls — selling calls above spot prices — to generate additional income on holdings. Since the 2020 market downturn, these strategies have become staples for institutional traders, alongside selling puts to boost yield, buying puts for protection, and purchasing calls to maintain upside exposure.

STS Digital said similar strategies are now being adopted in altcoins, a trend reinforced by market stress events such as the October 10 selloff, when forced liquidations and auto-deleveraging amplified losses.

“Institutions are using put selling for yield, downside hedging, and call buying to gain upside with defined risk,” Seiler said. “Applying these strategies to altcoins helps manage exposure without taking on the forced liquidation risk that occurred during the October crash.”

STS Digital is a regulated trading firm and principal dealer providing liquidity across options, spot markets, and structured products for over 400 cryptocurrencies. The firm settles billions in altcoin options annually through bilateral trades, acting as the counterparty to clients for immediate execution.

While centralized platforms like Deribit focus on major tokens such as bitcoin and ether, STS Digital’s broader coverage allows it to meet growing institutional demand for altcoin options.

Seiler expects continued growth in options tied to bitcoin and other tokens, with derivatives increasingly seen as the preferred tool for managing digital asset exposure.

“Periods of consolidation and low volatility are now viewed as attractive entry points ahead of the next wave of market catalysts,” he said.