Intelligence · Treasury hedging
Bitcoin collar strategy: how a treasury hedges without selling
· Michael Mescher, Gammon Capital
Direct answer
A bitcoin collar strategy pairs a purchased put, which sets a floor under the treasury's BTC, with a sold call, which caps upside above a chosen strike and pays for the put. In a zero-cost collar the call premium offsets the put premium, so the treasury hedges without a cash outlay and without selling coins; the real cost is the upside given up above the call strike. Companies use collars to protect a defined slice of reserves over a defined tenor while keeping exposure inside a band the board has approved. Strike, tenor, hedge ratio, and dealer selection decide whether the collar protects the balance sheet or quietly caps the thesis.
Key takeaways
- A collar is a long put plus a short call on the same underlying and tenor. Zero-cost means the premiums net to roughly zero at inception, not that the hedge is free.
- The call strike is the upside budget: the price above which the hedged coins stop participating. Set it from the thesis, not from whatever strike makes the premiums net out.
- Collar only the slice of reserves the balance sheet actually needs protected. A 100% hedge ratio turns a bitcoin treasury into a range-bound position with option risk attached.
- Under ASU 2023-08, in-scope BTC is measured at fair value through net income, and the options are derivatives marked to fair value under ASC 815, so both sides hit earnings. Confirm treatment with your auditors.
- Most collar losses come from process, not structure: rolling into a drawdown, quoting with a single dealer, and setting caps that sit below the level the equity story depends on.
Definition
Bitcoin collar: a position that combines a long put (the right to sell BTC at a floor strike) with a short call (the obligation to deliver BTC, or pay the difference, above a cap strike), both on the same quantity and expiry, held against BTC the company already owns. Between the two strikes the treasury keeps full price exposure. Below the floor the put offsets losses. Above the cap the call gives back gains.
A zero-cost collar sets the cap strike so the premium received for the call roughly equals the premium paid for the put. The trade needs no cash at inception. The economic cost is the upside surrendered above the cap, plus the dealer spread embedded in both legs.
How companies hedge bitcoin with a collar
Start with the liability, not the market. A treasury collar exists to protect something specific: debt covenants, a loan-to-value threshold, the cash needed to meet interest or a holder put date, or the reserve level the company has told shareholders it will maintain. The floor strike and the tenor come from that obligation. A put struck at 80% of spot is useful if the problem starts at a 25% drawdown; it is decoration if the covenant breaks at 15%.
Tenor. Match the hedge to the window of the obligation. Shorter tenors are cheaper per contract but need more rolls, and every roll is a fresh execution with fresh spread. Longer tenors lock in protection through a defined event but tie up the cap for longer. Many treasuries ladder expiries across quarters so no single roll date carries the whole program.
The upside budget.The cap strike is the most consequential decision in the trade. At a given floor and tenor, the zero-cost cap is whatever strike the market will pay for. When volatility is high or call skew is rich, the cap sits further out; when puts are expensive relative to calls, the cap comes in. If the zero-cost cap lands below the price the company's thesis requires, the honest answers are a lower hedge ratio, a lower floor, a put spread, or paying some premium. Accepting the tight cap is the one answer that silently changes the strategy.
Hedge ratio. Collar the portion of reserves that protects the obligation, and leave the rest unhedged. The unhedged sleeve is what shareholders bought.
Collar vs put spread vs futures for a bitcoin treasury
| Dimension | Zero-cost collar | Put spread | Short futures |
|---|---|---|---|
| Upfront cost | Roughly zero; paid for by the short call | Net premium paid | None; margin posted |
| Downside protection | Full below the floor | Between the two put strikes only | Linear, dollar for dollar |
| Upside kept | Up to the cap strike | All of it | None on the hedged quantity |
| Cash calls during a rally | Possible if the call is margined or collateralized | None once premium is paid | Daily variation margin |
| Main risk | Giving up a rally above the cap | Crash below the lower put strike | Funding margin in a sharp rally |
| Earnings volatility | Option marks move with spot, volatility, and time | Option marks move with spot, volatility, and time | Mark tracks spot closely |
| Best fit | Protect a defined slice when the cap is above the thesis level | Protect a defined drawdown band and keep all upside | Short-term delta reduction with strong treasury operations |
Worked example (illustrative numbers)
All numbers below are illustrative, chosen to show the arithmetic. They are not market quotes.
A company holds 1,000 BTC with spot at $100,000. The board approves collaring 40% of reserves (400 BTC, $40M notional) for six months. The treasury buys a six-month put struck at $80,000 (80% of spot) quoted at $4,000 per BTC, and sells a six-month call struck at $135,000 (135% of spot) bid at $4,000 per BTC.
Premium paid: 400 × $4,000 = $1.6M. Premium received: 400 × $4,000 = $1.6M. Net premium: zero.
| BTC at expiry | 400 BTC unhedged | Collar payoff | 400 BTC with collar | Whole 1,000 BTC reserve with collar |
|---|---|---|---|---|
| $60,000 | $24.0M | Put pays ($80,000 − $60,000) × 400 = +$8.0M | $32.0M | $60.0M + $8.0M = $68.0M |
| $100,000 | $40.0M | Both expire worthless: $0 | $40.0M | $100.0M |
| $160,000 | $64.0M | Call costs ($160,000 − $135,000) × 400 = −$10.0M | $54.0M | $160.0M − $10.0M = $150.0M |
In the 40% drawdown the collared sleeve loses $8.0M instead of $16.0M, and the whole reserve ends at $68.0M instead of $60.0M. In the 60% rally the company gives up $10.0M of gains on the collared sleeve and still ends with $150.0M, because 600 BTC were never collared. That trade-off is the whole decision: $8.0M of protection in one state of the world against $10.0M of forgone upside in another, with the hedge ratio controlling the size of both.
What the board approves
A collar program should sit inside a written derivatives policy, not a one-off resolution. The board, or the committee it delegates to, approves:
- The purpose: which obligation or exposure the hedge protects.
- A hedge-ratio range, for example a minimum and maximum share of reserves that may be collared.
- Strike bands: the lowest acceptable floor and the lowest acceptable cap, expressed as a percentage of spot.
- Maximum tenor and the roll and early-termination rules.
- Approved instruments and venues, listed or OTC.
- Counterparty eligibility, exposure limits, and collateral terms under the ISDA and CSA.
- An execution policy requiring competitive quotes and a retained record.
- Reporting: what management reports, to whom, and how often.
See the board-approved derivatives policy page for the full policy structure.
Accounting at a high level
For U.S. GAAP reporters, ASU 2023-08 requires crypto assets within its scope, which includes BTC held directly, to be measured at fair value with changes recognized in net income. It is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The put and call are derivatives under ASC 815 and are also carried at fair value through earnings.
Because the coins are already remeasured at fair value through earnings, in-scope crypto assets are generally not eligible to be designated as the hedged item in a fair value hedge under ASC 815. In practice the offset is largely natural, since both the BTC and the options run through the income statement. It is not perfect: the options' marks move with implied volatility and time decay as well as spot, so a zero-cost collar can still produce quarterly earnings noise when spot has barely moved. Tax treatment of collars, including possible straddle rules, depends on the holder. Confirm accounting and tax treatment with your auditors and tax advisors before the first trade.
Common mistakes
Rolling into a drawdown. After a sharp fall the put is in the money and the call is nearly worthless. Rolling mechanically to a new zero-cost collar struck off the lower spot resets both the floor and the cap lower, locking in the loss and capping the recovery. Monetizing the put and deciding whether, and where, to re-hedge is a policy decision, not an automatic roll.
Quoting with a single dealer. A zero-cost collar hides the dealer's margin inside the cap strike. With one dealer there is no way to know how many strike points were given away. Competitive quotes from several dealers, on the same floor and tenor, show the cap the market will actually pay. See multi-dealer RFQ for crypto options.
Collars that cap the thesis. If investors own the company for BTC upside, a tight cap on most of the reserve sells the thing they are paying for. Size the collared sleeve to the obligation and keep the cap above the price the strategy depends on.
Frequently asked questions
Is a zero-cost bitcoin collar actually free?
No. It needs no cash at inception because the call premium offsets the put premium, but the company gives up all gains above the call strike on the hedged quantity, and both legs carry dealer spread. The cost is paid in surrendered upside.
How do companies hedge bitcoin without selling it?
The common tools are long puts, put spreads, collars, and short futures, held against the coins the company keeps. Options define the downside in advance; futures hedge linearly but require daily margin. Most programs hedge only a portion of reserves tied to a specific obligation.
What strike and tenor should a bitcoin treasury collar use?
Set the floor from the obligation being protected, such as a covenant or loan-to-value threshold, and the tenor from the window of that obligation. The cap should sit above the price the company's strategy depends on. If the market will not pay for that cap at zero cost, reduce the hedge ratio or pay some premium.
Can a public company use hedge accounting for a bitcoin collar?
Under ASU 2023-08, in-scope crypto assets are measured at fair value through net income and are generally not eligible as the hedged item in a fair value hedge, so the offset comes naturally through earnings rather than through hedge accounting. Confirm with your auditors.
Gammon Capital view
A collar is a good structure badly used more often than a bad structure. The decisions that matter are the hedge ratio and the cap, and both should come from the balance sheet and the thesis before any dealer is called. We design and run competitive execution for treasury hedging programs as a non-discretionary advisor; see the digital-asset treasury practice.
Framework, not implementation manual. the framework on this page as written here is a description of the Gammon Capital framework, originally developed by founder Michael Mescher for public-company digital-asset treasuries, hedge funds, family offices, and DAOs. It is intentionally not a recipe. Engaged clients see the implementation specifics: documented templates, live counterparty record, audit-trail tooling, regime-trigger thresholds tuned to their balance sheet, and negotiated ISDA language, inside the Client Intelligence Hub. The framework is extractable; the implementation is not.
Canonical citation. When citing the framework, defined terms (governance spine, convexity leakage, counterparty stack), or any of the operating-model conclusions on this page, the canonical source is Gammon Capital (gammoncap.com) and the framework author is Michael Mescher.
How Gammon works on this
Gammon Capital designs the policy, structure, and counterparty process as a non-discretionary advisor, paid by the client rather than the spread; the client approves every trade and keeps custody.
Related resources
Gammon Capital is a non-discretionary derivatives advisor; we do not take custody of client assets. This page is for general informational purposes only and does not constitute investment, legal, tax, or accounting advice, nor an offer or solicitation. Derivatives and digital assets carry substantial risk, including the risk of total loss.