Strategy 07 · Event Contracts
Portfolio Event Hedging
A direct hedge for a discrete risk.
Several Wesvel mandates carry exposure to discrete events (a regulatory ruling, a network upgrade, a rate decision) that is hard to hedge with price instruments. A futures hedge protects against a price move without saying why it happened; an event contract on the specific outcome pays if that outcome occurs. Used this way, the contract is sized to the exposure it offsets, not to a view on the event.
Identifying the exposure
The book is reviewed for positions whose value depends on a specific, scheduled or foreseeable outcome: a DeFi position in a protocol facing a governance vote, a venture position in a company awaiting a regulatory decision, a tokenized instrument whose eligibility depends on a rule change. The exposure is estimated, how much the position loses if the outcome goes the wrong way, and recorded.
Sizing the hedge
A contract that pays if the adverse outcome occurs is bought in a size that offsets the estimated loss, adjusted for the contract’s price and for basis risk between the contract’s definition and the position’s actual exposure. The hedge is not free: its cost is the premium paid times the probability the adverse outcome does not occur, and that cost is measured against the exposure it protects.
Hedge or trade
The distinction matters for governance. A hedge is sized to an exposure and held to the event regardless of whether the contract’s price moves against it. A trade is sized to an edge and exited when the edge is gone. Positions are labeled as one or the other at entry, and a hedge that would not be held if the exposure did not exist is not held.
Practice
How Wesvel approaches it
- 01Event exposures across the book are identified and recorded on a schedule, with an estimated loss on the adverse outcome.
- 02Hedges are sized to the recorded exposure and labeled as hedges at entry; they are not resized on price moves.
- 03Basis between the contract’s definition and the position’s exposure is assessed and recorded; a hedge with material basis is sized down, not up.
- 04Hedge cost is measured against the exposure protected and reported alongside the position it hedges.
More in Event Contracts
- What Is TradedThe categories of event contract the mandate trades, and the test every contract must pass before it is eligible.
- Venues and RegulationRegulated designated contract markets versus on-chain prediction markets, and how an unsettled regulatory position shapes what the fund can do.
- Probability PricingHow a contract price implies a probability, how the mandate forms its own estimate, and why the gap has to be wide.
- AI and Mispriced ProbabilitiesHow machine learning and language models screen hundreds of event contracts for prices that disagree with a calibrated estimate, and how that gap becomes a position with positive expected value.
- Cross-Venue Relative ValueBuying an outcome where it is cheap and selling it where it is rich, and why contract definitions decide whether the trade is real.
- Resolution Risk and Position LimitsHow contracts resolve, what goes wrong when they do, and the caps that keep the mandate small.