Samneet Chepal Profile picture
Sep 18, 2020 6 tweets 5 min read Read on X
@opyn_ is awesome because they offer options on DeFi tokens such as #YFI, #COMP, and #BAL. They have created markets for these options which allows us to use traditional option pricing models to figure out how they trade relative to listed options such as #ETH and #BTC.
By using the market prices of @OPYN put options trading on @UniswapProtocol, we can use a model like Black-Scholes (or some other variation) to calculate the implied volatility and various greek values for these DeFi options.
Note: the delta exposure for long puts is always negative. It's interesting to see both the #ETH $340/Sept. 25 put and #YFI $25k/Oct. 2 put trading around the 15-20 delta range. Loosely speaking, this means the market is pricing a 15-20% prob these tokens expire in the money. Image
Here we have the implied volatility (IV) for the puts. The @OPYN #ETH 340/Sept. 25th put IV trades slightly above its comparable put IV on @deribit by ~ 10%. The other three DeFi tokens all have higher IV values, notably #BAL. Image
As of now, @OPYN is realistically the only place where you can get a rough quote for IV on DeFi tokens. Knowing this can help us think about how future DeFi options will trade if they ever reach listed exchanges. It's also useful for building models to price these new products.
Note that it isn't completely fair to compare the IVs and deltas across all these different options because they are not all of the same maturity/strike/underlying asset. When we see more DeFi options come into the market this analysis will get easier!

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More from @samchepal

May 17
1. As one of the youngest and largest option liquidity providers in the market, the team at @Arbelosxyz is continually exploring efficient ways to trade volatility. A few days ago @joshua_j_lim shared a trade idea which profited from collapsing vols amidst choppy price action. This week, we'll evaluate various systematic volatility selling strategies in crypto. Full piece here: arbelos.xyz/quantitive-fra…
2. As a baseline, we can evaluate the P&L of selling weekly BTC delta-hedged straddles on @DeribitExchange. Overall the performance is not bad despite some steep drawdowns in 2020 / 2021. Image
3. In theory, it makes sense to sell vol when ATM IV trades at a rich premium to RV, quantified using the "VRP" ratio (ATM IV / RV). In our feature exploration, sorting the vanilla straddle P&L by this ratio shows a rapid cumulative P&L increase as the VRP crosses 1.00. This suggests that most of the strategy's P&L accrues when IV > RV.Image
Read 9 tweets
May 11
1. Thrilled to see that @Arbelosxyz is now public! I've had the privilege of collaborating with the team to conduct in-depth research in the crypto derivatives space, with one of our first pieces on analyzing yield strats on @pendle_fi. Dive into our findings here: arbelos.xyz/getting-to-kno…
2. DeFi interest rate markets face two primary challenges:

a) Absence of fixed maturity products
b) High volatility of interest rates

Both of these limitations make it difficult to justify allocating large sums of capital to DeFi interest rate markets. As a result, this is where Pendle as a protocol shines which allows considerable flexibility on how to trade yield.
3. Key components in Pendle's protocol include:
- PT: Principal Token
- YT: Yield Token
- PT + YT = the total value of the underlying asset.
Read 13 tweets
Mar 16, 2023
1. Recently came across this tweet which led me to think about 0DTE options strats in crypto markets.

Full writeup: samchepal.com/systematically…
2. Not investment advice - just for fun / educational purposes.
3. Over the past few months there's been a steady rise in 0DTE options trading in SPX. These are super short-dated and there’s a lot of gamma associated with these options. Nearly 40% of SPX option volume was 0DTE in Q2 2022 - this has raised concerns from JPM researchers. Image
Read 17 tweets
Jan 13, 2023
1. Over the past few day's we've noticed some massive trades on @DeribitExchange. Surprisingly some of these trades were executed against limit orders without using RFQs. This gave inspiration to build an order-book scanner which is now open-sourced: github.com/schepal/deribi…
2. The motivation for this whole project was due to some large whale deciding to trade 25k contracts of ETH-30JUN23-400-P on Jan 5/23. Digging into the details we can see this trader decided to sell these options against passive limit orders on Deribit.
3. It's interesting b/c this trader could have gotten much better execution by tapping an OTC desk or @tradeparadigm's RFQ platform. A possible reason is this trader wanted to be completely anon and not attract attention until after the trade was completed (h/t @VidiellaLaura)
Read 16 tweets
Apr 11, 2022
1. A few weeks ago we witnessed a duel between @stablekwon and @AlgodTrading in a public wager on LUNA's future price action. In this piece written with @tradeparadigm we analyze how this bet could be priced using options pricing theory + who got rugged on this trade…
2. Let’s briefly review the premise of the bet.

- @Algod believes LUNA < $88 1 year from now - if he's right he gets $1M
- @stablekwon believes LUNA > $88 1 year from now - if he's right he gets $1M
Read 26 tweets
Feb 4, 2022
1. Over the past few months, DeFi ecosystems have witnessed a surge in structured product platforms - notably option vaults. While the current yields on these vaults can be enticing, we take a closer look at the long-run performance of these strategies: research.ledgerprime.com/p/a-quantitati…
2. Let’s start with a brief overview of the DeFi options space - TVL in 2020 was virtually non-existent but blew up to nearly $1B at the start of 2022. This was primarily due to the surge of activity within the DeFi structured products space. Data Source: @DefiLlama
3. Most of these structured products revolve around covered call options. As a refresher, this strategy involves being long the underlying spot asset and selling a call. This effectively caps the upside price action in exchange for an option premium.
Read 21 tweets

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