Samneet Chepal Profile picture
Oct 1, 2020 7 tweets 4 min read Read on X
1/ Spent some time exploring the market implied distribution for #BTC options trading on @DeribitExchange. This was a bit trickier than I expected but learned some interesting things along the way...
2/ I came across a closed form risk-neutral probability density (RND) solution from @EGHaug's detailed book on options pricing. I was surprised to learn that the RND is just the 2nd derivative of the option value wrt strike price. For those interested below is the formula. Image
3/ The limited number of options for #BTC Dec-25-2020 required me to linearly interpolate the IV across theoretical strikes. Instead of just 18 actual IV values, now we are able to estimate nearly 3,000+ IV data points as shown below. This will allow for a smoother RND plot. Image
4/ Another way to look at it - taking our 3,000+ estimated IVs, we can throw them into BSM and see how theoretical put values compare to actual @deribit put prices. The estimation for IV was good at lower strikes but less accurate the farther we go out. Image
5/ Using the formula described in step 2, we can calculate the RND (assuming zero interest rates). After running this formula across each strike, we can see the end result is similar to a log-normal distribution. Image
6/ RND is the 2nd derivative of the option value wrt strike whereas gamma is the 2nd derivative of the option value wrt spot. As a result, it's nice to see both of them having similar shapes when plotted together. Image
7/ Thanks to @JSterz for suggesting to explore market implied distributions. Thoughts or suggestions on this analysis? @vkik94 , @rambo1stbld, @ConvexMonster, @BitcoinMises.

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More from @samchepal

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
Dec 23, 2021
1. One of the best decisions I’ve been lucky to make in 2021 was enrolling in the @TeamChainShot ETH dev bootcamp. Learned a ton of valuable skills which gave me a new appreciation for how all this stuff works. Some thoughts on my experience and advice to those starting out... Image
2. Why learn solidity in the first place? These were a few of my reasons:

- Be able to build sophisticated on-chain EVM strategies (aspirations of following the path of the sensei @mevintern)

- Become a better investor by understanding the technical nuances of projects
3. Cont...

- @LedgerPrime is going super deep into DeFi so getting familiar on how to interact/build with EVM chains helps us figure out how we can add more value to our VC investments

- And lastly, general curiosity + interest to learn a new skill. The most important reason!
Read 20 tweets
Dec 15, 2021
1. Spent the past few weeks going down a rabbit hole learning about MEV and Flashbots — very cool stuff! I was surprised to learn that beneath the surface, Ethereum is lurking with sniper bots waiting for any opportunity to make money. Here’s a TLDR on some research + findings. Image
2. Full research report and repo for those interested in the details:
github.com/schepal/flashb…
samchepal.com/the-hidden-wor…
3. Whenever a tx is made on ETH, before it is fully mined it sits in a pending pool of txs called the mempool. The mempool is public - this is a problem b/c snipers are looking through these unconfirmed txs for opportunities to re-arrange the txs in the block for their benefit.
Read 24 tweets

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