1/ The term EV gets used a lot on CT, and yet I meet people who have no clue what it means constantly. ⚡️
So I am going to take a moment out of my day to explain to you Expected Value. 🧵
2/ Expected value (EV) is the sum of the probability weighted outcomes. Here is an example, let’s say you have five pieces of paper in a velvet bag, all of them numbered 1-5. If you pull any one number, you will have a 20% chance of choosing any of them. (1/5=.2)
3/ Lets do some quick math. We have a 20 percent chance of pulling a 1, 2, 3, 4, or 5. So,
2/ To understand this thread you need to have a slight understanding of gamma and how MM (Market Makers) operate. The mechanics are explained well here. 👇
⚡️You deposit your collateral in a DOV
⚡️DOV sells Calls on your behalf.
⚡️MM's buy those calls from DOV.
⚡️DOV collects premium and participants pray the underlying doesn't blow past the strike.
1/ I've seen many of you asking what the heck this is and how to interpret it. So over the course of this brief thread I will explain the basics.⚡️
This is TLDR on Term Structure. 🧵
2/ Term structure simply displays the ATM (at the money) IV (Implied Volatility) of different expirations. In the above example it looks like 17DEC ATM IV is around 78-ish, and 28Jan22 is over 85 IV.
3/ There are two main types of term structure. Backwardation and Contango.
Backwardation is when the near term expirations have a higher IV than the further out expirations. In our case, maybe 15DEC has a 100IV and 28Jan22 has a 70IV, that would be backwardation.
1/ We are in the season of UpOnly and you most likely don’t want to give up exposure to #BTC’s upside, but what if you want to use your capital efficiently and earn a kicker on your coin. ⚡️
Enter the Short Put Spread.🧵
2/ It’s a simple concept. Sell one put a little OTM, buy one put even further OTM.
I'll break it down for you. Let’s build a Put Spread step by step.
3/ First, sell an OTM put, whatever Delta you choose is up to you and your strategy. For this example, lets say #BTC is trading at 63k, I’m going to sell the 60k put. The payoff would look like the chart below👇. If #BTC expires at or above 60k we make money.
1/ Today we saw a good amount of #BTC puts sold. So I wanted to explain how that works and why one might do that.⚡️
This is a short thread on selling puts! 🧵
2/ When you buy a put you are essentially buying insurance incase #BTC’s price starts to tank. This cost a premium, but when you sell a put you collect that premium. We discussed this in our previous thread on buying and selling calls.
3/ So lets say I sold a put at the 39k strike, what would happen? Well first I would collect the premium from the buyer of that strike, for examples sake, lets say the premium was $100.
I’m sure you have heard it mentioned all over twitter, and it might seem a bit confusing, but in this #PowerKnowledge thread we are going to demystify Gamma and explain it in simplest of terms.
Gamma NFT Drop at the end...
2/ Gamma is the rate of change in Delta. If you don't remember Delta, here is our thread from yesterday explaining it.
TLDR: Delta measures change in the option price for every one dollar move, and gamma measures the change in Delta.
3/ So Gamma is actually what's called a second order derivative, because it doesn't measure the change in the Options value, it measure the change in the thing that measure the change of the options value ie. Delta.