1/ One of the essential factors I was interested to learn how to trade in options was implied volatility.
So in this thread, I went through important points that I found + how IV is being implemented in #Defi 🕳️ :
2/ #Impliedvolatility is a probabilistic calculation for how much the market is expecting a certain asset to vary in price, e.g supply/demand factor :
- IV high > options Demand high > expecting volatility
- IV low > options supply high > expecting neutral / slow deviations
3/ #Vega is the first derivative of the option value with respect to the volatility.
And it is a great indicator that helps us understand IV effects over options prices by measuring how the price variates if the implied volatility changed by 1%. = S.sqr(t).N’(d1)
4/ We learn 2 important things from Vega :
1- It nearly peaks at the money, so if the mark price = strike price , any changes in IV will have a large effect on the option price. This effect gets lower as the strike price is far from the mark price
5/ 2- As there is a sqr(t) in vega’s formula, Options price sensitivity decrease as we approach maturation, so even if there is high volatility, IV factor won’t affect the options price if we are very close to expiry
7/ How IV is being implemented in #OpFi protocols :
@dopex_io : Black-Scholes pricing model powered with SVI IV parameters from collaborated option MMs + it accounts volatility smiles to allow anyone to buy options based on different strikes
8/ @lyrafinance : Accounting for volatility smiles depending on the strike traded and the asset volatility and by that generating a market-driven variance fee that will increase/decrease the option price
9/ @PremiaFinance : controlling supply/demand ratio through an indicator called C-Level that will calculate the utilization ratio of each pool.
So if the ratio is high > if Demand is high > C is high > options price is high
10/ This difference in pricing can create delta-neutral arbitrage opportunities with 10-15% APR that could be implemented automatically. @FactorDAO , you might want to consider adding this later on, i would be happy to help
11/ That’s it for this thread, understanding Implied volatility and its implementation in #defi will lead you to :
1- Know from which marketplace to buy 2- learn how to buy low and sell high , but not only the token chart , but on the IV chart as well
Peace 🐈⬛
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inspired by @DeFi_Made_Here , and in the search of the true Intrinsic value of @ConvexFinance , me and @AbiHanna961 did some math to see truly what is the present value behind it + what benefits you can get as a DAO from buying/locking $CVX instead of $veCRV
let's dig in 🕳️:
a quick reminder of what $CVX represents :
technically, $CVX gives you governance power to vote on the behalf of $cvxCRV and $cvxFXS lockers.
you can find the metrics we used for the study down here :
so in order to calculate how much $CRV covered with 1 $CVX we used the formula below :
For those who don’t see the potential play behind @y2kfinance , let me walk you through traditional catastrophe bonds :
Catastrophe Bonds (CAT) is a high-yield debt instrument that represents an Agreement between two parties allowing the seller of the bond to give the right to the issuer to collect the underlying in case of a certain natural disaster occurs (wildfires, earthquakes, tornados).
meanwhile, the issuer is obligated to pay certain monthly premiums to conserve this right.
the ‘Catastrophe’ conditions are predefined and allow both parties to benefit from this. either the seller by exposing him to a riskier but more rewarding investment opportunity, or..