Panoptic Profile picture
Mar 24, 2023 16 tweets 7 min read Read on X
1/16 Did you know the "Father of Options" circumvented 19th century usury laws w/financial engineering to make $?

Let's dive into the fascinating story of how Russell Sage leveraged put-call parity to become a millionaire, and how put-call-LP parity revolutionizes DeFi options🧵
2/16 In this thread we'll:

• Show how Russell Sage made millions by subverting the law with options
• Use monkeys & bananas to explain put-call parity
• Explain why "put-call-LP parity" for DeFi options is as groundbreaking as put-call parity was for TradFi options
3/16 What's usury?

Usury, aka predatory lending, is charging an excessive rate of interest on a loan.

Historically, usury was defined as charging *any* interest on a loan and was condemned by major religions & prominent philosophers (Moses, Buddha, Muhammad, Aristotle...)
4/16 In 1867, Russell Sage was convicted of violating New York usury laws for charging an 8% annual interest rate on a late loan to a stockbroker.

The penalty for Russell was $250 in fines and 5 days in prison.

researchgate.net/publication/31…
5/16 However, this didn't deter him. Russell used his know-how of options to create synthetic loans.

He developed OTC options trading on such a grand scale that he was known as "The Father of Puts and Calls," "inventor of straddles & strangles," and the "Money King."
6/16 But how exactly did the "Money King"💰👑 create loans through options trading?

The answer lies in a fundamental concept found in every financial textbook called "put-call parity", which can be used to create synthetic loans.
7/16 Imagine a seesaw with 4 types of fruit: apples🍏, peaches🍑, cherries🍒, and bananas🍌.

In order to stay balanced, the seesaw must have a fixed ratio of apples🍏 + peaches🍑 on one side, and cherries🍒 + bananas🍌 on the other side.
8/16 Each fruit represents a financial instrument, and the fundamental relationship between the fruits is put-call parity.

🍏 = asset price
🍑 = put price
🍌 = bond price
🍒 = call price

Put-call parity: 🍏 + 🍑 = 🍌 + 🍒
9/16 "Mon[k]ey King"🐵👑 be like: "Me like loanshark — me want high interest rate!"

Buying 🍌(bonds) is a fancy way of saying: "Me lend you some money in exchange for interest."

→ So 🐵👑 can loanshark by buying 🍌(bonds — in this case, high yield ones)! 🤯
10/16 But 🐵👑 couldn't legally buy bananas🍌 (bonds — the high yield ones). 🚩🚩🚩🐵👑⛓️👮

Instead, he:
• Bought apples🍏(asset)
• Sold cherries🍒 (calls)
• Bought peaches🍑 (puts)
→ Effectively purchasing bananas🍌 (bonds) 🤯
11/16 Just as "put-call parity" is fundamental to options, "put-call-LP parity" is fundamental to DeFi options.

Panoptic begins w/ the simple observation that providing concentrated liquidity in Uniswap V3 is analogous to selling options in TradFi.

LP = -Put 🤯
12/16 Let's call this observation "put-LP parity":
LP = -Put
(🍋 = -🍑)

Which means:
-LP = Put
(-🍋 = 🍑)

→ Panoptic lets you buy peaches 🍑 (puts) by selling lemons 🍋 (LPs) 🤯
13/16 How do you buy 🍒 (calls)?
Answer: lab-grown synthetics!

Put-call parity: 🍒 = 🍏 - 🍌 + 🍑
Put-LP parity: 🍑 = -🍋
→ Combined: 🍒 = 🍏 - 🍌 - 🍋

→ You can buy 🍒 (calls) by buying 🍏 (asset), selling 🍌(bonds), and selling 🍋 (LPs)🤯
14/16 Panoptic Labs™ synthesized a new type of 🍑 and 🍒:
These 🍑 and 🍒 are shelf stable because they NEVER expire!

Panoptions are a novel type of options:
• Perpetual♾️
• Oracle-free🔮
• Permissionless🤠
• Made for DeFi🔑
15/16 Summary:
• Put-call parity describes the relationship b/t puts and calls
• Russell Sage took advantage of this to make high interest loans
• Put-call-LP parity describes the relationship b/t put, calls, & LP

Disclaimer: None of this should be taken as financial advice📢
16/16
Read on Substack 👉 panopticxyz.substack.com/p/the-father-o…

Follow @Panoptic_xyz and @BrandonLy1000 for more #ResearchBites!

Check out our blog 👉 panoptic.xyz/blog
Star & follow our GitHub repo 👉 github.com/panoptic-labs/…

🤝 Like & Retweet if you found this thread helpful!

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Panoptic

Panoptic Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @Panoptic_xyz

Jun 28
Let's explore the relation between Panoptic and @Uniswap.

Uniswap v3 lets LPs concentrate liquidity in a specific price range, mirroring a put option payoff. The position converts into 100% of token Y when above range and 100% of token X when below range. Image
In Uniswap v3, LPs earn fees from traders as their liquidity facilitates trades. Panoptic extends this by introducing the concept of streamia, where option sellers continually earn these trading fees as streaming premia. Image
Panoptic introduces a market for lending and borrowing Uniswap v3 LP tokens. This enables traders to create long and short options positions.

Any token on Uniswap can be bought or sold as an option. Image
Read 6 tweets
May 24
Introducing the Panoptic Incentives Points (Pips) Program!

Pips are designed to boost user engagement, liquidity, and exploration of DeFi options. Earn Pips by participating in Panoptic, and get rewarded for your contributions.

We are seeking community feedback 👇 Image
How to Earn Pips:
➡️ Passive Liquidity Provision (LP): Earn Pips by depositing ETH.
➡️ Trading Options: Earn Pips by buying and selling in-range options.

To maintain a fair distribution, a set number of points will be allocated across three categories of Panoptic users ⤵️ Image
We're offering boosts to early users of the Panoptic and @Uniswap protocols (snapshot: March 1, 2024):

➡️ Panoptic beta testers (1.75x boost)
➡️ Uniswap V3 LPs (1.5x)
➡️ Uniswap V2 LPs (1.25x)

Boosts are multiplicative and allow users to earn >200,000 extra Pips ⤵️ Image
Read 6 tweets
May 10
1/8 Perpetual options are a new financial derivative, largely unexplored. Unlike traditional options, perpetual options don't expire.

But can you assign a 'time' component to something perpetual? How does pricing and rolling of perpetual options work? Let’s dive in 👇 Image
2/8 ⏳ What are timescales?

For perpetual options, timescales represent the estimated duration over which the option is expected to accrue premia. The concept is similar to the width of a LP position in @Uniswap V3, where the LP position aims to earn fees over a certain period. Image
3/8 For example:

The price range of this one-week (1W) $AVAX put is between $34.54 and $36.68. This means that the option will accumulate premia as long as the $AVAX price is between $34.54 and $36.68.

The width of this 1W option is $2.14 (2.14 = 36.68 - 34.54). Image
Read 8 tweets
Feb 3
1/6 Market Overview — January

Last month's market saw significant developments, starting with the monumental success of the BlackRock iShares Bitcoin ETF, which surpassed $2 billion in assets. This landmark achievement signals growing investor interest in crypto-based ETFs. Image
2/6 Following the ETF announcement, the crypto market experienced volatility compression. Both BTC and ETH implied vol moved sharply downward. Image
3/6 The anticipation around a potential Ethereum ETF grows, with regulatory approval deadlines approaching. This, coupled with the Bitcoin halving event, could significantly influence market dynamics in the coming months.
Read 6 tweets
Jan 24
⏰ Less than 24 hours to go on the @Avax🔺perpetual options trading contest!

Markets crashing with bearish sentiment — let's dive into some analysis of how the top traders used puts to go short and straddles to collect juicy streamia (streaming premia) fees in the trading arena! Image
Trader 0x376f has a huge lead on all $AVAX traders, currently sitting in first place with +57.34% PnL. Looks like 0x376f tested out a 0.3 AVAX put (left) that lost $0.44 in streamia before doubling down on a 7 AVAX contract (right)!

🔗 beta.panoptic.xyz/?view_as=0x376…

Image
Image
Smart move — ETF launch was a "sell the news" event Image
Read 9 tweets
Jan 23
1/5 Do you know which position offers the highest leverage?

1. Sold call
2. Sold put
3. Sold put and call

Challenge your options trading knowledge! 🧵👇

panoptic.xyz/research/panop…
2/5 💡 Leverage Demystified: Leverage in trading is about using less capital to control more value. It's a potent tool in the trader's arsenal, but knowing how to wield it makes all the difference.
3/5 📉 Selling Options: Selling calls and puts can provide significant leverage. But how does this compare to selling both a put and a call at the same time? 🤔 Image
Read 5 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

:(