HanSolar.eth

HanSolar.eth

14-11-2022

01:02

How I used options to hedge the FTX implosion making 3376%🤯 on the trade (even before Arthur Hayes👑) and how YOU can use them to protect yourself against black swans🦢 events 🧵 on option basics and execution

Option Basics Options contracts give you the right to buy(calls) or sell(puts) an asset at a predetermined price(strike) in the future. An option contract looks like this: ETH-25NOV22-1000-P ETH : Underlying asset 25NOV22 : Expiry date 1000 : Strike P : Put(right to sell)

Option Price 1 Options prices can LOOK cheap. They can be as cheap as 0.0005 ETH for 1 ETH contract on @DeribitExchange That is kinda like using 2000x leverage.

Option Price 2 But as the saying goes, you get what you pay for... The reason some options are cheap, is because the market thinks there is no chance the option is will be executed. For a ETH-15NOV22-1350-C to be profitable, it would mean ETH needs to increase by 20% in 24 hrs!

Option Price 3 The price of options are affected by probability of being in profit at expiry. Factors Strike : If you buy an option and it gets closer to the strike it gets more expensive Time left until expiry : If you buy an option and time passes, your option gets cheaper

Option Price 4 Most options will die quiet deaths due to TIME. You run out of time, and your options become worthless Expiry date and strike are probably the most important factors for beginners, but there is one more concept to understand : Implied Volatility

Option Price 5 Implied Volatility(IV) is the view of the market on how volatile the asset will be. This is important in calculating the 'probability' of the option ending in profit. If IV is high, since price moves more wildly, it means options are more expensive.

Why Options? This all sounds super complex... why do people trade with all this complexity when they can just use perps with 100x leverage? Two main reasons 1. You can't get liquidated when buying(calls or puts) and... 2. up to 2000x leverage👀👀👀

Ok, now that we have the basics, we can talk about *EXECUTION* IMO the best time to buy options is during extremes. 1. ATH Price : Buy puts as insurance 2. ATL Price : Buy calls as moonshots 3. ATL Volatility : Buy puts or calls depending on market situation

The 33x trade was made when volatility was SUPER low, which means options were very cheap. Also extremely low volatility has been a good indicator for wild price swings. Indicators to watch : IV trends, Historical volatility(30d)

There were also some good accounts that had confluence of incoming large volatility

The trigger for buying puts was a combination of near-realtime signals from frens at @InternDAO on FTX and a fellow trader I respect @JeffLia12309881 If i had more confidence, i would have bought more, and retired like @BambouClub who almost bankrupted deribit's insurance

Chat about options and crypto stuff here : Check out my Crypto x Options repo here : And if you enjoyed the thread you can give it a go using my ref link, Deribit(10% off fees):



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