Juthcia Chou is a former Goldman Sachs trader and she left Wall Street to work in crypto. Previously working on high-frequency options, she has now founded LedgerX. It’s a digital currency futures exchange, and it paid off. According to recent studies, the crypto derivates market is booming.
On average, the volume of crypto derivates traded is higher than regular crypto spot markets. Derivatives are financial bonds between two parties. They get their value from an underlying asset, such as cryptocurrencies or stocks.
They can prove beneficial to speculate or to hedge a position, and the most common types include options and futures. Chou now works as an over-the-counter head of options trading at the fifth largest crypto exchange, Kraken. She facilitates crypto derivates options for high-net-worth institutions and individuals.
She explains that options are agreements between two parties to sell or buy an asset at a future date. The owner has a right to sell or buy the asset at a set price by a specific date, but not the obligation. Now, they’re an important product to increase crypto adoption. It allows individuals and businesses to hold bigger amounts on the balance sheet while still managing volatility.
When you trade options over-the-counter, you tap into a network of individual dealers. This is opposed to relying on a single exchange, such as the CME, which provides crypto futures and options. A major advantage of OTC is that you can execute bigger block trades with plenty of anonymity. It also means doing so without making a significant impact on the underlying asset’s price.
This applies to options in which clients want to be able to make a large-size options trade. Similarly, it is for when they want a gain to minimize the time and impact of execution. This is for when they rely on an exchange to do it. Just like with other crypto exchanges and banks, like Anchorage and Bitstamp, Chou is observing increasing demand from clients. This is even though there has been a drop of over 50 percent in Bitcoin prices from the $60,000 mid-April high.
According to her, the price action hasn’t deterred clients. Rather, they’re looking at different positions more opportunistically. Volatility has been lower in the last few weeks as the market trades sideways. As this continues, she has seen more investors aiming to sell volatility. They have a view that prices will drop further, or they just want to collect options yields and premiums.
The other strategy is that with low-cost option prices and less volatility, clients are looking to make opportunistic directional bets. These will pertain to the end of the year.