Services

I sell the following services:

  • The Obverse Delta Trader (index_name, settlement_currency)
  • The Reverse Delta Trader (index_name, settlement_currency)

The index_name is the name of the spot. For example: btc_usdc. It is a composite name where the first name is the underlying asset and the last name is the counter currency.

The settlement_currency is the currency in which the final payment obligations of a transaction are discharged. For example: USDC. It is the currency that one party must deliver to settle gains, losses, purchases, sales, or contractual obligations. It determines the monetary unit in which cash flows are actually paid and received at settlement time.

I can add new services; or, merge existing services.

The Obverse Delta Trader

I trade European-style options on the Deribit exchange. The option payoff is computed from the difference between the spot price and the strike price yet paid in a different currency. I don’t attempt to form an opinion on whether the market will go up or down. Thus, I don’t favor a positive or negative delta, CALL or PUT.

I don’t use leverage. That is, I only short covered options with the necessary funds to fulfill the commitment. The funds are coming from a combination of other options and the account balance. The risk of theta is completely neutralized. That is, I short options on the target that neutralizes that risk. I avoid high risks of: gamma, vega and rho. That is, I short options with these risks less than two standard deviations away from the target that would neutralize them. I cannot narrow the target too much; because, the consequence is to discard options that can be profitable; eventually, I would run out of solutions.

I manage the delta risk differently; I consider the delta risk as the source of the profit. I let the market increase or decrease the portfolio’s delta; but I demand a profit for it. I only trade limit orders; thus, I charge a profit embedded in the limit price such that the profit is compatible with the delta that the market is pushing. The movement towards the tails causes the profit requirement to increase. With all that said, the forced liquidation is unexpected. Nevertheless, the forced liquidation can come from the operational risk.

Losses can occur due to the operational risk. For example: During times of market stress, the communication network with the exchange becomes congested. Unexpected exceptions can be thrown against my program causing it to stop temporarily until I introduce additional safe guards. Nothing eliminates the operational risk completely.

I will never pay for losses on any circumstance. See my release from liability.

The Reverse Delta Trader

The Reverse Delta Trader works in the same way as The Obverse Delta Trader. But, the reverse trader holds the underlying asset. For example: Suppose the index name is btc_usdc and the settlement currency is BTC; then, BTC is both: the underlying asset and the settlement currency. The profits will be realized in BTC.

This service is the next service to be released depending on the demand. If you intend to invest in this service; then, send me an e-mail to let me know.

Trader role

My model calculates a limit price. If the limit price surpasses the spread; then, should I take the order book? That is the question.

The spread is the gap between the bid and the ask price.

You can configure your role in the market to be:

  • Market Maker
  • Market Taker

A market maker is a participant who provides liquidity by placing limit orders (buy or sell) that rest on the order book. These orders do not execute immediately; instead, they wait for another participant to match them. By continuously quoting prices at which they are willing to buy (bid) and sell (ask), market makers help ensure that other traders can transact at any time. In return for supplying liquidity, they earn the spread, and receive reduced fee from the exchange. If the limit price is in the spread range or surpasses the spread; then, the trader will change the limit price to be just before the spread; and, set the flag “post only”.

The flag “post only” avoids the order to be filled immediately (as taker). If the spread changes asynchronously in the meanwhile; then, the exchange will change the price to be just before the spread.

A market taker is a participant who consumes liquidity by submitting orders that execute immediately against existing limit orders in the order book. This is done via priced limit orders that cross the bid–ask spread. Market takers prioritize immediacy of execution over price improvement; they give up of the spread, and they pay higher transaction fee. If the limit price is in the spread range; then, the trader will keep the limit price narrowing the spread. If the limit price surpasses the spread; then, the trader will set the flag “immediate or cancel”.

The flag “immediate or cancel” executes a transaction immediately, and any portion of the order that cannot be immediately filled is cancelled.

The market taker can be:

  • Market Best Taker
  • Market Model Taker

The market best taker will be limited by the best price of the order book. If the limit price surpasses the spread; then, the trader will change the limit price to be just after the spread executing only the best price of the order book.

The market model taker will be limited by the price calculated as profitable by the model. If the limit price surpasses the spread; then, the trader will keep the limit price executing what is profitable from the order book.

Click here to change your configuration.

Minimum capital

My model calculates a priority order of a list of alternatives to trade. A small capital forces the program to discard lower-priority alternatives due to the lack of capital; however, these alternatives can also be good. We don’t know what order the market will execute. It would be good to keep several alternatives in the order book. Forcing only the best alternative due to lack of capital can leave the program stalled. It is better to trade with the second or third best alternative than not to trade by insisting on the first best alternative.

A small capital forces my program to discard in-the-money options or those with longer expiration dates; because, these options are more expensive and would be discarded due to the lack of capital. Even though these options can be at the top of the priority list.

The model can discard alternatives and concentrate capital, but this decision should be made as a result of a calculation, not due to a capital limitation.

The minimum number of contracts allowed for trading on the exchange prevents order prices from being continuous; there are gaps between the prices of consecutive orders. These gaps occur because, when a small amount of capital is divided among many orders at different price levels, the number of contracts allocated to each order may fall below the minimum trading requirement, reducing the number of orders that can be placed. In contrast, when a larger amount of capital is divided, each order still meets the minimum requirement, resulting in smaller gaps between orders. As a result, you may not realize profits while the market moves within these gaps. In extreme cases, when the market price moves to a tail, you may not realize a profit because your next order after the gap was placed outside the effective trading range.

A small capital causes abrupt portfolio changes; because, every trade modifies a high percentage of the total portfolio. Conversely, a greater capital allows you to view the allocation problem in a more continuous, less discrete way. That is, larger capital avoids the concentration of capital in a specific direction, a specific strike price, or a specific expiration date. Conversely, a large capital allows you to diversify capital allocation in three dimensions: the direction (CALL or PUT), the strike price, and the expiration date.

I calculate the minimum capital as follows:

Let C be the total capital.

Let m be the minimum number of contracts allowed to be traded on the exchange. Currently, the value for the pair btc_usdc is:

m=0.01m=0.01

Let p be the price of the most expensive instrument traded by the service. Currently, the most expensive option over btc_usdc is around US$8,000:

p=8000p=8000

I require that the minimum trade does not modify more than 1% of the total capital.

m×p≤1%×Cm \times p \le 1\% \times C

The minimum capital is calculated by:

C≥m×p1%C \ge \frac{m \times p}{1 \%}
C≥0.01×80001%C \ge \frac{0.01 \times 8000}{1 \%}
C≥8000C \ge 8000

Note that the minimum capital is different for each service; and, it is updated daily.

If you fall below the minimum capital; then, I won’t liquidate your positions; I will continue trading in reduction mode only. That is, orders that increase the size of the position will be blocked; only orders that reduce the net size of the position will continue to be made. Your position will fade out. Eventually, all positions will close or expire; and everything will become cash again; the capital will not be reinvested.

Withdraws

I will be trading a sub-account; then, you should ask me a transfer. I will reserve the value from the trading balance; then, any balance that becomes available will not be re-invested until the target value is reached. Eventually, I transfer the money from the sub-account to the main account. After, you can withdraw the money from the main account.

WARNING! Do not withdraw money out of the sub-account. Part of the money can be held as risk management requirement. Withdrawing money can cause positions to be liquidated. My model calculates the portion of the money that is actually available for withdrawal; don’t believe in the “available balance” that the exchange is saying.

Transfer

You can ask me a transfer from the sub-account to the main account; then, expect me to reply in 24 hours. You should not be in a hurry to transfer. I don’t know how long time it will take for the money to become available. It depends on the market. I make limit orders, not market orders. It depends on the market to move to take those orders. Otherwise, I would be realizing losses. After the market unlocks the capital, I transfer the money from the sub-account to the main account.

WARNING! Do not transfer money out of the sub-account. Part of the money may be held as risk management requirement. Transferring money can cause positions to be liquidated. My model calculates the portion of the money that is actually available for transfer; don’t believe in the “available balance” that the exchange is saying.

Click here to ask me a transfer.

Unsubscribe

If you want to unsubscribe the service; then, you should ask it. Then, my program will turn to reduction mode. Eventually, the service will stop properly.

You should continue paying invoices until the final realization of the unrealized profit and loss.

Click here to unsubscribe.

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