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EducationalOctober 30, 2020

AMA - Trading Options on Delta

Neeraj Thakur
October 30, 2020
What's in this post?

    A recap of the Q&A discussion that recently happened during our first AMA on Trading Options on Delta with the co-founders of Delta; Jitender Tokas (CBO) and Pankaj Balani (CEO).

    Q.1 How are Turbo Options different from regular Call & Put Options?

    A.1 [by Jitender Tokas]:

    Turbo options have two characteristics which make them unique:
    (a) they are always ‘in the money’, and
    (b) they have a ‘knockout price’ (if spot price touches the knockout price the turbo option expires immediately.

    These two characteristics change the nature of the turbo options quite a bit. A deep in the money option tends to behave more like a futures (i.e. if the price of the underlying changes by x%, the price of the option too changes by x% — so no convexity) and, the knockout prices helps us to keep the prices of Turbo Options quite low.

    Q.2 Just came across Turbo Options. Why the leverage is so high? 200x.

    A.2 [by Jitender Tokas]:

    So, Turbo Options can be viewed as highly levered positions in the underlying crypto. And, these positions have a fixed time maturity and a fixed stop loss. The leverage is high by design. We want to provide a different way for traders to speculate on BTC. Turbo Options also have 0% fees. So, they are well suited for traders that are trade frequently, have short time horizons and like high leverage.

    Q.3 Does delta plan to launch fixed strike options? What is the timeline for the same?

    A.3 [by Jitender Tokas]:

    Yes, a complete Option chain will be provided. This is already in the works. Should be live in 3-4 weeks. We are also exploring launching options on more underlying assets. If you guys wish to trade options on particular Altcoins/DeFi coins, please do let us know

    Q.4 What is the best type of contract to benefit from different market conditions?

    A.4 [by Jitender Tokas]:

    I think a book can be written on this 🙂

    A product alone is not the only part of the equation. Your trading strategy and style matters too

    I can share some examples:

    1. Say you already own BTC. You can sell out of the money call options on BTC. If these call options expire worthless, you pocket the premium. If BTC goes up, you effectively end up taking profit on your BTC holdings. So this strategy can be used to generate yield on your BTC.
    2. Turbo Options can be used when you have a high conviction view on short term price movement of BTC. imagine a case where the BTC spot price is very close to the knockout price of a turbo call. The price of such an turbo call will be extremely low (i.e. super high leverage.. like 500x- 700x). If your view is that BTC is going to rebound, you can buy this turbo call. if your view proves to be right, you make a lot of money.
    3. When you have a view on volatility of a crypto, but not its direction, you can buy or sell move contracts. For e.g. say btc block reward halving is coming. you can’t decide whether the event is positive or negative.. but you know that it’s an impactful event.. so btc price may move a lot.. so you can buy move in such situations.

    Q. 5 What would be the best type of contract for a beginner to start and become familiar with? And what is the hardest?

    A.5[by Jitender Tokas]:

    I’d assume that you are talking about a beginner derivatives traders. If you are new to trading, starting in spot trading makes the most sense.

    In derivatives space, futures are the easiest to understand and trade. The prices of Futures change almost 1 to 1 with the change in price of the underlying. so they are easy to understand.

    Options have many other dynamics. There’s implied volatility, there’s time decay (options expire) and there’s convexity. You should trade them after you have become comfortable with Futures.

    On our platform – I think interest rate swaps are something which many people might find hard. and, that’s because these contracts aren’t very common and are generally not traded on exchanges.

    Q.6 How are the strike prices of Options listed on Delta determined?

    A.6[by Jitender Tokas]:

    Good question. It will provide more context to an earlier question about fixed strikes that Mohit had asked above.

    On Delta, currently strikes of Options are determined dynamically. Our aim is to launch ‘at the money’ Options (except for Turbo Options which are deep in the money). so what we do is this: we find the 30 min average of the price at the time of an option’s launch. And, use this price as the strike price.

    This ensures that when an Option is launched, its strike price is quite close to the prevailing spot price.

    This approach is unique to Delta. And, it certainly has several advantages. However, market participants are used to ‘fixed strikes’. In this approach, you launch a bunch of options with different strike prices at the same time. So, at any time, you will have a lot of live options. Most trading happens in ‘at the money’ or ‘near the money’ options.. so action shifts to these options as spot price moves

    Q.7 Are the Move Options on FTX same as on Delta?

    A.7[by Jitender Tokas]:

    Yes, there are certain similarities. FTX has move options only on BTC. we have it on BTC, ETH, LINK and BNB. and, i believe our move options order books are tighter and deeper than those on FTX.

    For those of you who look for arbitrages, you should look out for differences in prices of BTC move options between Delta and FTX. Typically implied volatility is lower on Delta (means option price is lower) vs. FTX (means option price is higher).

    So, you can potentially run long/ short strategy on move contracts on Delta and FTX.

    Q. 8 Why can’t I short Turbo Options?

    A.8[by Jitender Tokas]:

    Because of the high leverage. for longs: losses are limited and gains can be unlimited. so, if you buy a Turbo Call/ Put and markets move in your favor, with a small amount of capital, you can make a lot of money. And, your potential upside is unlimited.

    When longs gain, shorts loose. This is the nature of derivatives – they are a zero sum game. So, in Turbo Options, shorts have limited upside and unlimited downside. To be able to manage risk of short positions, we would need to ask for a lot of margin. that’s why currently it is not practical to enable any trader to take short positions in Turbo Options.

    Q. 9 What about the future? Is Delta thinking on adding more types of contracts?

    A.9[by Jitender Tokas]:

    Absolutely. Offering innovative products to traders and giving them newer and better ways to trade and (hopefully!) make money is what we do best.

    Right now, there are two three big items in our pipeline:
    (a) complete options chains with fixed strikes,
    (b) cross and portfolio margin and
    (c) native android and iOS apps (lots of demand for these!)

    That said, we plan to continue launch Futures/ Perps/ Options on more coins. If you guys wish to trade particular coin, just let us know. we will try our best to launch it.

    Also, lately, there’s been a lot of demand for Alt-BTC pairs. we are actively looking into this and plan to make a lot more ALT-BTC Perps available soon.

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