Crypto Trading: Strategies for Trading Crypto Options: Juthica Chou from Kraken
- Juthica Chou spent years on Wall Street as a trader before turning to crypto in 2013.
- Chou is now the head of OTC options trading for Kraken, the 5th largest crypto exchange.
- She explains how businesses and ultra-rich leverage options and explains a simple business idea.
Leaving Wall Street to work in the cryptocurrency world was always going to be seen as risky. But leaving Wall Street in booming 2013 to work on a crypto derivatives exchange might have seemed crazy to some.
But that’s exactly what Goldman Sachs trader Juthica Chou did.
Chou, who focused on high-frequency options market making, packed his office eight years ago and co-founded LedgerX, a digital currency options and futures exchange.
It’s a bet that paid off. The crypto derivatives market is now booming, as a recent study by Carnegie Mellon University’s CyLab highlights.
“On average, the volume traded in the cryptocurrency derivatives markets exceeds by a factor of five the cryptocurrency spot markets,” according to Kyle Soska, the lead author of the study who presented the results at of a conference.
Derivatives are financial contracts between two parties that derive their value from an underlying asset. These assets can be stocks, bonds, as well as many other financial assets, including cryptocurrencies.
They can be used to hedge a position or just to speculate. The most common types are futures and options.
Chou facilitates crypto options trading for institutions and high net worth individuals in his role as head of OTC options trading at Kraken, the fifth largest crypto exchange, according to CoinMarketCap.
“It was the volatility that I think really motivated why we wanted to fill this role and why I took on this role at that time, i.e. he created a lot of interest and demand from clients for options trading, ”Chou mentioned.
Options are an agreement between two parties to buy or sell an asset at a future date. The owner has the right, but not the obligation, to buy or sell the asset at a specified price on a certain date.
They have become an important commodity for improving crypto adoption, Chou said. Companies and individuals can hold larger amounts on the balance sheet while managing volatility, she added.
Trading over-the-counter options means tapping into a network of individual dealers, rather than using a central exchange, such as the CME, which offers cryptocurrency futures and options, for example. The biggest advantage of OTC is that it can execute large transactions in bulk with some anonymity and without having a disproportionate impact on the price of the underlying asset.
“This extends to options where clients sometimes want to be able to complete a sizable options trade, and again minimize the impact and execution time if they had to go to an exchange to do so. “said Chou.
Much like other banks and crypto exchanges, such as Bitstamp and Anchorage, Chou has always witnessed significant customer demand, even after prices fell nearly 50% from record highs. mid-April, when bitcoin was around $ 64,000.
“I don’t think they were put off by the price action,” Chou said. “And if anything, they’re just looking more opportunistically at different ways to position themselves, in our case using options, but generally in the market.”
With lower volatility in recent weeks, with the market trading sideways, Chou has seen more and more players looking to sell volatility, with the idea that it will drop or simply as a way to collect premiums and returns. options.
The second strategy is that, with cheaper option prices and lower volatility, some clients are looking to place opportunistic directional bets until the end of the year, Chou said.
Can individual traders still play in the market?
Just because more institutional clients are entering the market doesn’t mean there aren’t opportunities for individual traders yet.
“There is more human intuition and understanding of market flows and psychology all the time,” Chou said. “I think in some ways it definitely looks like the early days of trading.”
This opens up the environment to smaller players. Chou compares the market size of all major crypto assets to the market cap of a very large stock.
“If you think of a lot of really big hedge funds, very sophisticated players, it doesn’t really make sense for them to invest a lot in crypto trading right now because they can’t put that much money into it. work to earn a significant amount of money that is meaningful to them. ” Chou said.
Where to start in the options?
However, smaller players can put in the money to work and the opportunities will be significant for them, Chou said.
“You don’t have to rush into options per se,” she added.
The most exciting opportunities for the average crypto trader are the ability to earn a return or interest on their crypto assets, Chou said.
They can do this by selling a call option, which gives the owner of the option the right, but not the obligation, to buy that crypto asset. So, they could agree to sell bitcoin above a certain price, say $ 50,000 in August, and they could receive a bounty in payment for that option, say $ 200, she said.
“The good thing about these positions is that they are somewhat limited in terms of risk,” Chou said.
It’s a prudent way to delve into options, she added.
“All they do is give up a little bit of an edge in their position in order to make a few bucks today,” Chou said.