- The video features a discussion with Marty, a seasoned option trader and crypto option Twitter sensation.
- Marty talks about his journey into the crypto world and trading crypto options.
- He mentions that he started trading when Bitcoin was $100 and experienced significant ups and downs in the market.
- Marty discusses the current state of volatility in the crypto market and his strategy of shorting volatility.
- He mentions that there are no clear triggers for volatility to come back and that he focuses on managing risk and selling volatility until the market regime changes.
- Marty also talks about the recent spike in spot and volatility and how he capitalized on it by initiating new short volatility positions.
- He emphasizes the importance of collecting data and managing positions in his boutique options fund.

- The speaker discusses the strategy of selling more volume to gain favor with exchanges and hedge out Greeks with perps and spot.
- They mention the need for a prime brokerage for all DeFi to simplify cross-exchange trading and margin requirements.
- The speaker highlights a case of a short vol strategy going wrong, resulting in significant losses for the trader.
- They discuss the impact of recent events such as the BlackRock investment and the SEC ruling on XRP.
- The speaker suggests that the trader may have overreacted and could have potentially mitigated losses by posting more collateral or riding out the market movement.

- The speaker believes that the current program may be ending soon, but expects it to resume in Q3 or Q4.
- They discuss the risks of buying volatility and paying theta, citing an example of a friend who was paying $2,500 a day.
- They mention the challenges and volatility in the options market, particularly for retail traders.
- The speaker expresses a desire for a shift in the volatility regime and a more stable market.
- They discuss the potential for long volatility plays in crypto equities, comparing their performance to BTC.
- The speaker questions the rationale for trading crypto options when crypto equity options offer similar exposure with fewer complications.
- They mention their personal success in trading chip makers and suggest that retail traders should consider other markets for potential gains.

- The speaker discusses his decision to stick with crypto and raise a new fund despite the volatility in the market.
- Brazil is seen as the next big player in the crypto market and is developing a regulatory framework for cryptocurrencies.
- The speaker believes that holding stocks may be a safer investment than holding Bitcoin outright.
- The regulatory approach in the UK and Europe is seen as more favorable towards crypto compared to the US.
- Businesses are moving out of the US to set up in more crypto-friendly jurisdictions.
- The speaker criticizes the SEC for enforcing rules without clear guidelines and calls for clearer regulations in the crypto market.
- The speaker no longer believes that Bitcoin will become the world reserve currency and doubts China's ability to take over the mantle.
- The speaker mentions the separation of Sequoia's China fund from its US fund as an example of the challenges in doing business in China.

- The US is losing out on the crypto market due to lack of regulations and clarity.
- People want clear rules to protect consumers and prevent criminal activity, while still allowing for innovation and business in the crypto space.
- The UK is taking a more open-minded approach to crypto.
- If banks have products to sell in the crypto market, there will be a shift in favor of crypto.
- Brazil is seeing growth in the crypto space, with banks and online banking platforms offering crypto services.
- Brazil is working on implementing crypto regulations to prevent scams and allow for the offering of derivatives.
- Brazil has a market for gambling and crypto, with potential for further institutional adoption.
- The interviewee discusses the wealth gap and market opportunities in Brazil.
- The panelists express interest in hearing more insights from the interviewee in person.

- The video features a discussion with Marty, a seasoned option trader and crypto option Twitter sensation.
- Marty discusses his journey into the crypto world and trading crypto options, starting when Bitcoin was $100.
- He talks about shorting volatility in the current state of the crypto market and managing risk.
- Marty shares his experience capitalizing on recent spikes in spot and volatility.
- The importance of collecting data and managing positions in his boutique options fund is emphasized.
- The need for a prime brokerage for all DeFi and simplifying cross-exchange trading and margin requirements is mentioned.
- A case of a short vol strategy going wrong and the impact of recent events on the market are discussed.
- The speaker believes the current program may be ending soon but expects it to resume later in the year.
- Risks of buying volatility and challenges in the options market for retail traders are highlighted.
- The desire for a shift in the volatility regime and a more stable market is expressed.
- The potential for long volatility plays in crypto equities and the rationale for trading crypto options are questioned.
- The speaker discusses their decision to stick with crypto despite market volatility.
- The growth of the crypto market in Brazil and the development of regulatory frameworks are mentioned.
- The speaker criticizes the SEC for unclear regulations and calls for clearer regulations in the crypto market.
- The US is losing out on the crypto market due to lack of regulations and clarity.
- The UK and Europe are seen as more favorable towards crypto regulation.
- Brazil's growth in the crypto space, including banks and online banking platforms offering crypto services, is discussed.
- Brazil is working on implementing crypto regulations and has potential for further institutional adoption.
- The interviewee discusses the wealth gap and market opportunities in Brazil.
- The panelists express interest in hearing more insights from the interviewee.

In this insightful episode, Marty shares his journey in the crypto world and how he navigated through the recent volatility crash. He discusses how he caught the volatility crash and analyzes the option flows from the past week. One interesting point is the panic observed in the $ETH overwrite market. We also touch on the regulatory landscape in the UK. Finally, Marty gives us a glimpse of the crypto vibe in Brazil, rounding out this engaging and informative discussion.

This was a really fun conversation; we hope you enjoy it. 


Chapters:
0:00 - Intro
1:30 - Marty's journey 
4:55 - How did you catch this Vol crash?
6:50 - Option flows this last week
12:30 - $ETH overwrite panic
20:00 - Buying directional options
25:16 - Option equities
32:30 - UK Regulation
41: 00 - Bankers need something to sell
42:00 - Crypto Vibe in Brazil


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Disclaimer:
All opinions and actions expressed and undertaken by the guest and host are individual opinions and actions only and do not reflect the opinions and actions of Paradigm. Paradigm does not guarantee the accuracy, applicability, reliability, integrity, performance or appropriateness of the content of this video, nor shall Paradigm be liable for any loss or damage that may be caused directly or indirectly by your use of these contents.

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Hi, I'm David Rakel, Director of Sales at Paradigm.

is reverting, so the obvious trade is always the expensive 1 to carry.

This whole peak inflation, peak rates narrative, peak Fed, which we've been talking about for a while.

to find the crypto option markets are definitely showing some signs of life.

Hey, guys, welcome everyone to another episode of the big picture, your weekly deep dive into the crypto derivative markets.

We have our in-house macro specialist, David Brickhell, as well as my fellow colleague, Steve Weingrof.

I think this is Steve, what is this, your second big picture?

And today we're privileged to have Marty on.

So Marty is a seasoned option trader, crypto option Twitter short vol sensation, and I would also say a meme master.

So definitely give him a follow if you are not currently following him.

But before we dive in, if you appreciate these discussions, you wanna hear more, help us reach a wider audience by hitting that like button, smash that subscribe button, help us continue to share this podcast to the world.

Marty, super pumped to have you on today, man.

And we're kind of intrigued, I guess, just to start, to understand your journey into the crypto world and brought you specifically into trading crypto options.

I think you missed that I also am the owner of a creepy discontinued giveaway hat business.

Marnie, I'm so gutted that I didn't get to the office this week to get my hat.

I was honestly going to send all 3 of you a hat and you all had it on for the show.

But yeah, I'm originally from the States but I live down here in Brazil full-time now.

I'm not like a traditional trad-fi guy, you know, New Yorker that turned vol trader I'm more got caught up in I guess kind of where everybody starts trying to trade.

I don't know you buy spot then you go to Drawing meme lines and I don't know ascending triangles and whatever some TA stuff and then you move into oh Well, what are these perps?

So let's trade some perps then you go and how do we hedge these perps and slowly snowball to now we're managing a small boutique size options fund.

But that's kind of where I'm at right now.

And It rolls into how do you keep the money right like you can hit these 10x's you can hit these big paydays But I think I wrote it all the way down right I probably didn't even make much at the end of the day then 2017 came around and

I specifically remember a lady at the bus stop in Portland or Uber stop in Portland was like, oh, could you help me create a crypto wallet?

She heard me and my buddy talking about crypto so that was like maybe it's time to sell.

That was probably like Pico top and really got into the crypto vol side more recently.

We were number 10 market maker on the FTX products, specifically the US stuff right.

So doing more spot trading and things like that, spot market making, and really got into the options stuff more recently.

Of course I've used them for a few years now but as a main income not focusing on Delta 1 stuff or spot stuff.

What's more interesting recently is you have this ETF hype, you have the halving coming up, You have this presidential election, right?

You have like these organic vol inducing events or vol bringing events.

I don't know if I guess vol is a 40 handle right now, right?

So the market isn't like, oh my God, it's coming back right now.

Today's the day, you know, hip, hip, hooray, you know, BlackRock is going to carry us to Valhalla.

Clearly, vol's just been down to the right since November and the ETH merge was the natural or was the last kind of spikes.

And since then, I mean, she's a 40 handle like I have a bet that if not, not a historical vol, but if if D vol goes into the 20s, I have to quit trading crypto options and stop selling vol until it comes back above.

Marley, you seem to have caught the move pretty well.

What was it that you were looking at over the last few months that kind of really sort of got you on that wave of being short

There was nothing coming There's no besides another black swan or time.

You're not gonna dig yourself out of this this vol hole is what I say, right?

November was what like a hundred and 40 eith or something like that and we hit like 70 or 80 handle during the The Chappelle move the ETH update and besides that nothing's changed There's no, you know USD liquidity.

No, no ventures really getting back like there was in the hype cycle There was just nothing to look at right?

We're just gonna short vol and manage the Greeks That's all we can do until the vol regime changes and I know I say that a lot recently but and I get a lot of questions well when is it back when is it back I don't know nobody knows right so maybe we do get our face ripped off 1 day but essentially we've been selling this short dated stuff and trying to buy some long dated Vegas so if there is a pickup hopefully we should profit from that pickup.

But like we can't time when vol comes back.

It's not like, Oh yeah, on Q3 or Q4, it's going to come back.

I think that we have the halving in the presidential election as some like natural organic vol inducing events, but nothing like, I don't know, I, when are we going to go back to trading 100 handle 140 handle again?

This people want crypto Twitter getting more meaner by the day.

No, I, I know I, I totally, totally hear you there.

And it definitely seems like some of the flows that I have on screen is just, you know, a lot of people kind of seeing the moves and in spot and vol, like what we saw late last week, and then just like completely top taking this thing, right?

So these are all flows that were coming through when, you know, you know, ETH was breaking out, you know, around 2k.

We just saw this like massive upside and, and gamma gamma buying on the spot, move higher from the XRP ruling, especially in a theorem that, that is just completely played second fiddle to BTC pretty much all this year outside of the Chapela, which you mentioned.

And, you know, it was pretty much all 1 way flow.

And it turns out these guys completely top tick this thing.

And from your Twitter, Marty, it kind of seems like something that you saw coming, you know, in plieds now are back in the mid 30s.

Like, so when you saw this spike higher in spot and vol, like, did you see this as kind of an opportunity to initiate some new short vol positions, you know, that, you know, would have paid off well, or, you know, were you managing risk of short vol positions that you had on and, you know, potentially temporarily offsides on the move?

Yeah, front end picked up like a lot, especially in ETH, but not necessarily Bitcoin, because I think ETH was riding this ETH is not a security hype right so that was like instant pickup on the front end but you never saw like the uptick in vol a little bit later right You never saw the end of the year, you never saw March, you never saw June even pick up like at all.

If I remember correctly, it might have even been down.

And it seemed crypto Twitter was euphoric like always, right?

You can only, you know, don't listen to anybody on Twitter.

There are only like 5 people know what they're talking about.

Besides that, we're all there for fun and games.

And you saw like ETH really pick up in this short term stuff.

We covered a lot of our shortfall positions, but it wasn't like, oh, like, oh my God, we got blown out.

Like it wasn't like, it wasn't like this grand inducing event, like if we would have saw the backend pickup, we would have made a lot more money.

Put some more positions on towards the end of that hype cycle, but it wasn't like, we probably could have just stayed where we were and made even more money.

And unfortunately, we don't have like a billion dollars to play with, or I think it would be a totally different story.

I'm pretty comfortable where we're at managing this little boutique, sub $20 million micro boutique fund.

We have a lot of say on what we can do and not a lot of chief investment officer trying to make a play or traders trying to make a play.

And Marty, What are the core kind of strategies you tend to put on to express this view?

Yeah, I mean the more complex it gets, you could just really just 1 line, 1 simple word is just sell more vol, right?

Just trying to do as much volume as we possibly can so we get, you know, OKEx and ByBid and some of these other guys, you know, hopefully we get a gold star from them and they like us.

And then hedging out the Greeks with some perps and some spot.

It used to be like, I don't know, let's short this strangle with a few clicks.

Let's put this on and let's rehedge every hour, every 30 minutes at like the very beginning.

And then instantly saw like, oh, that's only going to work so well if you're only playing with a small chip stack, we need something that can scale.

investment management space, like in crypto, it's kind of all about like how well you can manage your capital.

So how do you go about sort of managing like cross exchange and like different margin requirements and C5 or C5, like how does that look for you?

Sure, The problem that I'm seeing now is there's money to be made because in CFI and DeFi or a mix of all, there's a different price on every exchange of every hour of the day.

The issue that, and maybe the reason why it's not fully arped out yet is because of capital requirements, right?

On some of these DeFi things, you need 100% margin.

So, oh my God, you're going to put, I don't know, a million dollars on a smart contract, let's say, to make $1, 000.

Oh, God, please let's not do that, right?

You can only, it would be a lot easier if there was some more margin.

It actually be better if there was a prime brokerage for all DeFi.

And if somebody is making this, just ping me because I would love this.

If there was a margin, like 1 margin for all DeFi of all the protocols, this would be a game changer for sure, right?

You could play SYNQUOTE, you can play AVO, Avocado, they post the avocado.

So I always call them the avocado exchange.

You could play these guys on 1 margin book and oh my God, it would be life-changing.

But I think all of these different pricings would be priced out instantly.

You have Lyra, Premia, Synquote, all these guys, right?

I wanna talk a little bit about, it's a pretty interesting case of short vol going wrong.

We've discussed continuously on the big picture, the presence of this large Ethereum overrider in the market that was very active throughout Q1 and Q2.

These guys don't trade on paradigm, so we're happy to talk about it.

And we've been tracking the positions of this overrider.

And what's very interesting is on last week's XRP driven rally, we saw this entity in what appears to be complete panic covering mode, you know, buying back a large amount of their short upside positions.

Most notably, it was these March 2300 calls, which was the largest open position of this entity.

I think in the March 2300 calls in early June, they sold around 400K vega of this thing.

So if you'll see on that chart, the majority of this flow was occurring where that left arrow is and being sold at 44 vol.

And when they bought it back last week to cover this thing, he was paying roughly 52 vol.

Yeah, and The as I mentioned, you know the Vega trade initiation in this strike was a roughly around 400 K So on the vol move alone, they lost 8 vols on this and you know 8 vols on 400 K And you know, this is an underestimate to you know, given the Vega exposure being dynamic in both spot and vol.

So just looking at where this guy opened and closed this trade, they crystallized a 3 and a half to $4 million loss on this thing.

And we saw this, and honestly, we weren't really surprised to see the covering when we saw, you know, the large move in the long dated fall.

We, 1 thing that we've been working on a paradigm is this thorough Deribit Ethereum wallet analysis, basically looking at the inflows and outflows into the major Deribit wallets from the start of when this program was going up.

And the main takeaway of that is we did not see inflows into Deribit that would have been enough to sufficiently collateralize these positions on the move higher, unless they already had a ton of funds that were just sitting there dead on Darabit, which seems like a pretty inefficient use of capital to me.

So the natural conclusion is that they needed to cover all this risk.

And, you know, we would assume that the program is over for the time being and could be, I could be wrong.

It's, it's impossible to know for sure, but like, you know, Marty, you have firsthand experience in shortfall strategies.

Like, how do you prevent your shortfall strategies from significant drawdowns to the point where, you know, you're closing down positions and, you know, you might be out of the market for a while.

This is the same guy that does like the on book quoting, right?

For the last, I don't know, year and a half or whatever.

I'm saying it's still that same major player.

I mean, not every major player is always going to be right.

Won a lot and kept winning a lot, a lot, a lot, and kept winning over and over and over.

Maybe it was a little too panicky, right?

Because we instantly saw it just flow back down.

And I don't know who he is or she is right we don't know I don't know if it's a minor or if it's an entity or if it's a fund or whatever right how when you're looking at this like they were they better off probably just holding on their positions or re-adding collateral I I think that this black rock followed by this XRP ruling really put a lot of people on tilt or on edge or off sides, whatever terminology you want to use.

I didn't necessarily feel like super risky.

I didn't feel like, oh my god, I need to cover everything.

We covered some, but we still collected data the next day, right?

It wasn't like, oh, we need to go long, super long dated stuff.

We need to change our whole strategy today.

Still, like I said in the beginning, there's still no real catalyst.

Like these were supposedly the black, the upside black swan catalyst.

The BlackRock is coming to bring us to Valhalla.

The SEC is probably going to lose every single case from here on out, right?

Because now how are you going to say ETH is a security or not a security or some other coin?

What was interesting there, which I don't think a lot of people even realized, was that the SEC said that XRP was a security when offered privately to funds, but it wasn't a security when offered to the public, which seems a little backwards, right?

Yeah, if anything, it's a little backwards, right?

I mean, they're going to go back to court.

They're going to go back to the drawing board.

When you see somebody like this, this ETH overrider guy win over and over and over.

Of course, he's going to get his face ripped off once.

But I think that it was maybe he was too jumpy you know like we're back at a 40 handle right like CPI was what like a 50 let's say right and we're below that like Jesus Christ like if we hit that 20 I'm done dude I can't come back until we get above 20.

I got to go trade TradFi products, which is totally okay.

I'll go trade some AI stocks and follow the shiny new toy if I have to.

But yeah, I think just essentially the guy, team, whoever overreacted.

I think that maybe they could have posted more collateral.

They could have wrote it out for 48 more hours and come out on the other side of it as probably the fucking goat trader of all time if they wrote that 1 out.

We were really surprised by how quick this guy was willing to cover.

You saw where these things were printing too, right?

It really only trades with what looks like 1 market maker.

This market maker, I imagine, made an absolute killing on the way in and out on this thing.

Yeah, whoever is the market maker or whoever is this guy, I will send you a box for free.

Yeah, you need that 1 after that play for sure.

No, it's just could have been 1 of these events like that.

We saw 40 handle to 80 handle, you know, and imagine that loss that he would have accrued on something of this scale, right?

Losing 3-4 million bucks after making, I don't know, we can go back and do the math, right?

The last year and a half, I don't know, you made 100 million, let's say, just randomly.

Yeah, it definitely could have been a lot worse.

It could have, I mean, we could have saw 70-80 handle, and imagine we'd saw that in 2 hours, like an FTX Black Swan or something like that.

Yeah, he would have literally had his face ripped off and Loris would have baked the cake for sure.

We're kind of of the assumption that, you know, maybe, you know, this program, you know, might be over a little bit for the time being, but as you said, right, all look at all the other trades that had done quite well, would not be surprised if this guy's, you know, back ready to play again and, you know, Q3, Q4.

Yeah, just go look at like all these people trying to buy vol, especially in like a directional way.

It's like if you don't get that big move and if you don't get that big move fast, essentially you lose every day.

Every time you pay theta, you get, you know, my God, this even like retail.

I had a buddy who, oh, I put on some directional plays of decent size for retail and I was like, oh, have you looked at your theta tab?

And I was like, Do you even know what that means?

Or are you just straight out punting 100K option long, like 100K cash long?

And he was like, yeah, I'm just over here gambling, basically.

Besides the smart vol players and the trad by guys that have come to the vol space options is still just still like a whole new

We see we don't even know the word see like especially like an execution style and kind of like what Joe saying earlier and how people like will top ticket and like the flows and then the last side of it.

You know, people just, because people come from the, like from paradigms like view, right?

So we have, you know, like a, let's say like a group of takers and that are just directional, directional traders that will come in when like an XRP ruling comes out or like CPI day or things like that.

And when they come in, they come in, the flows are just so aggressive and like just so violent and they're always on the move.

And then the next day it's nothing, like you're collecting data, you know, like there's not really much, it just is so quick.

And then I feel like they're on the wrong side so often.

But I agree with you that the big players and the smart Shopify guys who do like size bigger and they're usually like in a little bit earlier, like obviously are the ones, successful at the end of the day.

But yeah, we do see so much of this jumpy flow.

What's your, obviously right now as well, we're very much in this positive spot vol correlation world.

So I'm always interested when someone who's kind of running consistently short vol, does that overlap with a view that spot's not going anywhere soon?

If we just grind higher and grind towards $35K, $40K, you know, vol's not going to do a lot on that.

How are you viewing spot within that, within the vol view that you have?

Yeah, I mean, when we trade on Darabit, or I guess even OKX, right?

So essentially you want the vol regime to shift and you want to be just balls long and you want to be coin margined and you want to double dip in the profits.

But right now, it just seems for us just to be collecting more coins.

Every day, let's make a little more coin, a little more coin.

And I can't wait until the vol regime shifts.

Whenever it comes and just be balls long and just make a killing and put out new memes and the you think the short ball means are good wait till the long ball right I'm just trying to pass time right now I'm trying to have a laugh you know essentially it's been boring but boring is good right especially as a short ball ball player you want just to be boring You want to collect data every day.

It's been like, I don't know, so long in this range, like of ETH, 1600 to 2000.

I don't want this, I don't know, let's say

I want these more tight, shorter ranges for longer periods of time whenever the vol regime shifts and we're not super max short right now like we were I think we're positioning for Q4 and Q1 of next year, kind of like everybody else, hoping that this, maybe there's even a front run of the halving and that brings back some flows, to just some more, not macro, but more bigger picture plays instead of oh my god it went from 43 to 42 and the next day it went from you know for 42 of 43 to 42 handle or today it's 40 like we're still just down and to the right if you just look at the default chart, right?

If I really want it just to come back organically without a black swan, because you don't want a black swan like Binance going down to bring back vol.

That would not be good for anybody, and TradFi will continue to laugh at us, right?

I can't wait until we're just balls long and it's just so much easier.

Like, that's always fun for everybody, you know, but I have to make money every quarter.

If you redeem, I don't know, 10 million, you redeem half the fund, like, oh, geez, maybe I'm out of business.

But if I want leverage and, you know, long vol exposure, and I look at some of the performance of these crypto equities, right?

Like BTC looks like a complete dog, you know, compared to some of these, compared to some of these equities that actually has decent option markets.

If I want to play that sort of long vol, and look, I understand that you're going to be paying much more premium for these things.

I have NVIDIA there just for comparative purposes.

I mean, fucking Coinbase, certainly it's a different animal, but like it's up 90 percent or whatever over the past month, right?

If you want these sort of, you know, upside, convexity, long vol sort of plays.

No, nobody's denying that, but like kind of seems like the better place to be paying it, playing it.

And I think in like existentially, you know, it's 1 of these, when I think about the current state of the crypto option markets.

See all Paradigm transcripts on Youtube

TBP | Marty Talks Running a $20M Crypto Short Vol Fund. -Ep. 31