A Four-Dimension Framework for Selecting Crypto Options
Summary
The document presents a contract-selection process for directional crypto option trades across Deribit, Binance Options, and OKX. It standardizes contract prices, forwards, Greeks, implied volatility, and liquidity data before comparing candidates. Four dimensions guide selection: convexity across Delta, Gamma, and Speed; expiry timing against the forecast window and volatility term structure; relative value against each venue’s skew and surface; and execution quality based on spreads, depth, open interest, volume, and quote freshness.
The proposed workflow filters strikes and expiries, compares local and cross-venue volatility residuals, then reprices candidates under scenarios for underlying moves and changes in implied volatility, after estimated trading costs. The article gives formulas, sample market-data fields, and API sources as implementation guidance. It emphasizes that cross-venue price differences do not establish arbitrage and that model-based cheapness is not a guarantee of convergence. The selector does not supply a profitable directional signal or replace risk limits, position sizing, or stress testing.
Key ideas
- Normalize contract economics and Greeks before comparing options across venues.
- Choose strikes by balancing directional exposure, convexity, and premium cost rather than selecting solely by low Delta or premium.
- Match expiry to the forecast horizon while accounting for volatility term structure, funding, and futures basis.
- Evaluate implied volatility relative to a fitted skewed surface and compare executable ask prices with fair-value estimates.
- Apply liquidity filters and scenario repricing with realistic entry, exit, and fee costs before ranking candidates.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.