Deribit Options and Futures

Paradigm’s block-trading solution enables institutions to privately negotiate crypto-derivative trades via chat with counterparties of their own choosing. Once agreed, the trade will be automatically executed, margined and cleared at Deribit and displayed on the public tape as a block trade, eliminating any execution risk associated with the order book.

Getting Started

Setting up your Paradigm Account

1

After requesting access through our Paradigm Signup Page, you will receive a Welcome to Paradigm email

2

In your email, click either the macOS or Windows link to download the application

3

Once installed, click the Sign Up link at top of application

4

Enter registration code given in the welcome email, along with all relevant information

5

Accept Terms on next screen

6

Click Get started

Setting up your Desk on Dashboard

1

Log in to your Paradigm Web Dashboard using your Paradigm login credentials

2

On the Desk Management Page, click the Create Icon

3

Search for user names and set desired account levels from the drop-down menu for each member (Account level permissions are explained by hovering over the “?” icon, next to Account Type column)

Product Level Settings

Counterparties Settings

1

Individual product pages appear under Product Management in the left-hand sidebar

2

All settings for each product can be viewed and configured from each individual product page

3

After completing your own internal compliance checks on a counterparty, click the “+” in the top right of Approved Counterparty Settings section

  1. Enter/select counterparty name in the pop-up screen and click Add Counterparty button
  2. Counterparty will be added to the list in your dashboard
  3. Toggle “Trading Enabled” to allow price discovery functionality within chat
  4. Click three dots on the right, to remove or edit counterparty settings
*Note: Each counterparty must add the opposing desk to their own dashboards, in order for a Trade Channel to be opened on the Paradigm application
Product Level Settings

RFQ Settings

1

To edit RFQ settings, select the Options tab within top header

2

RFQ Settings (Maker)

  1. Toggle Maker Functionality on/off to allow your desk the ability to respond to RFQs
3

Manual RFQ

  1. Edit RFQ settings separately for each product by using the Product dropdown. Select Edit for pop-out window to set Max Size and Execution Window for each product
  2. Use the Toggle functionality to enable/disable Manual RFQ at any time
*Currently Maker Functionality and Manual RFQ will toggle together.
Product Level Settings

Account (Generating and Adding Deribit Credentials)

1

Log into your Deribit account

2

Go to My Account and click the API tab

3

Click Add a new key

4

In the pop-up window, the block trade field must be set to “read_write” while everything else can be personal preference

*Note: This is a new setting made available by Deribit, specifically for block trades. This key will not give us access to your account information. Instead, it only allows Paradigm the ability to submit block trades on a user's behalf.
5

Click Add a new key

6

On your Paradigm Admin Dashboard, select the Account tab under the Deribit Options product

  1. Input your Deribit API credentials i.e. Access Key and Access Secret
7

Click Save

Creating a New Group (no RFQ functionality)

1

Click the create icon at the right of the Search Bar

2

Select New Group from dropdown

3

Type in a desired name for group

4

Enter/select all users for group

5

Click Create

6

You will see the group created and appear within the right hand sidebar list

7

This group is merely for communicating (no RFQ functionalities)

Creating a Trade Channel (includes RFQ functionality)

1

Click the create icon at the right of the Search Bar

2

Select New Trade Channel from dropdown

3

Search for desired Counterparty Name

  1. For a counterparty to appear under Approved, both counterparties need to add each other to their Approved list in their Admin Web Dashboard
4

Select the counterparty name

5

Click Invite button

6

You will see trade channel created in right hand side menu

  1. All members of your trading desk as well as the counterparty’s trading desk are added to the Trade Channel
7

By default a DO Put button is created in the channel ribbon. This is where all future trade buttons will show.

Adding Options Button

1

In the Trade Channel, click the “+” icon

2

Select intended product from drop-down

3

Pop-up window will open with following fields, to review or configure

  1. Venue: DBT - Deribit
  2. Product: DO - BTC Options - European or EH - ETH Options - European
  3. Strategy: Call, Put or Stangle
4

A Strategy Syntax Example populates below for reference

5

Click Add

6

The Trade Button will be added to your channel’s ribbon

7

Trade Buttons can be created for different strategy/product combinations

Sending an Option RFQ

1

Click Trade Button to populate the syntax for the selected strategy in the text window

2

Edit the syntax to create the desired RFQ parameters

3

The typed RFQ text should match the accepted syntax for each strategy.

4

Send the message by clicking Enter

5

User may also manually type the RFQ instead of using the Quick Button, but must follow the syntax rules as described above

6

Text will be converted to an RFQ message and sent to the counterparty, visibile in the chat (via TradeBot)

7

You can cancel your RFQ by clicking the “Cancel” button (or “Re-price” once expired)

Responding to an RFQ

1

Upon receiving the RFQ, Maker clicks the Quote button

2

Quoting syntax will appear in the text window below

3

Type your two way market (with ”/” between bid and offer)

4

Your market will be displayed (via TradeBot) in the RFQ section with a countdown timer (this can be adjusted on the Admin Web Dashboard)

5

If the RFQ counterparty does not interact with your quote by the timer’s end, your quote will expire and become inactive

6

Anyone on the Maker Desk can cancel the Maker quote by clicking the Cancel button

Agreeing on a Price

1

When you agree on a price the party who initiated the RFQ (Taker) can click the Buy or Sell button, before timer completes

2

The Taker will get an additional confirmation pop-up window to confirm the agreement details

3

Once the intended action is clicked in Confirm window, the agreement is complete

4

A Recap of agreement details are displayed via TradeBot within the conversation window for both parties

*Note: Either party can cancel RFQ/quote at anytime before the price agreement is completed by clicking “Cancel” button

Post Agreement Audit Trail

1

Clearing on Deribit

  1. Once an Agreement is complete, details are auto-submitted to Deribit for clearing
  1. For spreads and combinations, Paradigm generates individual leg prices
  1. These prices are displayed on your Blotter under Leg Price column
  2. To view how prices are calculated, please see Paradigm Leg Price Assignment Methodology
  1. Deribit performs order and credit checks before executing and clearing every trade
  2. After these Deribit checks are complete and successful, the block trade will appear in your Deribit account’s Trade History
2

Email Recaps

  1. Automated emails are sent to all members on both Desks of the trade, with full agreement details
3

Blotter

  1. All agreement details are displayed in the product’s Blotter page
  1. Including live settlement status on the respective clearing venue

Leg Price Assignment Methodology

Paradigm’s leg pricing methodology attempts to take the quoted strategy prices as entered by the maker and calculate individual leg prices subject to the following broad constraints:

1

Calculate leg prices as close to the mark as possible

2

Leg prices must be in increments of minimum tick size

3

Leg prices must be within the Min and Max prescribed by the exchange for each leg

4

Leg prices must preserve delta relationships

  1. Higher strike puts > Lower strike puts
  2. Higher strike calls < Lower strike calls

Important Pricing Points to Consider

Trade rejection due to timing differences between initial Price Band check (on Paradigm) and final price band check (on Deribit)

  1. After the Maker enters executable prices, Paradigm conducts a price band check for the quoted strategy to ensure that the price(s) entered by the Maker are within the permissible price bands set by the exchange. These price bands are calculated by Paradigm using the Min and Max of the individual legs in the strategy.
  2. However, Deribit performs its own price-band check at the time of trade execution i.e AFTER the trade message is submitted to Deribit.
  3. Consequently, there is a time lag between the initial price band check performed by Paradigm (after Maker enters executable prices) and the price band check performed by Deribit (at the time of trade submission). This time lag may vary depending upon when the Taker decides to confirm the price, but is capped at a max of 20* seconds (plus a minimal amount of time it takes for Deribit to receive the trade message transmitted by Paradigm
  4. During this time, there is a chance that the price bands for the individual legs (have changed meaningfully enough to cause the executed price to be outside the new price bands for the quoted strategy. If this is true, Deribit will reject the trade.

* 20 seconds corresponds to the longest setting for the trade execution window on Paradigm, configurable via the web dashboard.

Manual entry for individual leg prices when Paradigm is unable to calculate leg prices that are “sensical”

  1. Deribit’s Min/Max values for certain strikes in the option chain can overlap (i.e. Max of lower strike put can be higher than Min of higher strike put). As a result certain strategies prove difficult to calculate leg prices that satisfy conditions stated above (1,2,3) and also specifically preserve delta relationships (4).
  1. In these rare instances, Paradigm will ask the Maker to input individual leg prices and submit those prices to Deribit. Note that in such cases, Paradigm DOES NOT do any checks to ensure that the leg prices preserve delta relationships and prices will be submitted on an “as is” basis.

Currently, Paradigm does not allow zero or negative prices for the following strategies

  1. Straddles
  2. Strangles
  3. Non-ratio, single-expiration Put and Call Spreads
  4. Single expiration, equidistant Put and Call Butterflys
  5. Risk Reversals (only doesn’t allow negative pricing)

Products and Strategies

Products

Execution Venue
Product Code
Instrument
Inst Sub Type
Underlying Asset
DO
Deribit
Options
European Option
BTCUSD
EH
Deribit
Options
European Option
ETHUSD

Instruments and Strategies

Type1
Instrument / Strategy
Syntax
Example
Outright
/XX2 Call DDMmmYY Strike Qty
/DO Call 27Sep19 8000 50x
Outright
/XX Put DDMmmYY Strike Qty
/DO Put 27Sep19 8000 50x
Spread
/XX Strangle DDMmmYY Strike1/Strike2 Qty
/DO Strangle 27Sep19 8000/16000 50x
Spread
/XX Straddle DDMmmYY Strike Qty
/DO Straddle 27Sep19 11000 50x
Spread
/XX CSpd DDMmmYY Strike1/Strike2 Qty
/DO CSpd 27Sep19 12000/14000 50x
Spread
/XX PSpd DDMmmYY Strike1/Strike2 Qty
/DO PSpd 27Sep19 10000/8000 50x
Spread
/XX CFly DDMmmYY Strike1/Strike2/Strike3 Qty
/DO CFly 27Sep19 12000/14000/16000 50x
Spread
/XX PFly DDMmmYY Strike1/Strike2/Strike3 Qty
/DO PFly 27Sep19 5000/7000/9000 50x
Spread
/XX RRCall DDMmmYY Strike1/Strike2 Qty
/DO RRCall 27Sep19 8000/14000 50x
Spread
/XX RRPut DDMmmYY Strike1/Strike2 Qty
/DO RRPut 27Sep19 8000/14000 50x

1 Definitions:

  1. An Options Combination is defined as any multi-legged strategy made up of calls, puts and/or futures
  2. An Option Spread is defined as any multi-legged strategy made up of only calls or puts
  3. A Futures Spread is defined as any multi-legged strategy made up of outright futures

2 XX = product code, i.e. DO or EH

3 Negative pricing not supported yet. RRCall intended for when Deribit mark value of Call > Put. RRPut intended for when Deribit mark value of Put is > Call.

Instrument and Strategy Descriptions

1

Call
Paradigm Strategy Code = Call
A call option gives the buyer (seller) of the call the right to buy (sell), but not the obligation, to buy (sell) the option’s underlying product at the strike price at the contract’s time of expiration.

Pay-off Scenarios:

Long Call
Short Call
Max Gain
1 BTC - Paid Option Price (Unlimited in USD)
Option Premium Collected
Max Loss
Option Premium Paid
1 BTC - Paid Option Price (Unlimited in USD)
Breakeven
Strike / (1 - Premium Paid)
Strike / (1 - Premium Collected)
2

Put
Paradigm Strategy Code = Put
A put option gives the buyer (seller) of the put the right to sell (buy), but not the obligation, to sell (buy) the option’s underlying product at the strike price at the contract’s time of expiration.

Long Call
Short Call
Max Gain
Strike - Premium Paid
Premium Collected
Max Loss
Premium Paid
Strike - Premium Collected
Breakeven
Strike / (1 + Premium Paid)
Strike / ( 1 + Premium Collected)
3

Strangle
Paradigm Strategy Code = Strangle
The Strangle is an options strategy in which the same action (buy/sell) is transacted simultaneously to the put at a lower strike price and the call at a higher strike price of the same product and expiration.

Strangle Properties:

  1. One product
  2. Two legs
  1. Same expiration
  2. Different strikes (put has a lower strike price and call has a higher strike price)

Terminology/Actions:

  1. “Buying the Strangle” buys both the put and the call legs
  2. “Selling the Strangle” sells both the put and the call legs

Pricing:
Strangle Price = Leg1 (put leg) Price + Leg2 (call leg) Price
Cannot be priced at or less than zero.

4

Straddle
Paradigm Strategy Code = Straddle
The Straddle is an options strategy in which the same action (buy/sell) is transacted simultaneously to the put and the call at the same strike price of the same product and expiration.

Straddle Properties:

  1. One product
  2. Two legs, consisting of one put and one call, having the same expiration and same strike

Terminology/Actions:

  1. “Buying the Straddle” buys both the put and the call legs
  2. “Selling the Straddle” sells both the put and the call legs

Pricing:
Straddle Price = Leg1 (put leg) Price + Leg2 (call leg) Price
Cannot be priced at or less than zero.

5

(Vertical Non-ratio) Call Spreads
Paradigm Strategy Code = CSpread
A Call Spread is an options strategy within the same expiration, which two call options of equal ratio but different strikes are bought and sold verse each other.

Call Spread Properties:

  1. One product
  2. Same expiration
  3. Two legs, both calls of different strike with equal ratios

Terminology/Actions:

  1. “Buying the Call Spread” buys the lower strike and sells the higher strike
  2. “Selling the Call Spread” sells the lower strike and buys the higher strike

Pricing:
Call Spread Price = Lower Strike Call Price - Higher Strike Call Price
Cannot be priced at or less than zero.

6

(Vertical Non-ratio) Put Spreads
Paradigm Strategy Code = PSpread
A Put Spread is an options strategy within the same expiration, which two put options of equal ratio but different strikes are bought and sold verse each other.

Put Spread Properties:

  1. One product
  2. Same expiration
  3. Two legs, both puts of different strike with equal ratios

Terminology/Actions:

  1. “Buying the Put Spread” buys the higher strike and sells the lower strike
  2. “Selling the Put Spread” sells the higher strike and buys the lower strike

Pricing:
Put Spread Price = Higher Strike Put Price - Lower Strike Put Price
Cannot be priced at or less than zero.

7

Call Butterfly
Paradigm Strategy Code = CFLY
A Call Butterfly Spread is an options strategy within the combination of a long call spread and a short call spread, equidistant and within the same expiration.

Call Butterfly Properties:

  1. One product
  2. Same expiration
  3. Three legs

Terminology/Actions:

  1. “Buying the Call Butterfly” buys the highest strike 1x, sells the middle strike 2x and buys the lowest strike 1x
  2. “Selling the Call Butterfly” sells the highest strike 1x, buys the middle strike 2x and sells the lowest strike 1xstrike

Pricing:
Call Butterfly Price = Highest Call Price - (Middle Call Price)x2 + Lowest Call Price
Cannot be priced at or less than zero.

8

Put Butterfly
Paradigm Strategy Code = PFLY
A Put Butterfly Spread is an options strategy within the combination of a long call spread and a short call spread, equidistant and within the same expiration.

Put Butterfly Properties:

  1. One product
  2. Same expiration
  3. Three legs of different strike equidistant

Terminology/Actions:

  1. “Buying the Put Butterfly” buys the highest strike 1x, sells the middle strike 2x and buys the lowest strike 1x
  2. “Selling the Put Butterfly” sells the highest strike 1x, buys the middle strike 2x and sells the lowest strike 1x

Pricing:
Put Butterfly Price = Highest Put Price - (Middle Put Price)x2 + Lowest Put Price
Cannot be priced at or less than zero.

9

Risk Reversal (for call)
Paradigm Strategy Code = RRCall
A Risk Reversal (for call) Spread is an options strategy where the buyer (seller) is looking to buy (sell) a call and sell (buy) a put.

Risk Reversal (for call):

  1. One product
  2. Two legs

Terminology/Actions:

  1. “Buying the Risk Reversal (for call)” buys the call strike and sells the put strike
  2. “Selling the Risk Reversal (for call)” sells the call strike, and buys the put strike

Pricing:
Risk Reversal (for call) Price = Call Price - Put Price
Currently only accept strategy price of zero or greater.

10

Risk Reversal (for put)
Paradigm Strategy Code = RRPut
A Risk Reversal (for put) Spread is an options strategy where the buyer (seller) is looking to buy (sell) a put and sell (buy) a call.

Risk Reversal (for put):

  1. One product
  2. Two legs

Terminology/Actions:

  1. “Buying the Risk Reversal (for put)” buys the put strike and sells the call strike
  2. “Selling the Risk Reversal (for put)” sells the put strike, and buys the call strike

Pricing:
Risk Reversal (for put) Price = Put Price - Call Price
Currently only accept strategy price of zero or greater.