AD Derivatives Podcast Feat Artur Sepp, Head Quant at Clearstar Labs!

Welcome to the AD Derivatives podcast led by Director of Derivatives; Greg Magadini. Featuring: Artur Sepp, Head of Quantitative Strategies at Clearstar Labs!

In this Amberdata Derivatives podcast episode, we speak with Artur Sepp as he specializes in delta-neutral strategies within DeFi markets and crypto volatility venues, including CeFi platforms like Deribit. With a robust background in volatility trading and modeling, he has accumulated valuable experience working with notable firms such as Bank of America and Julius Baer. In our conversation, we dive right into Artur's expertise, exploring his perspectives on volatility trading and modeling. We also trace his journey into the realm of crypto trading, shedding light on some of the innovative strategies he employs in this dynamic space.

Introduction

Greg welcomes Artur Sepp, Head Quant at Clearstar Labs, a family office focused on DeFi and crypto option strategies with a delta-neutral bias. The conversation dives into Artur's background, his crypto journey, and the technical intricacies of his quantitative approach.

Arthur's Background

Artur's educational foundation lies in economics, finance theory, and engineering, where he developed a keen interest in applying mathematical models and data to investment decisions. His academic journey led him to explore options pricing models, and he continued to refine his quantitative background with a Master's and Ph.D. in statistics. Artur's fascination with applying mathematics to solve complex option problems grew during his studies at Northwestern University.

Early Career at Bank of America

Artur's early career at Bank of America involved working on diverse projects, with a highlight being the development of market-making models for illiquid stocks, particularly options on emerging market stocks. The challenge was to navigate one-sided markets with substantial positions, balancing delta hedging difficulties with holding positions to maturity.

Transition to Crypto and Clearstar Labs

Artur's entry into the crypto space was prompted by a collaboration with Alex Lipton on blockchain technology. Intrigued by the challenges and opportunities, he ventured into crypto options and strategies. His move to Clearstar Labs allowed him to apply his expertise in arbitrage, options trading, and portfolio hedging to the dynamic and evolving crypto market.

Market Dynamics in Crypto

The discussion touches on the inefficiencies in the crypto market, citing examples like Uniswap pools with high TVL but limited profitability. Artur emphasizes the challenges of liquidity provision, the impact of slippage, and the complexities of navigating different blockchains. The inefficiency in crypto markets provides arbitrage opportunities, making it an exciting space for quantitative strategies.

Potential Impact of a Bitcoin Spot ETF

Artur anticipates a significant impact on the crypto space if a US-listed spot Bitcoin ETF is approved. With limited on-chain supply for Bitcoin and potential large-scale buying by ETF custodians, volatility is expected to rise. This could create opportunities for risk-adjusted returns, especially in Bitcoin options.

Research on Inverse Options

Artur discusses a recent white paper on inverse options, addressing both theoretical and practical aspects. The paper provides a proper definition of inverse options and explores their practical application, especially in the context of crypto investors managing different share classes. The research shows that consistently converting profits into dollars can lead to smoother risk-adjusted returns.

Career Advice for Aspiring Quants

Artur advises aspiring quants to be generalists, acquiring a versatile skill set in mathematics, statistics, and analysis. Networking is crucial, emphasizing the value of professional relationships and insights gained from industry events. Being adaptable to changes in the industry and building a strong network of professional friends contribute to a successful career.

Personal Insights

Outside of his quantitative endeavors, Artur shares his passion for Brazilian Jiu-Jitsu. Engaging in regular training sessions and participating in open mats provide not only a physical workout but also mental resilience and humility when sparring with practitioners of different skill levels.

Conclusion

Artur Sepp's journey from traditional finance to the crypto space offers valuable insights into the challenges and opportunities in quantitative trading. His technical expertise, combined with a strategic approach, provides a roadmap for aspiring quants looking to navigate the evolving landscape of financial markets mainly in the digital asset space.

Recently written paper by Artur Sepp: https://papers.ssrn.com/sol3/papers.c...