Welcome to the AD Derivatives podcast led by Director of Derivatives; Greg Magadini.
Featuring: Jake Ostrovskis, OTC at Wintermute!
Jake Ostrovskis is a principal on Wintermute’s over-the-counter (OTC) Desk. Jake executes trades for a range of counterparties in digital assets and advises on products like spot, options, tailored products, CFDs, and NDFs.
Before joining Wintermute, Jake worked at a hedge fund within a global macro pod, concentrating on chasing volatility in equity, rates, FX, and commodity derivatives. His position there eventually led him to crypto. He then transitioned from directional trading to OTC, executing with third parties at Wintermute.
The Amberdata Derivatives Podcast featured Jake Ostrovskis, an OTC trader at Wintermute, a leading market maker in the crypto space. Wintermute, known for its dominance across derivatives and spot markets, plays a crucial role in supporting institutional and retail investors transacting through over-the-counter (OTC) markets. Jake shared his background, early career experiences, insights into volatility trading, and how the market has evolved, particularly in the realm of crypto.
Jake began his trading career in the traditional finance sector, specifically working on a global macro desk with a broad mandate to trade a wide range of markets. His early experience focused on following volatility and seizing opportunities in various markets, such as oil, German yield curves, and U.S. equity indices. He quickly learned the importance of volatility as a key driver of trading opportunities, where dislocations in market structure or significant news events could create profitable trading conditions.
Jake's move into crypto was influenced by its inherent volatility, which he saw as a natural extension of his macro trading experience. As the crypto market matured, he became increasingly involved in options and OTC products, transitioning from traditional prop trading to market making. Wintermute, known for its broad market coverage and liquidity provision, eventually brought Jake on board due to his experience and understanding of volatility, which aligned with the crypto market's landscape.
A recurring theme throughout Jake’s career has been his focus on volatility, especially in macro environments. His trading style revolves around assessing fair market value and reacting to dislocations caused by news events, market structure issues, or unexpected volatility. He described instances, such as trading during the Chinese tariff trade wars or reacting to misinterpreted headlines (e.g., central bank announcements), where significant volatility presented lucrative opportunities.
In crypto, this focus on volatility continues, though the market differs from traditional asset classes in several key ways. Crypto markets exhibit higher base-level implied volatility, and the funding rates in derivatives markets can sometimes deviate significantly from traditional financial products. Jake noted that crypto’s volatility surface is often elevated, with implied volatility significantly higher than in traditional markets like equities or bonds.
Wintermute’s OTC desk plays a crucial role in the crypto ecosystem by offering bespoke, off-screen transactions to clients. Jake emphasized the growing institutional demand for OTC products, which offer benefits such as reduced counterparty risk, better price execution for large orders, and the ability to handle more complex instruments, including exotic options or altcoin derivatives.
A significant aspect of Wintermute’s success in OTC trading is its focus on robust risk management practices. As institutional players increasingly enter the crypto market, they demand more stringent risk controls and transparency around counterparty risk. Wintermute has adopted many traditional finance risk management methods, such as margining and credit assessments, to ensure trades are executed securely and with minimal risk to both parties.
Crypto options tend to trade at a premium relative to realized volatility, with participants like miners, venture funds, and large holders frequently selling volatility to generate yield. Retail traders also contribute to the market’s behavior, particularly in screen-based options trading, resulting in frequent volatility spikes. The 24-hour trading cycle, with distinct liquidity profiles across global time zones, further complicates trading compared to traditional finance markets, which close at the end of each day.
Institutional interest in crypto has increased, notably with the introduction of spot Bitcoin ETFs. This has shifted liquidity primarily to the U.S. session, impacting market makers’ hedging and creation-redemption strategies. Additionally, the institutional flow has compressed funding rates, particularly in basis trades where hedge funds profit from the differences between spot and futures prices. As a result, certain trading strategies have become less attractive due to the reduced profit margins.
The future of crypto markets is expected to involve more institutional participation, which will likely result in volatility compression, bringing it closer to traditional financial markets. The introduction of options and ETFs will further institutionalize the space, but the potential for major volatility remains, especially around macroeconomic catalysts like elections, regulatory changes, and the launch of new financial products.
Jake’s insights during the podcast highlight the importance of volatility in trading and how his background in traditional macro markets has equipped him to thrive in the crypto world. As crypto markets continue to evolve, Wintermute’s focus on providing liquidity, managing risk, and adapting to new products like altcoin options positions it as a leading player in the OTC market. With growing institutional participation and increasing demand for bespoke trading solutions, the role of OTC desks like Wintermute’s is set to expand even further in the coming years.
For more about Wintermute visit: https://www.wintermute.com/
AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.