Market Microstructure Evolution: Pit To Electronic To Hft
Sources: 1 • Confidence: Medium • Updated: 2026-03-14 12:28
Key takeaways
- In pit trading, informational edge came from reading body language, visible order flow, and instinct.
- Sam Gaer argues crypto options can be structurally mispriced because market makers underweight crypto's fat right-tail distribution, making upside calls relatively cheap versus Black-Scholes.
- Sam Gaer claims a major crypto deleveraging on October 10 liquidated about $20B in one day and about $40B over October, damaging market makers and order-book liquidity.
- Sam Gaer says his late-2023 to early-2024 shift toward crypto was driven in part by observing that younger cohorts are comfortable with virtual payments.
- In 1998 Sam Gaer built Trading Gear to serve multiple exchanges and built a penny-quote pilot system for NASDR.
Sections
Market Microstructure Evolution: Pit To Electronic To Hft
- In pit trading, informational edge came from reading body language, visible order flow, and instinct.
- Sam Gaer used laptop-based model pricing to quote tighter prices on complex copper structures (spreads/strips) and exploit wide inefficiencies set by humans.
- Open-outcry pit trading was physically aggressive and left traders exhausted by the end of the day.
- Sam Gaer built an early systematic futures approach using moving averages, volume, and open interest and traded across markets by calling Chicago.
- As NYMEX CIO, Sam Gaer rebuilt legacy exchange technology; NYMEX migrated from open outcry to electronic trading, completed an IPO, and was later sold to CME for about $9B, with Gaer leading much of the synergy work as EVP/COO.
- Sam Gaer frames high-frequency trading as pit market-making and arbitrage mechanics executed faster and at scale across electronic markets.
Crypto Derivatives: Convexity, Skew, And Term-Structure Anomalies
- Sam Gaer argues crypto options can be structurally mispriced because market makers underweight crypto's fat right-tail distribution, making upside calls relatively cheap versus Black-Scholes.
- Sam Gaer now applies derivatives and market-structure experience to crypto markets with an emphasis on volatility and options, aiming for an institutional-friendly return profile using derivatives rather than boom-bust performance.
- Sam Gaer defines options convexity as accelerating change in option value as the underlying moves and argues out-of-the-money long gamma can pay off in crypto tail moves.
- Sam Gaer argues that because Bitcoin has no native yield, widespread covered-call overwriting to manufacture yield has dampened upside volatility and can create opportunities to buy volatility cheaply during drawdowns.
- Sam Gaer claims Bitcoin volatility term structure can invert such that longer-dated implied volatility (and convexity) becomes cheaper than near-term.
- Sam Gaer states that crypto options' wide spreads and high-volatility regimes can create curve mispricings where the volatility term structure flips into backwardation.
Tradfi-To-Crypto Linkages: Basis Trades, Etf Flows, And Stress Cascades
- Sam Gaer claims a major crypto deleveraging on October 10 liquidated about $20B in one day and about $40B over October, damaging market makers and order-book liquidity.
- Sam Gaer states a key institutional trade going long IBIT and short CME futures weakened as the basis collapsed from about 17% to 5%, contributing to selling pressure as positions were unwound.
- Sam Gaer says that during an unwind, IBIT saw cascading redemptions and the CME basis briefly jumped to about 9% as traders sold IBIT and bought back CME futures.
- Sam Gaer argues the recent crypto sell-off reflects political uncertainty about the administration's ability to pass its agenda and perceived risk of future anti-crypto backlash, erasing the post-election premium.
- Sam Gaer says IBIT options open interest exceeds Deribit's and represents net-new options activity rather than share shift from crypto-native venues.
- Sam Gaer attributes part of a February drawdown cascade to a gamma-driven dealer hedging feedback loop and to a Hong Kong fund unwind tied to the Japanese yen carry trade.
Crypto Adoption Thesis Via Demographics And Governance Turnover
- Sam Gaer says his late-2023 to early-2024 shift toward crypto was driven in part by observing that younger cohorts are comfortable with virtual payments.
- Sam Gaer says he sold his high-frequency trading software to a Chicago firm as a 'burn the boats' commitment and has not looked back.
- Sam Gaer argues future political and institutional decision-making will increasingly be led by people around his children's age, reinforcing his view that crypto will be favored.
- Sam Gaer believed Bitcoin would benefit regardless of which candidate won the election.
Exchange Plumbing And Resilience: Clearing And Consolidation
- In 1998 Sam Gaer built Trading Gear to serve multiple exchanges and built a penny-quote pilot system for NASDR.
- Sam Gaer sold Trading Gear assets to NYMEX, where the system became Clearport enabling privately negotiated OTC trades to be centrally cleared via NYMEX.
- As NYMEX CIO, Sam Gaer rebuilt legacy exchange technology; NYMEX migrated from open outcry to electronic trading, completed an IPO, and was later sold to CME for about $9B, with Gaer leading much of the synergy work as EVP/COO.
Watchlist
- Sam Gaer says information overload is a primary operational challenge in crypto trading and that Monarch is moving from off-the-shelf AI tools toward building in-house models to process market signals.
Unknowns
- Do cohort-level payment behaviors (virtual payments, crypto rails) actually translate into sustained on-chain settlement demand at scale?
- What is the actual legislative status, scope, and timeline of the referenced 'Clarity Act,' and which specific institutional activities it would enable or constrain?
- Are the reported liquidation magnitudes and dates (e.g., October 10 liquidation totals) accurate, and how did order-book depth and spreads change around the event?
- How large was the IBIT-versus-CME basis trade in aggregate positioning, and what proportion of selling pressure can be attributed to its unwind?
- Is IBIT options open interest actually larger than Deribit's over the relevant window, and what share of that activity is net-new versus migrated?