Market Microstructure Evolution And Transferable Edge
Sources: 1 • Confidence: Medium • Updated: 2026-04-11 17:18
Key takeaways
- Sam Gaer began working in commodities markets as a teenager running order tickets on the COMEX floor during the early-1980s gold boom.
- 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 says 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 IBIT options open interest exceeds Deribit’s and represents net-new activity rather than taking share from crypto-native venues.
- Sam Gaer’s shift toward crypto in late 2023 to early 2024 was driven in part by observing that his adult children and their peers are comfortable with virtual payments.
Sections
Market Microstructure Evolution And Transferable Edge
- Sam Gaer began working in commodities markets as a teenager running order tickets on the COMEX floor during the early-1980s gold boom.
- Sam Gaer traded copper in open-outcry pits starting around 1988.
- In pit trading, Sam Gaer used body language, visible order flow, and instinct as key information sources.
- In 1998 Sam Gaer pivoted into exchange technology by building Trading Gear, which served multiple exchanges and built a penny-quote pilot system for NASDR.
- Open-outcry pit trading was physically aggressive and left traders exhausted by the end of the day.
- Sam Gaer used a laptop-based program to price complex copper structures (spreads and strips) and quoted tighter prices to exploit human-set inefficiencies.
Crypto Derivatives: Implied Volatility Distortions And Tail-Payoff Framing
- 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 argues that because Bitcoin has no native yield, widespread call-overwriting to manufacture yield has historically dampened upside volatility and can create windows where longer-dated convexity becomes unusually cheap, including inverted volatility term structures.
- Sam Gaer says crypto options’ wide spreads and high-vol regimes can create mispricings where the volatility term structure flips into backwardation, sometimes making longer-dated convexity cheaper than near-term.
- Sam Gaer now emphasizes crypto volatility and options and aims to translate institutional derivatives frameworks to crypto markets.
Flow-Driven Dislocations: Liquidations, Basis Trade Unwind, And Etf-Futures Plumbing
- Sam Gaer says 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 a trade of long IBIT ETF versus short CME futures weakened as the basis collapsed from about 17% to about 5%, contributing to selling pressure as positions were unwound.
- Sam Gaer says 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 attributes part of a February drawdown cascade to a gamma-driven feedback loop and to a leveraged unwind tied to the Japanese yen carry trade.
Institutionalization Constraints And Next-Wave Expectations (Regulatory Clarity, Tokenization, Venue Mix)
- Sam Gaer says IBIT options open interest exceeds Deribit’s and represents net-new activity rather than taking share from crypto-native venues.
- Sam Gaer says institutional demand has been constrained by the delayed “Clarity Act” because institutions want certainty about which regulator governs crypto derivatives and whether activities are permitted.
- Sam Gaer expects tokenization, including 24/7 on-chain trading initiatives, to be the next major wave of institutional participation in crypto markets.
- Sam Gaer expects increased institutional capital in crypto and is targeting an institutional-friendly return profile using derivatives rather than boom-bust performance.
Crypto Pivot Driven By Demographic Adoption Beliefs And Irreversible Commitment
- Sam Gaer’s shift toward crypto in late 2023 to early 2024 was driven in part by observing that his adult children and their peers are comfortable with virtual payments.
- Sam Gaer sold his high-frequency trading software to a Chicago firm as a personal “burn the boats” commitment to crypto and says he has not looked back.
- Sam Gaer believed Bitcoin would benefit regardless of which candidate won the election.
Watchlist
- Sam Gaer identifies information overload as a primary operational challenge in crypto trading and says Monarch is moving from off-the-shelf AI tools toward building in-house models to process market signals.
Unknowns
- Did the October 10 liquidation event actually reach the stated magnitudes, and how did order-book depth/spreads change across major venues immediately before and after?
- What were the actual time series of CME basis levels (e.g., 17% to 5% collapse; 9% spike) and the corresponding IBIT creations/redemptions during the described unwind windows?
- Is IBIT options open interest consistently above Deribit’s, and what portion is net-new vs migrated activity when measured over comparable tenors/strikes?
- What is the actual status, scope, and timeline of the referenced “Clarity Act,” and what specific uncertainties (regulator, product permissions) are institutions waiting to resolve?
- Do crypto options markets exhibit persistent cheapness of upside convexity relative to realized right-tail outcomes after accounting for spreads, slippage, and regime changes?