Entropy
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Trading Strategy

Here is a recommended way to trade POWER-2 SOL:
  • for assets with a liquid options exchange, fit a vol surface to estimate the 7 days-til-expiry (or whatever the funding period is) at-the-money implied volatility. Use this estimate as your theoretical value for the price of the POWER-2 perp.
    • Need to interpolate across multiple expiries to impute 7 dte IV
    • ATM implied volatility means less when skew is very high.
  • for assets without a liquid options exchange, use a GARCH model fit on historical realized volatility on the asset to predict forward looking volatility and use this estimate as the theoretical value for the price of the POWER-2 perp.