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The 'Father of Options': How Illicit Moneylending via Put-Call Parity Made a Millionaire

Brandon Ly


Did you know the "Father of Options" circumvented 19th century usury laws via financial engineering to make $?

Let's dive into the fascinating story of how Russell Sage leveraged put-call parity to become a millionaire, and how put-call-LP parity revolutionizes DeFi options๐Ÿงต

In this thread we'll:

  • Show how Russell Sage made millions by subverting the law with options
  • Use monkeys & bananas to explain put-call parity
  • Explain why "put-call-LP" parity for DeFi options is as groundbreaking as put-call parity was for TradFi options

What is Usury?

Usury, aka predatory lending, is charging an excessive rate of interest on a loan.

Historically, usury was defined as charging any interest on a loan and was condemned by major religions & prominent philosophers (Moses, Buddha, Muhammad, Aristotle...).

In 1867, Russell Sage was convicted of violating New York usury laws for charging an 8% annual interest rate on a late loan to a stockbroker. The penalty for Russell was $250 in fines and 5 days in prison (source here).


But this didn't deter him. Russell used his know-how of options to create synthetic loans. He developed OTC options trading on such a grand scale that he was known as "The Father of Puts and Calls", inventor of straddles & strangles, and the "Money King".


Put-Call Parity

But how exactly did the "Money King"๐Ÿ’ฐ๐Ÿ‘‘ create loans through options trading? The answer lies in a fundamental concept found in every financial textbook called "put-call parity", which can be used to create synthetic loans.

Imagine a seesaw with 4 types of fruit: apples๐Ÿ, peaches๐Ÿ‘, cherries๐Ÿ’, and bananas๐ŸŒ.

In order to stay balanced, the seesaw must have a fixed ratio of apples๐Ÿ + peaches๐Ÿ‘ on one side, and cherries๐Ÿ’ + bananas๐ŸŒ on the other side.


Each fruit represents a financial instrument, and the fundamental relationship between the fruits is put-call parity.

  • ๐Ÿ = asset price
  • ๐Ÿ‘ = put price
  • ๐ŸŒ = bond price
  • ๐Ÿ’ = call price

Put-call parity: ๐Ÿ + ๐Ÿ‘ = ๐ŸŒ + ๐Ÿ’


  • "Mon[k]ey King"๐Ÿต๐Ÿ‘‘ be like: "Me like loanshark โ€” me want high interest rate!"
  • Buying ๐ŸŒ(bonds) is a fancy way of saying: "Me lend you some money in exchange for interest."

โ†’ So ๐Ÿต๐Ÿ‘‘ can loanshark by buying ๐ŸŒ(bonds โ€” in this case, high yield ones)! ๐Ÿคฏ

But ๐Ÿต๐Ÿ‘‘ couldn't legally buy bananas๐ŸŒ (bonds โ€” the high yield ones). ๐Ÿšฉ๐Ÿšฉ๐Ÿšฉ๐Ÿต๐Ÿ‘‘โ›“๏ธ๐Ÿ‘ฎ

Instead, he:

  • Bought apples๐Ÿ(asset)
  • Sold cherries๐Ÿ’ (calls)
  • Bought peaches๐Ÿ‘ (puts)

โ†’ Effectively purchasing bananas๐ŸŒ (bonds) to create loans at higher interest rates than was legal!


Put-Call-LP Parity

Just as "put-call parity" is fundamental to options, "put-call-LP parity" is fundamental to DeFi options.

Panoptic begins w/ the simple observation that providing concentrated liquidity in Uniswap V3 is analogous to selling options in TradFi.

LP = -Put ๐Ÿคฏ


Let's call this observation "put-LP parity": LP = -Put (๐Ÿ‹ = -๐Ÿ‘)

Which means: -LP = Put (-๐Ÿ‹ = ๐Ÿ‘)

โ†’ Panoptic lets you buy peaches ๐Ÿ‘ (puts) by selling lemons ๐Ÿ‹ (LPs) ๐Ÿคฏ


How do you buy ๐Ÿ’ (calls)? Answer: lab-grown synthetics!

  • Put-call parity: ๐Ÿ’ = ๐Ÿ - ๐ŸŒ + ๐Ÿ‘
  • Put-LP parity: ๐Ÿ‘ = -๐Ÿ‹
  • โ†’ Combined: ๐Ÿ’ = ๐Ÿ - ๐ŸŒ - ๐Ÿ‹

โ†’ You can buy ๐Ÿ’ (calls) by buying ๐Ÿ (asset), selling ๐ŸŒ(bonds), and selling ๐Ÿ‹ (LPs)๐Ÿคฏ


Panoptic Labsโ„ข synthesized a new type of ๐Ÿ‘ and ๐Ÿ’: These ๐Ÿ‘ and ๐Ÿ’ are shelf stable because they NEVER expire!

Panoptions are a novel type of options:

  • Perpetualโ™พ๏ธ
  • Oracle-free๐Ÿ”ฎ
  • Permissionless๐Ÿค 
  • Made for DeFi๐Ÿ”‘


  • Put-call parity describes the relationship b/t puts and calls
  • Russell Sage took advantage of this to make high interest loans
  • Put-call-LP parity describes the relationship b/t put, calls, & LP


  • ๐Ÿ“ข None of this should be taken as financial advice