The best way to describe the last three weeks in BTC is to quote Yogi Berra: “It’s déjà vu all over again”.
The market is consolidating in a tight range in the low to mid $8000’s ever since the late September drop.
The 10-day realized vol is down all the way to 37.5%. We see October expiry as a potential move catalyst but vol and gamma shorts are right until proven otherwise.
October contract ATM vol is around 52% with a very pronounced smile. Smile is the reaction to low realized volatility leading traders to call and put buying “just in case” with straddle bearing the grunt of the decay.
December and March vol at 70% and 75% is no longer expensive but continues to be under pressure due to lack of movement. The put skew is down and call skew is up. It seems that bulls see this consolidation as reassurance or a $8000 “floor”. We continue to view the December and March (March especially) put skew as underpriced. March smaller delta calls (under 10 delta) are now more than fully priced relative to the rest of the curve.
On October 8 we wrote that “The 16 delta calls are still the cheapest options across maturities on the relative basis but have appreciated since last week. We still think March smile will continue to outperform ATM so strangles vs straddles is an appropriate trade. We would focus on 16 delta puts and calls. The wingy (smaller delta) strangles are approaching fair value faster and represent smaller edge.”
December contract: we still like 16 delta strangles vs straddles. Given the vol underperformance of gamma and vol traders can slowly accumulate additional strangles to keep gamma under control and turn the position into a ratio from a starting butterfly (eventually ending up in a 1x2 straddle vs strangle or higher ratio). We do not recommend wingier strangles as those are approaching full relative price.
March contract: given the bullish move in March call skew we recommend being short ATM puts against $6000 put slowly accumulating additional $6000 puts for a vol neutral trader. If you have been long strangles vs. straddles per our recommendation, We would replace at least partially March calls with December calls to take advantage of cheaper skew and vol since march call skew is no longer cheap.
Charts are courtesy of https://www.skew.com/dashboard/bitcoin-options