Another CME Bitcoin Future settlement almost in the books, and once again the price spread between CME futures and spot (I.e. Basis spread) widened yesterday as CME futures lead the market downward and took spot BTC with it — to the excitement of the bears.
**Basis spread is the difference between the local cash price of a commodity and the price of a specific futures contract of the same commodity at any given point in time. Local cash price — futures price = basis.
During the fall, mid-price for CME October Futures were consistently $30+ below the aggregated spot market. A nice heuristic that has paid off for BitOoda’s clients over the past year.
As miner’s look to mitigate their business model risks, I recommend selling the 25–10 delta March calls. Our piece from Tuesday pointed out why these are expensive options. Miners can collect the decay of option to finance some of the downside move that has already occurred with the high volatility that is represented as premium in the option. They can also view the hedge as revenue positive and potentially collect premium faster if further moves to the downside transpire. We are not proposing this as an outright bearish trade, but rather as a business risk mitigation structure.
For example, the March $12,000 and/or $14,000 calls would be a good strike to pick with some good premium at $436 and $286 respectively. In this hedging strategy we would recommend sitting on this short call until we are able to show support again in the spot market until we test $8,850, then reassess the situation potentially to roll in tenor and higher strike (i.e. longer dated and higher option break-even).
The double bottom breach that occurred yesterday, breaking of the decreasing accelerating triangle, and the failure of the 50-day moving average against the 200-day moving average were all good combined signals.
After applying this trade, one possibility would be buying a put after some time depending on the miner’s balance sheet needs (i.e. its revenue generating modified form of insurance). Please reach out for further consultation on how we can help you mitigate some of your business model/balance sheet risk and create a structure that’s tailor made for your business.