It has been an uneventful week for BTC since our 10/01/2019 commentary with the market essentially unchanged in the low $8000’s and short-term volatility underperforming after an outsized move. Technical picture has not changed in our opinion, but bulls and bears are balanced here and are battling it out to decide the direction of the next move.

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We have been right on volatility and skew but wrong on spreads.

A. Implied volatility has come off for all maturities as we expected. We wrote “Given the move in implied vol we are no longer recommending strangles”. However, we did not expect the market to realize closer to 46% vol over the week after a large move. Such underperformance weighed on shorter dated options more than on March and our long Gamma short Vol recommendation has lost money.

B. Hedging long strangles with short straddles worked across all maturities. This strategy made money on volatility, decay and smile appreciation.

The return of both call and put skew is the story of his week. Vs At-The-Money options, October puts are getting a little pricey with December put skew is approaching fair and March is still slightly cheap. 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.

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