BitOoda Afternoon Report 1/29/20 — CME

In our 1/28/2020 commentary, we recommended: “Traders should consider using contango in the futures to enhance portfolio returns. The contango is very attractive once again”. We have also pointed out the cheapness of the put skew (attractiveness of lower put strikes relative to higher out strikes or calls).

We would like to illustrate how it affects option strategies. At this moment CME prices (midmarket) are:

BTC spot: 9360

January Future: 9380

June Future: 9780

June 7000 put: 450

June 6000 put: 238

The contango is very large (over 400 in 5 months or approximately 10% annualized). Futures to cash convergence implies that either futures depreciate or spot BTC appreciates by this amount by June expiry. Option prices (due to put/call parity) are priced off the futures curve. Therefore, if we like puts as priced with the current forward curve, they are even more attractive relative to spot BTC.

A put buyer is buying an option that is essentially $400 closer to being In-the-Money (vs. spot commodity). For example, a 7000 put is priced as cheaply as a roughly 6600 put would be priced in the absence of the contango. That is roughly a $100 or 20% discount to the premium. Needless to say, it is a great deal for miners and downside insurance buyers. Volatility traders should choose to hedge their long puts positions with long BTC purchases, not futures.

We recommend that miners open CME accounts to take advantage of these pricing structures.

At BitOoda, we are encouraged by the traction CME has gained since listing their BTC options contract. We are an NFA-regulated Introducing Broker and have been approved by the CME to source liquidity and enter block trades on behalf of our clients. Please contact Tim Kelly at tkelly@bitooda.io for more info.

A global digital asset financial technology & services platform providing next-gen risk management solutions, best-execution brokerage & expert market analysis.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store