BitOoda Afternoon Report 11/17/2020 — Volatility

  • In December and March, put skew is attractive and calls are relatively expensive. If one decides to be short call skew, we recommend expressing it in a Vega long fashion via long call spreads. A safer trade is a leveraged put spread.
  • In November, put skew is cheap, call skew is fair, and vol is below realized. We recommend buying strangles for a bullish vol trade. Leveraged call spreads or put spreads to get long the wings, while short ATM vol is more appropriate for vol neutral players.
  • Use contango to November to enhance returns. If contango dips towards $50, consider reducing the spread positions or roll them into a different maturity contract.
  • In December and March, put skew is attractive and calls are relatively expensive. Bullish price/vol traders may consider long call spreads (underhedged) or long puts (over-hedged). Neutral or bearish (Vol) traders (as well as those who do not expect a parabolic price blowoff) may consider risk-reversals (short call long put), especially in March as March IV is 10% higher than December.
  • Use contango to enhance returns. We are not aggressive here, as contango stayed relatively stable (therefore becoming less pronounced in APR terms) with rising price.

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BitOoda

BitOoda

A boutique digital asset investment bank focused on providing innovative and compliant capital markets solutions for institutional clients.