BitOoda Afternoon Report 11/19/2019 — Volatility Report

While BTC is down 9% (around $800) in a week it has moved an a rather boring way without large swings. Realized 10-volatility has barely ticked up to 48%. The market continues to probe to the downside, and we need to see if the resent low of $7500 holds. Bulls seem to not have capitulated yet. The futures contango is healthy and the demand for long dated calls is high. In the nearby months, puts have appreciated the most. Therefore, there is a short-term concern about potential downside.

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Implied volatility is essentially unchanged in March and June contract. December and November contracts lost 3.25% and 6% respectively.

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The Smile in November and December contracts had increased substantially with puts outperforming. Put skew increases outpaces call skew increases. Skew and Smile in the gamma contracts is now fully priced with small delta options are being even on the rich side especially calls. We do not recommend being short the wings given how low the implied Vol is. However, we do not favor wings over other parts of the vol curve. Moreover, we do not favor any set of strikes as the skew/smile is fully priced in our opinion.

Term call skew is fully priced with smaller delta calls (<.05) appearing relatively expensive. Put skew barely appreciated and we view it as very under-priced.

Let’s review last week recommendations:

  1. Buy November 10,000/8,000 strangle ($235 value).
  2. Continue to be long December put skew via leveraged put spreads. Pair down fences. Position should not be vega short here going into expiry.
  3. Continue to be long March put skew via leveraged put spreads.

The November 10000/8000 strangle has lost $10 to $225. This is not terrible unless the longs hedged it very aggressively. Given expiry may provide a catalyst and implied’s are low we recommend staying with the trade but making it delta neutral (roughly -0.39 delta vs. $8100 future).

Long December put skew trade has worked unless it was very Vega long. We think the trade has plaid out and should be unwound. Alternatively, one could carry extra gamma/vega position acquired on the down move through November futures expiry and try to unwind it at a better vol level or scalp gamma.

Long March put skew via leveraged put spread is a neutral trade and we would stay with it scalping gamma.

Recommendations:

  1. Long November options for expiry as a catalyst. We like most strikes other than teenie’s.
  2. Flatten out December vol structure. No significant edge other than dearness of small delta calls. Possibly maintain long gamma through November expiry.
  3. Continue to be long March put skew via leveraged put spreads.

Charts are from https://www.skew.com/dashboard/bitcoin-options

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