BTC is unchanged week over week and up about $1000 since our last commentary. The recent uptrend got tested and held again.
We continue to maintain a bullish bias until the uptrend is broken decisively. This means we are close to retesting and possibly breaking the all-time highs yet again.
The weekly range is under $2000 and is unimpressive by recent standards. Thus, the 15-day realized volatility is down to 59% from 77%, putting pressure on December option prices.
December call skew made a comeback and put skew dropped. Thus, the most attractive options are puts throughout the maturities yet again.
The contango is back with cash to December and cash to January offering double digit APY’s.
Let us review last week’s recommendations:
- In December, Calls are attractive relative to Puts and we recommend getting long the call skew outright or via risk reversals with a long Vega basis; scale the levels or ratios depending on your view on IV. While inexpensive by recent standards, the decay bill going into expiry is significant.
- In March and June, put skew is attractive and calls are relatively expensive. We prefer longer Vega risk reversals (short call long put) here.
- We are turning bullish in our price view given the sentiment moderation. We emphasize the importance of stop loss orders should the uptrend break.
- Exit contango trades until a more opportune moment.
December calls are up on the skew and puts are down. The Vega and decay bill have outweighed the skew and gamma PnL at least on $22000/$15000 risk reversal that we had in mind. The trade is a scratch at best. However, given that uptrend is not broken, we will look to cover puts here and take a long call position into next week.
March and June skew is unchanged. Therefore, risk reversals made some money only on Vega if you followed our recommendation to lean long IV.
BTC is up $1000. Therefore, long bias has been warranted so far.
Contango has widened on a rally and if you have exited on our recommendation you may reenter now at better levels.
This week’s recommendations:
- In December, puts are now fair and calls are becoming relatively expensive. IV is not particularly high, so we do not recommend shorting calls. We do prefer to roll the long strikes down into meatier calls or even puts.
- In March and June, put skew is attractive and calls are relatively expensive. We prefer flat to Vega risk reversals (short call long put) here (i.e., maintain the position but do not add to Vega exposure and let the rally “sell” your longer Vega on the way up).
- We maintain a bullish bias in our price view for as long as the trend holds. We emphasize the importance of stop loss orders should the uptrend break.
- Enter contango trades to boost returns.
The entirety of this report attempts to identify the best option structures available. Readers should overlay it with their directional view by under-hedging or over-hedging their preferred option structure.