BitOoda Afternoon Report 3/17/2020 — Volatility

What a difference a week makes!

We’ve had a nearly 50% drop to the 3900’s, and the bull case is now in question. One thing is certain: if you are buying now, you are not joining a crowded trade. It’s important to notice that in this situation, BTC is behaving as a levered financial asset, not as a risk haven. It will be interesting to see if the unprecedented monetary and fiscal response around the world will change the attitudes towards BTC and its safety.

Realized 10-day vol is in panic mode at 316%.

We do not think it is sustainable, but short term the chop is likely to continue in line with other financial assets’ hysteria.

Let’s review last week’s recommendations:

  1. Stay long June and September put skew via leveraged put spreads or outright. We recommend flat reducing September Vega accumulated on the down move.
  2. March options are not too expensive given the movement. We are strike indifferent given the new skew/smile changes.
  3. Given the elevated level of call skew, long June or September call spreads (unhedged) is an attractive way to get long BTC with limited downside.
  4. Traders should exit contango trades as the curve is approaching fair value.
  5. Fairness of contango has been a good signal to accumulate length.

BTC puts finally performed in line with historic distribution. They were ignored and thrown out for many months. However, everyone who stayed with our persistent recommendation to own puts either outright or on a leveraged put spread position made out like a bandit. Pat yourself on the back, collect your check and pair down risk. It is possible that you continue to make money on gamma going forward. But easy money is made, and decay is very high here, so position reduction is in order. For even more aggressive players, selling puts PRE-HALVING represents a favorable risk reward trade, if you have a structurally long view. One can consider selling calls only against length. If we settle back into a range, volatility should come back in.

March options all made money, puts more than calls but realized vol was more than triple the implied.

Call spreads lost money on deltas, and made on vol. Overall, anybody who was long call spreads is way better off than whoever held futures or spot. This is a good way to risk-manage a position.
Contango is flat now (and went sharply negative in the panic). Any length you’ve had in spot should have been rolled into futures. March futures traded up to $400 below spot. It is too juicy to pass up. At this point, if you were hedging any of your puts in spot, all those hedges should be back in futures.
We are not going to do a detailed vol analysis this week. There is a lot of uncertainty in the market and trades are motivated by needs, not views. Overall, being long BTC has gotten much cheaper, but the charts look scary. Being long options here is very expensive and speculative.
Good luck trading.

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