BTC continues to look for direction and has gone essentially nowhere over the last 7 days. The range was roughly $700, but you had to be a master scalper if you were long to get paid on gamma.
Realized 10-day volatility is down to 65%, back towards the pre-price collapse levels.
Implied volatility is down across maturities, with April options taking the biggest beating in both decay and IV.
Put skew is slightly up while call skew is slightly down across all expirations. The call skew is almost flat for options between 0.5 and 0.15 deltas. This is highly unusual for the BTC market. With halving being a potential move catalyst, we continue to view call skew as the most attractive option trade via either call spreads or fences (risk reversals). While September put skew is fair, June and April appear overpriced.
Let’s review last week’s recommendations:
- Get long call skew by buying calls vs. straddles or puts. We like meatier calls, not the small wing as those are more discounted. Adjust the ratio to fit your IV view. We would be flat to slightly short Vol here. Avoid April call skew, we like June-September.
- Long June 6500 straddle vs. short September 6500 straddle. Spread is out to $1000. We think longer term vol will keep coming off or gamma performs. The trade is losing money, so we do not recommend increasing size.
- Contango is back! April/May on CME is $75, or 12% annualized. One can start thinking of picking up extra yield.
Call skew is slightly down. The only money was made if the structure was short vol. We still like the trade and view June call skew as the best risk reward.
The straddle spread is out to $1100, even with contango back to flat. IV is not coming off as fast as we anticipated, and the trade has become a decay disaster. We recommend either pairing down or exiting it.
Contango is almost flat, so we recommend taking profit here.
This week’s recommendations:
- Get long call skew by buying calls vs. straddles or puts. We like meatier calls. Adjust the ratio to fit your IV view. We would be flat to slightly short Vol here. June is our preferred tenor.
- Exit or reduce the June / September straddle spread. That one has not worked out.
- Take profits on contango trades. Potentially roll spot length into futures to free up some capital.
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.