In the past 8 days, BTC continued to move sideways looking for direction. We have had a $1000 range but only a couple of larger moves followed by days of dull action. 15-day realized vol is 59%, with shorter term averages even below that. This level of movement is atypical for BTC, and longer-term implied volatility stopped coming off as traders are willing to bear decay in hopes of a future move.
Call skew has come off across maturities with put skew appreciating slightly. The largest move in relative value was in the June contract. June call skew is almost flat with put skew elevated. Risk reversals and leveraged call spreads in June represent the highest theoretical edge. Given the level of IV a flat to long Vega would be advisable from risk management perspective. In the terms, September 0.16–0.20 delta calls and December 0.16–0.20 delta puts offer the best relative risk/reward.
Let us review last week’s recommendations:
· Exit call skew positions in the September-December periods. Look for opportunities to short wings on a covered basis (being long Gamma and Vol).
· Initiate positions in December meaty puts (7000–6500 level vs Straddles, Vega neutral or long). Meaty December puts are the most attractive out-of-the-money options on the board.
· Contango in BTC spot to June CME contract is $80. It is worth using it to enhance portfolio returns.
Exiting call skew in September-December was the right profit taking strategy. We were too timid to recommend shorting the call skew, but traders who did short fared even better. Shorting wings only worked in June and only on a Vega neutral basis. It has not worked otherwise.
December puts are very slight winners on skew. We recommend staying long the put skew there.
The spot to June contango is down to $35. Those using it made $45 per BTC. It makes sense to stay the course for existing positions but is too narrow to initiate new ones.
This week’s recommendations:
· Get long June call skew either on risk reversals or leveraged call spreads. Lean flat to long Vega. We are close to expiry so we would not be too aggressive on size. Limit your risk.
· September 0.16–0.20 delta calls and December 0.16–0.20 delta puts offer the best relative risk/reward. If spread to straddles maintaining flat Vega exposure is probably the wisest given underperformance of IV relative to realized.
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.