The BTC market is continuing its consolidation pattern. $30,000 has proved to be a support level for now. The slow ascending trendline has not provided much needed support. The psychology of the levered players is shifting too. The front basis has turned negative (June contract is trading under spot). In the past, the basis has flipped in panic bottoms — this feels a bit more orderly and consistent.
15-day realized volatility has continued to taper to 88% from 126%. Consolidation has put some pressure on implied volatility, but traders are not giving up on movement yet. Call skew is slightly up and put skew is slightly down. Calls are still cheap vs. other options on a historical basis. The fear is to the downside.
Let us review our last recommendations:
· We like short call spreads here all the way to December. They are good Delta hedged for option traders (either Vega short or Vega flat on a ratio). They are also attractive to yield seekers as income generating strategies vs. their native BTC length, especially in a current environment where the basis has collapsed and offers minimal yield.
· We prefer Gamma vs. Vega here. June/September or September/December straddle spread, or a similar structure, is warranted. Given Gamma underperformance, one may want to structure it Gamma flat or flatter (meaning being short more deferred options volumetrically).
Call spreads have done well, making money on Time Decay, Vega, and call skew. We do not see a reason to exit them, other than maybe in June where expiry is just too close.
Straddle spreads did not do as well, unless they were structured closer to Gamma flat/short More Vega. You had to trade your tail off to scrape buy in a sideways market.
This week’s recommendations:
· We like short call spreads September to December. They are good Delta hedged for option traders (either Vega short or Vega flat on a ratio). They are also attractive to yield seekers as income generating strategies vs. their native BTC length, especially in the current environment where the basis has collapsed and offers minimal yield.
· Long players may want to explore flipping their length from Spot BTC into Futures to take advantage of negative basis to achieve both a discount and capital efficiency via increased leverage (decrease in working 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.
