For the first time since May, we have news to report. BTC had a $2000 range, for a change. We have taken out the previous two highs in the 10400–10500 area and retested the breakout from above last night. So far, the breakout has held. BTC now has a chance to test the $12000, $13000, and $14000 highs from 2019.
Skew had a giant move across maturities, with puts down and calls up. The put skew is nearly flat other than for tinies options. Call skew was rich last night but returned to fair this AM. On the relative basis, we view puts as the cheapest Gamma on the board. Both hedgers and long players may consider buying protection. IV is high given recent history, but if the breakout is not fake it could still go higher.
Let us review last week’s recommendations:
· September-December calls are starting to be attractive vs. Straddles. We would also lean slightly Vega short, collecting Theta, given Gamma under-performance. We do not want to pay out Theta now.
· Spot to July contango is around $33. Use it to improve portfolio returns.
Calls performed, especially in September. We wish we had them outright as opposed to on spreads, but that is what we can see with the benefit of hindsight.
Contango was a bad recommendation, as the spread is the widest we have seen so close to expiry. Spot to July got over $100 yesterday. It is now closer to $77. It is a great way to add to portfolio returns. July/August at $175 is also incredibly attractive.
This week’s recommendations:
· Put skew is attractive throughout the terms. The market had a bullish breakout, so it is understandable that puts have come under pressure. However, as a gamma relative value play, they are attractive. If spread to straddles or calls, we would recommend leaning Vega long.
· Spot to July contango is around $77. Use it to improve portfolio returns. Spreads all the way to October are at elevated levels. Use them if they fit your position.
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.