BTC is essentially unchanged in a week, with a $1450 range. The first attempt at $12,000 failed to hold gains. Most of the volatility happened Saturday and Sunday. Therefore, only traders with access to spot BTC were able to capture the move. The CME futures market was closed at the time, highlighting yet another friction point in this market. This could potentially explain why the elevated realized vol is yet to translate into the implied vol.
While implied volatilities are not exceedingly high by BTC standards, call skew has almost doubled in a week. We currently view calls negatively vs other options on a risk reward basis.
Let us review last 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.
Put skew did not work, and certainly being Vega long did not either. We still like puts vs straddles or now calls, but they have not performed.
Contango played out through expiry, and spot to August is currently $140 (from as high as $300). It is still at healthy levels to improve one’s returns.
This week’s recommendations:
· We like the put skew and do not like the call skew throughout the terms, especially in the dated contracts. We recommend being long put short call (hedged). If you are bullish, be long Vega. If neutral flat Vega is more appropriate
· Spot to August contango is around $140. Use it to improve portfolio returns.
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