This past week BTC had approximately a $675 range. It was unable to break through the $9200 level we were hoping for, but $8500 has provided support for now. CME futures contango is off roughly $30 in F/G (Jan/Feb) and G/H (Feb/Mar) periods.
Realized 10-day vol is off only slightly to 64% from 66.5% a week prior.
Implied vol curve is down -12%, -4.25% and -1.75% in January, March and June contracts. Smile is stronger in Jan, weaker in March, and just the put skew is weaker in June.
Let’s review our recommendations:
- Continue managing the January Strangle vs Straddle structure. If decay is a concern get out of 9000/8000 fence or call spread at least partially.
- Stay long March and June put skew via leveraged put spreads. Stay short June call skew but increase Vega by either rolling the short Call or the long Put position to higher strikes.
- Bullish players should consider owning June call spreads live (unhedged) to take advantage of the elevated call skew in June and now in March as well.
- All players should consider using increased contango in the futures to enhance portfolio returns.
January strangle vs straddle has given up almost all the gains of last week. The only PnL left over is a week worth of gamma hedging. Given that realized vol is roughly equal to last weeks implied the long players were able to hold on to most of the gains, but it depends on how successfully they executed their rebalancing. Players who got out of the 9000/8000 fence kept the gains without extra work. We think given the low lever of IV, a put skew or a smile position is justified again going into expiry.
Leveraged put spreads suffered losses in both March and June as put skew sold off. Given that the vol is lower this selloff in puts is not rational and we would recommend purchasing more Out of the Money options (hedged) to increase leverage (and get longer Vega).
Call spreads worked better in March than June due to lower call skew but both are slight losers on delta and Vega.
CME futures contango is less pronounced resulting in roughly $25-$30 profit per 1BTC hedged.
- Long wings vs straddle in January going into expiry. We view vol as depressed with calls fair and puts cheap. For example: Long 9750/8000 strangle 2X vs short 8750 straddle 1X for a credit of $354 (midmarket), or short 8750/8000 put spread 1x2 at $180 vs a short 0.20 futures at 8740.
- Stay long March and June put skew via leveraged put spreads. Stay short June call skew. Potentially increase Vega by buying extra puts hedged.
- Bullish players should consider owning June call spreads live (unhedged) to take advantage of the elevated call skew in June. March call skew is approaching fair except for tiny wings that we view as relatively high, so we recommend reducing March call spread position.
- Players may consider using contango in the futures to enhance portfolio returns. However, the contango is not as attractive as last week.
At BitOoda, we are encouraged by the traction CME has gained since listing their BTC options contract. As an NFA-regulated Introducing Broker, we have been approved by the CME to source liquidity and enter block trades on behalf of our clients.
We advocate for our clients to trade on a regulated exchange as this significantly reduces the counter-party risk from trading OTC bilaterally. Additionally, trading on an unregulated exchange exposes you to a whole host of risks, as there is no oversight by any regulatory body, and no FCMs to act as a “buffer” for credit risk, and the choice of jurisdiction for many of these exchanges also causes us great concern.
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