BTC this week continued its pattern of inaction. We spent the last week in a $800 dollar range, only moving on Monday when it looked like a stock market selloff took risk assets lower, including BTC and precious metals.
Realized 10-day and 15-day volatility are down to 40%. Lack of movement finally took a toll not only on front months but all the way to March 2021.
Call skew is unchanged and put skew is up in December through March. Given the level of IV, we are turning constructive on Vega exposure. Puts, however, are still our favorite options on the curve.
Let us review last week’s recommendations:
- We like the put skew and do not like the call skew in December — March. We recommend being long put, short call (hedged). Increase Vega position as IV is becoming attractive.
- In the front contracts, calls represent the best value either outright or spread to straddles as call skew is fair and IV is underperforming and not high.
- Exit spread trades on pull backs.
Put skew has outperformed call skew in December-March. However, given the IV drop, only positions close to Vega neutral made money. We recommend increasing Vega exposure either by buying more puts or covering some of the short calls.
In the front, being long calls vs. straddles worked as the position decayed shorter Vega in a dropping Vol market.
September-to-spot spread is essentially flat. Sep/Oct at $70 is not attractive by recent standards. We recommend limiting your spread positions until a more opportune moment.
This week’s recommendations:
- We like the put skew and do not like the call skew in December — March. IV is becoming attractive. Therefore, we recommend being long put, short call (hedged) on a ratio (being long more puts than short calls). Increase Vega position.
- In the front contracts, calls represent the best value either outright or spread to straddles, as call skew is fair and IV is underperforming and not high.
- Avoid spread trading until a better entry point presents itself.
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.