BTC has had a very uneventful week, as the market kept a tight $5000 range. We still think we may get another dash at the fast-rising trendline (now around $68,000), but we are keeping stops close in case the support line brakes to the downside.
15-day realized volatility has tanked to 58% from 72.5%. Surprisingly, only the front options took a beating, with June and September Implied Vol (IV) staying strong.
Skew changes are all over the place. April calls are down and puts up (to the point that April calls are now relatively attractive vs. straddles).
In June, both calls and puts are down, and June smile appears to be on the cheap side with IV looking heavy as of this writing.
September put skew has gone from cheap to silly, turning negative. Even -0.04 wing puts in September have gone on sale. Buy your crash protection if you need it.
Let us review the recommendations from our last report:
- Puts are starting to look attractive again as IV’s and put skew are weakening. We prefer September as the weakest put skew, but moderate exposure is attractive in the fronts as well. We do not recommend being short the call skew since IV’s are not (correction) high.
- Initiate moderate exposure to April basis.
Put skew won only in April. In hindsight, we should have been braver with shorting call skew. We understand that IV may still make puts look expensive. However, on a Vega neutral spread to straddle, we like puts the most. The smile as a whole is cheapest in June.
April basis collapsed again. We recommend reducing positions and waiting for a better entry point.
This week’s recommendations:
- April skew/smile is fair with calls being slightly cheap.
- June puts and calls are on the cheap side. With Gamma underperforming, we would lean Vega flat or slightly short in June. We like wings vs. straddles here.
- September put skew is getting even more attractive. We prefer to be long puts on spreads to ATM. Maintain flat to short Vega due to realized vol underperforming.
- Reduce exposure to basis.
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.