BitOoda Volatility Report, 11/12/2020

BTC is more than $2000 higher in the last 8 days.

The market held the breakout beyond the previous high from June 2019, and is out of the rising bullish channel. The retracements have been shallow. This fact, together with bullish positioning of market participants, has been weighing on Implied Volatility. While 15-day realized volatility is up to 59% from 52.25%, the IV’s are sharply down across maturities.

Call skew is stronger in December and much stronger in March. November smile is weaker, especially on the put side. Puts (hedged) continue to be the best risk/reward trades on the board. Liquidity in options has dropped off on CME. We are reporting skew data from Deribit this week.

Let us review last week’s recommendations:

· In December and March, put skew is attractive and calls are relatively expensive. Put skew has moved closer to the historic level, so look for opportunities to exit the put skew if it appreciates further. If one decides to be short call skew, we recommend expressing it in a Vega long fashion via long call spreads.

· Use contango to November to enhance returns. If contango dips towards $50, consider reducing the spread positions or roll them into a different maturity contract.

If you exited the put skew, now is the time to reenter the trade. Skew is weaker in lower IV. This means that the market is ignoring downside risk.

Call skew is underperforming (lower IV on a large move up) but continues to be bid. Given the level of IV, we only recommend being short call skew on an unlevered call spread being long Vega.

Contango is $100 for 16 days to maturity and is still attractive.

This week’s recommendations:

· In December and March, put skew is attractive and calls are relatively expensive. If one decides to be short call skew, we recommend expressing it in a Vega long fashion via long call spreads. A safer trade is a leveraged put spread.

· In November, put skew is cheap, call skew is fair, and vol is below realized. We recommend buying strangles for a bullish vol trade. Leveraged call spreads or put spreads to get long the wings, while short ATM vol is more appropriate for vol neutral players.

· Use contango to November to enhance returns. If contango dips towards $50, consider reducing the spread positions or roll them into a different maturity contract.

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.

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