BTC is continuing consolidation and the ranges are getting tighter. We saw a barely $600 range over the last 7 days.
10-day realized vol is 33% and 15-day is around 42.5%. In the BTC world, this is exceptionally low. All long gamma players are devastated.
Call skew is up in the front with puts down. Smile is up at shorter maturities with wings dropping slower than straddles. December puts are dropping again and are the most attractive options on a relative basis at that maturity.
Let us review last week’s recommendations:
· Get long June call skew either on risk reversals or leveraged call spreads. Lean flat to long Vega. We are close to expiry, so we would not be too aggressive on size. Limit your risk.
· September 0.16–0.20 delta calls and December 0.16–0.20 delta puts offer the best relative risk/reward. If spread to straddles, maintaining flat Vega exposure is probably the wisest given underperformance of IV relative to realized.
June call skew worked only if one was net short premium. All options underperformed, so being short or decaying shorter was the only way to make money. The call skew itself did appreciate as we expected. It is too close to expiry to continue playing June. Vol is atypically cheap but the realized is even lower, so it is hard to advise to be long going into expiry.
September call skew is slightly stronger but is still attractive relative to straddles. Maintaining flat Vega seems to be the wisest position given realized volatility underperformance. December put skew did not work, but we continue to view it as attractive.
This week’s recommendations:
· September 0.16–0.20 delta calls and December 0.16–0.20 delta puts offer the best relative risk/reward. We recommend slightly short September Vega given lack of movement. In December we recommend flat Vega position.
· Spot to July contango is around $100 and should be utilized when possible 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 structure.