BTC is up by approximately $8000 since our last commentary. More importantly, it held the fast-ascending trendline that was tested on April 7 and made a new high. Ideally, we are still targeting $68,000–70,000 level on this move. Given that the stochastics is getting in the overbought territory, it would be a reasonable level to take profit or short the market, depending on your positioning.
The move comes after nearly 2 weeks of sideways action. The realized 15-day volatility is down to 49% from 58%. Traders, however, are paying respect to new highs and implied volatility (IV) is up across maturities:
Skew changes are broadly bullish as well. April and June call skews are up and put skews are down. June put skew is down, with call skew roughly unchanged. June smile is down because of puts and has gotten even cheaper than a week ago.
Let us review the recommendations from our last report:
- 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.
April calls were the largest winners on skew, Vega, and Gamma. They were our preferred April exposure.
June smile was a loser. We still think it is one of the best direction-neutral trades available (wings vs. straddles).
September put skew is a loser as well. We think past this move-up, the probability of a correction has grown. We prefer owning puts throughout maturities hedging Vega with short straddles whenever IV is not attractive. If IV continues to appreciate and call skew does not weaken, hedged risk reversals (short call, long put) may provide even better risk reward.
Basis continues to linger well below 10% annualized and is not attractive by recent standards.
This week’s recommendations:
- April puts are attractive on a spread to ATM or calls.
- June and September puts are attractive in a Vega neutral spread to straddles.
- June smile is the cheapest on the board (we prefer to lean Vega neutral or slightly short)
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.
