Our March 8th BitOoda Morning Report took a deep dive into BTC Option Skew. Today, we revisit the options curve and point out the major changes we see due to yesterday’s large price rally. In this report we wrote, “Put skew, call skew and the smile are ALL down. Call skew has turned negative, and put skew is the lowest since the summer of 2018. Put skew in the March (3/29/19) options contract is significantly flatter than even that of June (6/28/19) options. Given the “gappy” way BTC trades and the suppressed implied volatility, breakout trades are very cheap to initiate.” With this in mind, several breakout strategies were recommended over the last month.
What a change it has been. Today, the BTC options market looks completely different. Here are our thoughts:
- Implied volatility is higher (~60%) but still at modest levels by historical prospective. We think the market has not given enough significance to the size of yesterday’s breakout and the potential for further moves. Taking out the $4,200 resistance places the $6,000 resistance targer in BTC’s crosshairs.
- The call skew is now positive. Moreover, the lower delta calls are now expensive compared to more “meaty” calls as the call skew is steeper than the historical performance. The put skew is suppressed and is trading at levels not consistent with historical performance.
Given the new changes there are several opportunities we see:
- Option Trader — Buying “gamma”: Buying options betting on the regime change leading to more elevated levels of realized volatility.
- Hedgers — Buying puts: especially low delta puts as they are cheap relative to the close to “At-The-Money” ones (June $3,500 and below appears to be the best value on the board).
- Long Speculators — Buying call spreads: Let’s take advantage of the elevated call skew. June $6,000/$7,000 Call Spread for ~$130-$140 looks attractive.
As always, we are here and happy to discuss these trading opportunities with you folks. A prime example of our customers using our option knowledge to their advantage was having a client ask us to walk through different options strategies to roll his current position and review the “risk slide” i.e. the outcome scenarios of his trade.