Happy Monday. Today we revisit our BTC Realized Volatility chart. Over the last week we have seen the 30-day rolling vol fall off a cliff, from the mid 80%’s down to 60%. The longer term 150-day rolling vol has trended between 75–85% dating all the way back to the April 1st rally.
The market action over the last two months has remained range bound, albeit volatile:
- The implied volatility in September 2019 and December 2019 contracts is 90% (fair for last 2 months’ behavior but still elevated from a longer term historical prospective).
- Call skew has normalized with skew now fair for low delta calls and slightly cheap for .16-.20 delta calls.
- Put skew has not normalized and is still suppressed even with calls coming off.
- Forward curve is still in contango (deferred contracts over nearby) over and above cost of money in USD.
Given the state of the market the best hedging strategies for miners are:
- Selling swaps or futures strips to take advantage of both favorable prices and term premium for deferred contracts.
- Selling fences (sell call, buy put) although not as attractive as after the first rally to $12,000 the puts are still underpriced relative to calls. (Sep-Dec $14,500/$8,500 fence strip is roughly costless)
- Buying puts, especially low delta puts taking advantage of the low skew ($6000 Sep+Dec put strip is roughly $180 value)
- Buying leveraged put spreads (does not hedge or even hurts for small down moves but gives a capital light way to hedge against a large drop). $9,500/$8,000 Sep+Dec put spread 1x2 is roughly costless.