As we write this piece, BTC is trading $13,000 and July futures are roughly $13,240. We are about $2000 higher than at the time of our volatility report two weeks ago. Due to the retracement from the highs made late last month, some of the upside panic has subsided.
The trades we’ve suggested on 06/25 (buying short dated options and selling long dated options) played out well. The 10-day realized vol is around 118%, yet the September and December straddles lost 8% in implied volatility. We think the trade still has some room to work. However, the July straddle being short dated (15 days to expiry) and realized vol coming off, we would suggest rolling July length into September (against the short December options) or widening the strikes in July to lessen the decay bill.
In our last report, we suggested miners should take advantage of elevated volatility and call skew to hedge some of their production on this rally. This is still the case, as prices are even more attractive at these higher BTC levels. Call skew is still elevated but has eased back down from recent highs. The December low delta calls are coming off slower than September calls, suggesting existing call length is being rolled into longer dated options.
Selling CME futures remains an attractive hedging solution as well, since September is almost $440 over spot and December $580 over spot.
On 06/25/2019, we have suggested being short the call skew given elevated levels of skew and vol. We wrote “September 2019 short 18,000 call long 9500 put for $210 cash outlay (hedged .50 delta with futures at $11400, or cash BTC at $11,030) is the recommendation. We prefer a cash hedge betting on cash to futures convergence by expiry”. The options lost $450 and the hedge gained $700. With all the crazy movement the trade is a small winner. However, we were early and initiating it at the peak of the panic would have been more profitable. If September vol moves into low 90%’s we recommend closing the trade.