Wow, what a week it has been. While BTC is only $800 higher since our 6/25 Options Strategies commentary, we’ve had a 30% roundtrip in the interim.

We’ve said since we have broken the $6000 level, we have entered the bull phase. However, the rally has been anything but orderly. BTC rallied essentially without retracements. It resembled the trajectory it had in 2017. Such rallies are inherently unstable and prone to sudden and violent collapses. Lookup the work of Didier Sornette on social bubbles and Super-exponential behavior if interested.

We see two scenarios going forward:

  1. In the first scenario we correct (or have already corrected) and resume the rally at a more measured pace, with more technically defined trendlines or channels.
  2. In the second scenario, if the market truly does not have the memory of 2017–2018 boom-bust cycle, we resume the rally at this ever-exaggerating pace. However, such moves are inherently unstable and are precursors to great and violent selloffs.

For markets and our own sanity sake, we expect the first scenario as more likely.

How do you trade it?

The implied volatility of options is well over historical (other than the short-dated ones since the realized vol spiked) we think we either move now or volatility returns to a more normalized regime. July, September and December straddles are at 118%, 109% and 107% respectively

  1. If you believe the madness is over, you want to be flattish gamma and short vol. We would recommend long July or September strangle/ short December straddle. You could also widen out the strangle to be short both gamma and vol and still have “Black Swan” protection.
  2. If you think ‘it ain’t over until it’s over’, we recommend long July or September straddle against short December straddle for a long gamma now, short vol position.
  3. If you have a directional bias, please contact us to help you structure these option trades to be more profitable in your price scenario.

Next week is a holiday week (4th of July) so be prepared for potential turbulence in a thinner market. We shall certainly be available if you need us. Have a great weekend.

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