Recommendation: Buy October Strangles

Since our last vol commentary on 09/13/2019, BTC still sits within the compressing wedge, towards the lower end of the range. September CME Bitcoin Futures are trading $9,550. We believe the break is coming soon and recommend buying strangles.

Image for post
Image for post

September options are trading at 69% implied vol which is still well over realized, and about 2% higher than as of last writing. It is now expensive vs historical, so unless you are confident of the move in the next 3 days, we recommend October contract strangles. If you followed our recommendation and sold straddles to finance strangles, now is a good time to take the decay hedges off for the next 7 to 10 days.

Image for post
Image for post

In our last piece, we wrote that “the put skew is flattish in December and outright negative in March. We do not believe it is representative of BTC market at least historically and shows complacency of the bulls”. This has changed slightly with put skew trending higher across maturities.

October put skew is now almost fully priced (fair value). December and March skew is still somewhat low vs historical, but March put skew is no longer negative.

With implied volatility down to 73.5% in December and 75.75% in March, strangles still offer the best value. We recommend buying strangles with both puts and calls between 0 and 15 delta options. We no longer view selling straddles against strangles as a good trade in the short term due to the current high probability of a breakout.

Given the skew and vol, the cheaper leg of the long strangle strategy would be just buying hedged puts below .25 delta for vol traders, or buying them unhedged for miners or HODL’s.

In the futures market, a pronounced contango (premium to longer dated futures) still offers good hedging levels for long speculators and miners. As we mentioned in our piece earlier this morning, Ooda Commodities can help facilitate futures trades in the block market through outrights or spreads.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store