Spec Trade Idea: U (9/27/19) $10,000/$8,000 1x3 put spread

  • This structure is currently worth $188 in our model to COLLECT premium
  • This is a delta neutral trade (-2 delta ref $10,650 spot)
  • We feel buying the $8,000 put is cheap vol relative to the rest of the curve (weak put skew)
  • We believe it is best to be set up long gamma into the Bakkt Launch
  1. A slam off in BTC price is best case, as gamma dramatically increases and the 1x3 gets you delta short on the way down (-25 delta vs $9,000 spot; -54 delta vs $8,000 spot; -95 delta vs $7,000 spot)
  1. If we see a slam off in BTC price, you will want to buy some deltas (as we have seen buying the dips in BTC has been a good strategy over the past few months) You can do this simply buying spot. However, if BTC sits around the long strike, your theta bill will increase decaying (options losing value). You could SELL puts in September or December, or if call skew gets hit on a slam off, sell a Fence (sell put, buy call) in December to get long deltas AND cover your theta bill.
  2. On a rally higher BEFORE THE LAUNCH DATE, you could buy back the structure for less than you sold originally and take a small profit and de-risk incase the launch is delayed, or a stampede of shorts enter the market putting your short $10,000 strike into play of going ITM.
  3. Same as scenario B.
  4. On a grind lower, if you feel as though BTC will sit around $8,000 and not slam through or rally back, you can sell out of 2x of the 3x $8,000 puts you are long and turn the position into a naked 1x1 put spread. The maximum loss of $2,000 per contract less the premium collected when initiating the trade will be offset but whatever you sold the 2x $8,000 puts for. For example, if you are able to sell the $8,000 puts for $300 each, your max loss becomes $2,000 — $600 = $1,400 less the premium collected when initiating the trade.

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BitOoda

BitOoda

A boutique digital asset investment bank focused on providing innovative and compliant capital markets solutions for institutional clients.

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