This weeks Option Flows with Tony Stewart starts with commentary of a mass accumulation of OTM.
Deja vu 24th August. Mass accumulation of OTM teeny premium puts, this week 4th Sep 9.75-10.5k x4000+ bought aggressively over 1hour in Asian zone; also Sep 9k x500, while fractional size selling Sep4 11.5-12p + Sep28 12p. Crash insurance/prediction/borrow hedge/ratio spread?
2 / Motive uncertain, but structure size growing and regular over the last couple months. More often focussed to puts, infrequently to Calls – only once strikes tested when spot surged from 9k to 12k (had bought 10k-14k Calls).
So not prophetic with real probability of a BTC fall.
3 / Naturally during the flow, short-term skew pumps as eg Sep4 10k IV gets lifted from 86% to 115% (absolute price 0.0015 to 0.0055) due to speed of the execution. Only market-makers quick enough to respond and sell, some bots sad at low levels, but humans size up at high levels.
4 / Late responders then tend to push prices back down, once they feel comfortable buy order completed or they completely missed the highs and try and get some of the juice. Repeatedly skew resets to near unchanged – Sep4 10k Puts now IV 96% (0.002BTC).
5 / Puts ‘far’ OTM, so don’t really impact overall ATM implied vol, but do impact risk management slides, so expect Puts to remain firm in Sep4, and reactive buying in Sep11-Sep28 downside to benefit from skew disparities. ie Skew likely to remain firm for crash protection Puts.
6 / For the Bulls, there has been a passive-aggressive buyer of Sep ATM Calls 11-12k strikes, sitting on the bid, actively getting filled as yield+vol sellers take advantage of a tight range, low RV BTC market. Buyer presented himself post 28th Aug expiry, possibly rolling longs.
End / Longer-dated tenors slowly softening, but on low volumes. Some active selling in Oct ATM puts, bullish bias has created a dip, likewise small dip in Sep11, with surrounding flows buying Vol.
If a buyer of options Sep11/Oct look good on a relative basis; if a seller Sep28/Dec.
Vols firm to start the day, as skew suggested further upside was the only consideration, but early BTC Put buyers, as spot fell <12k, indicated some were less optimistic.
Bithumb news/Fud followed and spot fell sharply, but Call and Put sellers contained Vol and some nerves.
2 / Option volumes lighter than yesterday, despite a large underlying move, but experienced heads have seen many of these Exchange stories before and that was evidenced in option flow as near Puts were sold and Vol under pressure as spot lodges back in its comfort zone, for now..
End / 12k battle lost again, Calls sold. Puts near-term and strangles (vol sellers) in Oct+Nov showing little respect for today’s move, proposing few surprises ahead; also recent BTC RV underperforming IV. ETH IV levels higher but understandable – plenty of volatility narratives.
While Vol remains stable, the Skew fear measure is shifting up for the Put, BTC + ETH, as downside plays and protection placed.
Sep4 expiry activity aside, flow: Dec9k +Mar 8k Puts bought as spot>11.4k; then on the fall <11.3k, short-term Calls sold, +Sep+Oct <11k Puts bought.
2 / Further dated flow less common, so the Dec 9k (also bought yesterday at 12k BTC spot) and Mar 8k Puts, plus smaller 10k Puts bought, 16k Calls sold, worth observing. Add Oct +Sep 10.5k Puts and sale of Sep11+18 exp Calls, and Skew starts to shift.
BTC <10.5/11k uncomfortable.
End / These flows aren’t outright predictive but can hint at the underlying sentiment, a need for some to protect, +others yes, to make that downside bet.
Implied Vols have not shifted up (yet – as I write), which is the major sign of fear and expectation of volatility.
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