This weeks Option Flows with Tony Stewart starts with commentary of the Bullish bias continues in BTC options as 12k approaches.

October 20

Bullish bias continues in BTC options as 12k approaches. Calls (+spreads) bought, Calls rolled up and out to higher strikes, ATM (11-12k) Puts sold to gain exposure + collect option premium.

Grind higher in spot and ATM Put selling maintaining pressure on Implied+Realised Vol.

2 / Institutional funds long Calls have been proven right on direction, but the fight against lower implied vols and theta have led to suboptimal gains. Funds have had to be dynamic.

Eg long 350 Oct 11.5k Calls sold and rolled to long 385 Nov 13k Calls (equal premiums $158.5k).

3 / Having made profit on the Oct 11.5k Calls, the likely thinking is to avoid high theta decay with <10day options and roll out to Nov.

In a potential similar thought process, a long x200 Nov 12k Call, moved profits to x400 Nov16k Calls, reducing premium at risk, but still long.

4 / Ubiquitous strategies have been to long Nov+Dec Calls or reduce cost with Call spreads, so eg long 13-16k Call spreads, reducing the cost of the primary Call.
Spreads are often enacted during high implied vol, but continued IV drain has impacted keenness to buy outright Calls.

End / IV pressure comes from lower realised vol and instead of Call yield enhancement (OTM Call selling vs +BTC), actual selling flow has come from invigorated confidence to sell Put prems; last week 10-11.5k Puts, now with spot higher 11-12k Oct-Nov focussed.

25d skew 10-15% C>P.

Original thread on Twitter can be seen here.

October 21

Large ETH option trade illustrates Fund tactic when not all goes to plan.

On Jun 1st, Dec280 Calls sold 22k at $40 (0.169, ETH237).

Yesterday Dec280 Calls bought back and short moved to Jun320 Calls for same $ value (approx $100, ~0.27, ETH369).

However, not an isolated trade.

2 / On May28 Dec120p were also sold 22k, adding $10 per option to the effective strangle and subsequently on the rally, and for the last few months, this fund has been very active selling Puts, in Dec specifically 200-240 range in big size, covering the losses in the 280 Calls.

3 / No denying that shorting Jun21 320 Calls at ~$100, with ETH spot $369, and 250days to expiry has considerable risks, but we can see from past tactics, what the Fund may employ to mitigate. Also, this fund is very long ETH+BTC, plus sophisticated and dynamic to hedge +gamma.

End / On the technical side, although a spread, the net impact was to sell vega, and Jun took a 5%+ IV hit. This flattened the ETH vol term-structure further out and consequently implied vols in JUN21 for ETH and BTC are now almost flat. Shorter dated ETH>BTC 10%, due to higher RV.

Original thread on Twitter can be seen here.

October 21

Paypal adoption catalyst to breach 12.5k+.

Implied Vol surge. Short Call covers, Longs rolling up to add more exposure, and general unwillingness to sell low vol with spot BTC at year highs.

Some retail profit taking short-dated, but institutional funds maintaining long Calls.

2 / Trade examples:

-Rolling to add exposure: Oct30 12k Calls sold x350 (take profits), to buy Nov 16k Calls x750.
-Short cover+ exposure added Oct+Nov 13k, Dec14k, Mar18k Calls x2k
-Rolling short ‘up+out’ – ETH Buy short Mar400C, sell Jun440C x18k (earlier Dec280 to Jun320 x22k).

End / Impact of flow to increase implied vols.

Quite interestingly, this vol surge is parallel+ ie the whole term-structure (BTC+ETH) has moved up 8-10%. Call demand outstrips that for Puts, so Call skews further +ve.

BTC implied vol pump:

Original thread on Twitter can be seen here.



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