This weeks Option Flows with Tony Stewart starts with commentary of the Put options that were facilitators for protection.

November 17

In days gone by, Put options were facilitators for protection. Now in BTC, they are consistently being used to sell and accumulate upside exposure and collect premium.
There is no change to ITM Calls being sold and upside Calls 20k+ being bought.
IV<RV. Attractive gamma +vega.

2 / The metric which most clearly illustrates the Put and ITM Call selling, plus upside Call buying is the Skew barometer.
In late US/early Asia hours, evidenced by Nov 14-16.5k Puts sold aggressively and 20k+ Calls bought (~20k 4th Dec, 28k Jan Calls). This is ramping skew (C>P).

End / The sales of Puts are also the prominent source of supply-side liquidity for gamma and vega, which currently trades at a discount to gamma realised moves and at a discount to where one might expect vol at year highs.
Implied Vols: 10d 52%, 1m 56%
Realised Vols: 10d 77%, 1m 58%

Original thread on Twitter can be seen here.

November 18

Indications of BTC options Insto hedging: Dec4 17-15k Put spread bought x1000, Nov-Dec 17k Puts bought x1000, as BTC first approached 17.8k.
But it took a surge to 18.5k and 1.5k ‘Darth maul’ to 17k and back >18k for Implied vols to finally pump, breaking contango structure.

2 / Yesterday stated ‘Attractive gamma + vega’.
17/11 Implied Vols: 10d 52%, 1m 56%.
18/11 Implied Vols: 10d 70%, 1m 70%.

This was expected as BTC moved into fresh territory. Recently firm but lagged due to MMs sucking in gamma+vol via hedged Puts, which we now move away from.

3 / Institutional buying of Put spreads +Puts is not necessarily bearish, could well be hedging underlying long BTC, preferring market rally. But yesterday there was more 2-way in Puts (Put skew firmed) and 2-way in Calls with 18k being another key level, some profits being taken.

End / In quiet markets we observe term structure contango, ie near months trade at IV discount to far months, due to market stability=less demand for near month gamma.
In volatile markets we tend to see the opposite.
Briefly on the ‘Darth maul’ we saw fronts surge.
Now IV ~flat 70%.

Original thread on Twitter can be seen here.

November 21

A Tale of Two Calls.
Interesting to examine two similar thesis trades that took place over the last couple of months.
Despite BTC move, just one performed.
a) Sep13, BTC 10.3k. Dec 36k Calls bought x1k from $50 up to $200.
b) Oct20, BTC 13.3k. Jan 36k Calls bought x16k at $40.

2 / Original levels:
a) Dec’s x1k paid $50-$200, IV 105-130%. 1m ATM 65%
b) Jan’s x16k paid $40, IV 87.5%. 1m ATM 55%

Now BTC 18.6k
a) Dec Calls mark $85. IV 110%
b) Jan Calls mark $325. IV 99%

Dec Calls have not performed, despite BTC 8k+ rally.
Jan Calls have 8x, on 5k+ rally.

3 / Several factors stand out as to why the Dec Calls underperformed the Jan Calls.
– Dec Calls: ATM vol high. Strike IV paid through the offer on an illiquid Sunday. There was plenty supply in 20k+ Calls. Market trended sideways for a month so options decayed in theta+vol+delta.

4 / – Jan Calls: ATM low. Buyer found excellent size liquidity post expiry near marks. Outsized trades attract interest and followers. Vols squeezed higher as other buyers entered. Within a few days, the BTC rally from 13-18k took off. Increasing IV and delta offset theta decay.

5 / Could say the Dec Call buyer was unlucky – he actually timed the market to perfection in terms of level – 10.3k BTC.
But, horrific execution aside, the vol levels are critical and consequently, a decision has to be made on use of options or the structure of the options trade.

6 / Almost all theoretical options books show a Call value increasing with a market rally. But we trade in the real world. And in the real world if you pay the wrong vol level your Call can perform like the Dec Call, or far worse.
Experienced traders get this wrong too. #noteasy!

7 / This is why these threads talk about Implied Vol levels and Skew so much.
If you are bullish and IV is low, get your timing right and buy OTM Calls. But if Call skew is v.high and ATM vol is high, a Call spread is arguably a better option strategy, to mitigate adverse greeks.

8 / Implied vols are now relatively high (ATM and Call Skew). Both Calls have an opportunity of performing only if the market rally continues strongly. A breach of 20k (or expectation of) will very likely result in a further surge in Implied vols, compounding the delta impact.

End / The same day the Jan36k Calls were bought, the 32k Calls were bought x4k at 0.0047BTC, 84.3%.
Today Jan 52k Calls; initially, a seller of 3k at 0.00465.
One narrative is the buyer of the 32k Calls now has a Call spread for zero BTC premium. Also seller 32ks ~1k at 0.023 (5x?).

Original thread on Twitter can be seen here.

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