Quarterly option expiry closures aside (27/3 7k+7.5k calls x1000 net), the main volumes traded today in the $BTC options market again related to downside plays – two different techniques being employed to accumulate puts.

2 / Yesterday’s buyer of Apr24th 4k+4.5k puts added, taking net exposure >x1000.

These puts are significantly OTM and are therefore either speculative or emergency protection. With IV 140%+ in these strikes, they’re not cheap.
Naturally, sensitive to daily moves in IV and decay.

3 / Ideally, like to buy outright options in cheap IV environments, but sometimes a strategy is forced by market conditions. If BTC continues to remain in a more modest range similar to the last couple of days, vols will fall further and negatively impact these puts.

4 / A workaround is to finance the put purchase, often by selling an upside call, done when long the underlying BTC. These trades are called Risk-reversals. One I highlighted yesterday in June expiry; today the Apr 3rd 5.5k put was bought, financed by selling the 8k call x300.

5 / Instead of just buying the 5.5k put for $110, it was financed by selling the 8k call for $80 – net cost $30 (0.0045BTC, spot ~6657).

Buying one option and selling another reduces the impact of theta and vega. However, the upside move of the long BTC is limited to ~8k BTC spot.

6 / This illustrates two types of strategy to get downside exposure but must be applied specifically to what the goal is.

If the Apr 24th purchases are purely speculative and the buyer is not long BTC, selling an upside call brings unlimited upside losses and unlikely applicable.

End / BTC spot was sticky today and as such vols softened.

IVs: 10d 116%, 1m 114%, 3m 111%.

Quarterly exp. Would normally expect a decent flow to be initiated into June expiry, but after recent turmoil that is unclear.

Also, listed today: 29th May options covering BTC halving.

Original thread on Twitter can be seen here.


Tony Stewart


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