Monday Alpha #12

Gm gm, the alpha is free on Mondays.

Before we get into it, Premia’s Trading Comp is still running with a $100k total prize pool!

Sign up to the TC here or catch up on the details here. This week's challenge focuses on the highest percentage of profit and loss (PNL %), with a minimum of $500 in play.

Please note that Premia does not provide investment advice, and nothing herein should be construed as such. Anyone considering trading or holding derivatives or crypto assets should be aware that the risk of loss can be very high, and it is upon each individual to seek advice from an appropriate professional advisor.

TL;DR: Vol Crush, Post ETF Landscape, HV vs IV

BTC ATM IV

• 1W: 59.37%

• 1M: 59.83%

• 3M: 62.73%

• 6M: 65.36%

• Index Price: $42,613

• DVOL: 56.94

ETH ATM IV

• 1W: 53.94%

• 1M: 54.58%

• 3M: 59.16%

• 6M: 62.15%

• Index Price: $2,543

• DVOL: 62.43

Note: ETH DVOL trading higher than BTC DVOL

In 2024 we are bringing back the correlation chart, a classic in any Marty newsletter.

The main thing to point out here is the big slump in correlation from Gold and BTC. Crypto majors and NQ slumping as well, while BTC/ETH holds steady. With more institutional flow through the Spot ETF, I am expecting the crypto majors to trade similarly to NQ in the future. One thing to keep an eye on is for Spot ETF options to start trading in the near future.

• To Join Greekslive Block Marketplace: t.me/GreeksLive 

• Find Greekslive On Twitter: https://twitter.com/GreeksLive 

Let’s break down the highlighted trade from Greekslive Block Trade Marketplace:

Trade Overview

• Instrument: Ethereum Call Spread

• Contracts: 10,000

• Strike Prices: Buy $4000 / Sell $6000

• Expiration Date: 27 December 2024

• Notional Value: Just over $24 Million

Trade Dynamics

• Best Scenario: The maximum profit at expiry for this trade occurs if ETH is trading above $6000 at the time of expiration in December 2024.

• Current Market Price of ETH: Approximately $2500, which makes achieving the optimal scenario appear ambitious.

Insights

1. Volatility Play: The trade may be primarily a bet on an increase in future dated volatility. The trader could potentially profit from the trade if there's a significant uptick in volatility, even if ETH’s price doesn't reach the higher strike price of $6000. This is a strategy that aims to capitalize on market movements and changes in the pricing of options as volatility fluctuates.

2. Long Shot for High Payoff: If the price of ETH surpasses $6000 by the expiration date, the payoff would be substantial. This outcome is less likely given the current price of ETH, but it would result in a significant gain for the trader.

Marty's Thoughts On The Trade

• The primary expectation seems to be a strategic bet on volatility rather than a direct bet on a substantial increase in the price of ETH over $6000. Most likely a ETH ETF narrative play which I expect will be the new craze and shiny new toy people play with and talk about.

• Possible that this trade could be part of a more complex strategy or hedged with other positions not visible in this single transaction.

In summary, GreeksLive's block trade marketplace witnessed diverse activities this week. The trades varied across different strategies, including:

• Long puts

• Long Call Spreads

• Short Calls

Areas of Interest:

• BTC: 42,000, 50,000

• ETH: 2,500, 3,000

The current market positioning appears to be leaning towards optimism, with expectations of an uptick of price persisting even in a post ETF announcement landscape. Despite the recent market downturn, there's a noticeable trend of investors purchasing outright calls and call spreads, indicating a belief in potential price recoveries or increases.

As we look towards 2024, several key narratives could shape the market's direction. The anticipation around the ETH Spot ETF could bring fresh liquidity and validation to the crypto space, attracting both retail and institutional investors. The BTC Halving event, a historically significant moment that impacts supply and demand, is also on the horizon and has traditionally been associated with bullish price action. Additionally, the US Presidential Election could introduce policy changes that may either bolster or dampen market enthusiasm.

Taking these factors into account, I expect that prices could remain stable, but most likely rise as these events approach. Investor sentiment seems to be banking on the transformative potential of these developments to sustain or push the market forward.

For our newer readers, let’s discern between IV and HV, and what it means when HV is trading over IV.

IV - Implied Volatility: Represents the market's forecast of a likely movement in an assets price. Calculated using options prices, IV is forward-looking and reflects the expectations of future volatility. It's a critical component in options pricing models.

HV - Historical Volatility: Measures the extent of an asset's price fluctuations over a specific period in the past. This metric is derived by analyzing the asset's historical price changes and is typically expressed as a percentage. HV offers valuable insights into the asset's volatility history, acting as a benchmark for assessing its current or projected volatility.

HV higher than IV: When HV exceeds IV, it suggests past price movements have been more volatile than what the market currently anticipates for the future. This could indicate either a recent period of unexpected turbulence or the market potentially underestimating future volatility.

HV trading over IV is a common occurrence following major events. This indicates that the market has experienced greater volatility in the recent past than what is currently being forecasted for the future.

We will update our readers on this chart in the next newsletter.

• Charts from VeloData: https://velodata.app/ 

• Twitter: https://twitter.com/VeloData?s=20 

In the aftermath of the ETF event, we've witnessed a hammering of vol. 1W ATM Vol traded up to 100, and is now settling near 60. This swift reversal post-event has left many traders dealing with disappointment, a sentiment echoed in our previous newsletters.

As the dust settles, the market's attention turns to tracking the real movement of ETF inflow and outflows. For products like GBTC, which saw holders unable to previously redeem and had steep discounts to NAV, I expect the outflows to continue as it’s now freely traded.

Wrap-Up

Recap:

• Upside buying persists

• Vols absolutely crushed post event

Areas of Interest:

• BTC: 42,000, 50,000

• ETH: 2,500, 3,000

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