Monday Alpha #14

It is indeed Monday — the alpha is free on Mondays. Let’s keep it concise.

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.

TLDR: Stairway to Heaven

BTC ATM IV

• 1W: 86.82%

• 1M: 81.35%

• 3M: 80.06%

• 6M: 78.04%

• Index Price: $72,320

• DVOL: 83.66

ETH ATM IV

• 1W: 88.01%

• 1M: 83.04%

• 3M: 83.64%

• 6M: 80.37%

• Index Price: $4,038

• DVOL: 86.13

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The trade in question is a classic Butterfly spread, poised to potentially yield profits as it approaches expiration. Structurally, the position consists of a 1-2-1 configuration: buying one $70K call, selling two $74K calls, and buying one $78K call.

The optimal outcome for this strategy occurs if the price of BTC is exactly $74,000 at expiration. While any price within the $70K to $78K range results in a profit, the maximum payout is achieved precisely at $74K. Below, you'll find a visual representation of the payout with a link to the Premia Academy to learn more. If you wanted to put size onto this strategy the 1-2-1 continues… Example: buy 100, sell 200, buy 100.

This is a more complex strategy — complex meaning it has multiple legs. It’s an easy strategy to implement. It allows for less money out of pocket, with a higher payout if it cashes compared to an outright call or a call spread.

Crypto vs TradFi Correlations

We always show these various graphs of 30-day rolling correlations. I’m a big fan of the NQ and crypto majors one to gauge sentiment in overall market. We are at peak correlation with traditional markets. With the full outlook into 2024, it seems risk assets are back and that we are on the up and up… the stairway you could say. I do like when we move in tandem with traditional markets, as it makes things a little bit easier. Only during major conflicts or financial distress do you want crypto and TradFi non-correlated.

Implied Volatility vs Historical Volatility

Stairway to heaven… We are out of the trenches of 30-50vol. 50 seemed to be the "floor". I’ve included these charts many times, highlighting the fact that we should continue to see vols increase into the upcoming events, these events being the BTC halving, and the ETH ETF decision. Lets get this clear — BTC and ETH are 100vol products, so you should trade them as such. The IV vs HV chart will continue to climb up and to the right as we approach the aforementioned events.

The events are near, and we know what happens post events. If you are new, there is usually a vol crush. If you are looking for positioning, it is generally not the best idea to trade events — but to position before the event, or after the event to prepare for new catalysts.

If you are trying to chase here, I’m not sure about the best way to position… besides saying… if these are 100v products, then December looks "cheap". We mentioned last newsletter that vols have not peaked yet, and perfectly timing them is near impossible… but I’m here again to emphasize that vols have not peaked yet.

BTC and ETH Gamma Exposure by Strike Price

Areas Of Interest:

• BTC: 70,000-80,000

• ETH: 4,000, 6,000

With the anticipation of new (positive) events in 2024, there's a growing interest in potential upside, as reflected in the charts showing Gamma Exposure STILL leaning predominantly towards the upside. People are gobbling up 75k and 80k calls, 70k/90k call spreads into the events. These types of orders keep getting blocked over and over again. I must note these are mostly in the 70-80 handle. I have added the super wingy upside stuff on ETH to show where most of the consolidation is.

Marty’s Thoughts

These are 100vol products. Lets trade them like they are. September 77v, December 76v…. This doesn't feel right with all of the catalysts here in 2024. This is what I mean by December feels "cheap". I have been saying this since December 50-60v, I am starting to feel like a broken record…. I am all about positioning prior to events, riding them up, and exiting before the events. I rarely trade the actual event. That being said, with the next events near, I would expect again… More vol build-up into the events. From here at 80v we should get up into 90-100+… This would be the time to exit positions, not chase.

As I sit here and write this, currently I am and have been playing a build up into (events) The Halving and ETH ETF. The idea here is that we exit, Vol gets crushed, then we can reposition our book in summer for election time near end of the year. Market is 50/50 on ETH ETF being approved, I am not 100% sure on whether it’ll be approved or not, but vol will pick up into these events regardless as we come up on major unknowns and people start to speculate more.

As for price — we trade the vol not the price. That being said, on the way up, there is major wicks down, and huge flush outs in everything, but mostly alts. I guess we all play a different game, but I am not here going all in on the next shitter trying to turn $1 to 10mm. We wary of your leverage, your positioning, and timeframe. I mention time frame because you can get eaten alive by perps or Theta. If you do not want to deal with any of that, then trade dated futures or do a multi-leg options strategy over an outright call or put.

I want to wrap up with some reality. Things are getting wild and Twitter is not a real place. You are you, and if YOU make life changing money to you, please take chips off the table. If you are unsure on when to sell, you can simply start by taking chips off the table when you start taking PNL screenshots, this always seems to work for me. You also can leave a runner and not close 100% of the position if you have FOMO.

Everyone on Twitter is not a baller, nor a good trader, everyone is a good trader when everything is going up… do not be fooled.

There is 0 issue with taking profits and pocketing money to change your life.

Dance until the music stops pimps.

Wrap-Up

Thank you for being an active reader of our biweekly newsletter, I appreciate your comments and questions. As a final wrap up, if you are looking for a community to talk vols, options or coins, we have the Marty Channel available for free!

Recap:

• Stairway to Heaven

• Vols havent peaked yet

• Eyes on ETH ETF and The Halving

• Dance until the music stops.

Areas of Interest:

• BTC: 70,000-80,000

• ETH: 4,000, 6,000

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