Monday Alpha #16 - Post-Halving Clarity

TL;DR: Post-Halving Clarity, Memecoin Advice, IV's Drifting, Global Uncertainty Lingers.

Author

Marty
April 22, 2024

Monday Alpha

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TL;DR: Post-Halving Clarity

I wanted to switch things up today. Shorter on the graphs and longer on Marty's Thoughts. Let’s get into it — post-halving clarity.

BTC ATM IV

  • 1W: 69.92%

  • 1M: 69.03%

  • 3M: 71.11%

  • 6M: 73.34%

  • Index Price: $65,847

  • DVOL: 70.80

ETH ATM IV

  • 1W: 70.98%

  • 1M: 73.09%

  • 3M: 75.04%

  • 6M: 77.80%

  • Index Price: $3,199

  • DVOL: 74.76

Notice ETH vols trading higher than BTC vols.

This week on The Marty Show we have JScrypto on. Tune in, come up on stage and talk vols with us. If you have any questions you want me to ask them live on the show, DM me on Twitter or join my Telegram!

Weekly Insights from GreeksLive

Greeks.live is back showing us the largest trades taken over the last week. We always see a variety of trades cross the tape, and as always we cannot see the traders’ whole book. Number 1 is selling a Strangle, 59/70k. Lets cover this one as well as add a visual of the payoff as shown below.

A “Short Strangle” is an options strategy where a trader sells a call and a put option at different strike prices but with the same expiration. In this example the trader is short a 70k Call, as well as short a 59k Put, both for April 26th. This strategy profits from low volatility or a range bound market, as the trader collects premiums provided the asset’s price stays between the two strikes.

The maximum profit is the sum of the premiums, but potential losses are theoretically unlimited if the asset price moves significantly beyond either strike.

Short Strangle Payoff Structure

ETHE Premium Update

ETHE still sits at a steep discount to NAV, around 24% currently. If you bullieve in ETH ETF approval in June, this is a “free” 20+%. Personally I believe this is more of a sign of a push of denial of the ETH Spot ETF, but feel free to take the other side of the trade if you believe it will be approved. I think there will be a time to take this trade, or to at least start accumulating for a closure of this major discount to NAV.

BTC & ETH Implied Volatility Term Structures

TL;DR of this section: Boring… Disappointing.

I thought vols would pick up into events, some excitement… this is a 100v product right? Overall it’s been quite boring outside of some flash crash and recoveries due to some middle east conflicts people can’t even say or know what really happened. This is not a political newsletter, nor does my opinion matter sitting here in Brazil talking about conflicts thousands of kilometers (miles for the burgers) away. Overall term structure looks boring, with a notable kink in forwards for the ETH June Expiry, most likely indicating some excitement around the ETH ETF approval/denial.

BTC & ETH At-The-Money Implied Volatility

These visuals are further adding to the boredom of the current landscape… 1m, 3m, and 6m have either been flat or slowly grinding lower, with 1w being the most volatile.

While 1w ATM IV has been the most volatile, overall it’s settled, grinding sideways over the last week. This is not what I was expecting with catalysts such as the halving, ETH ETF, and the 2024 US elections later this year. I guess this is a better outcome sitting here at 70v than last year’s snoozefest around the 30 handle.

Overall it feels like we are in for a boring summer. Come back to the markets when the next news cycle is centered around elections and the Fed cutting into elections to make Biden look like the greatest President there ever was.

Marty's Thoughts

Summary:

  • Stop over-leveraging.

  • Twitter isn't real

  • Trade majors over shitters

The overall landscape just seems fit for a cool-down with so much uncertainty. FED flip-flopping weekly about hikes or cuts, middle-east conflicts (no one even knows what’s happening), halving complete… It really just feels like it’s time to step away from the screens and touch grass… Most of you are better off sitting in spot, and getting a real job to pay for your expenses. That’s the truth. But we all know that’s not going to happen, so lets go over some things.

As for the overall market, Alts have been massacred… Majors holding up decently. The overall spotlight is on Bitcoin. Active players are better off trading majors than shitters for the foreseeable future. Why trade majors? There’s a simple answer: they don’t rug liquidity, they’re more predictable, and you can put on more size into your trades.

As shitters are purely fun to trade for most people, it is 100% gambling, and if you aren't first in the door and first out then you will 99% get rugged. However, remember that no-one rugged you besides yourself. You shouldn't trade shitters and then complain that you got rekt… If that’s how you feel, then you probably shouldn't have been trading them in the first place. Most are paid influencer shills and absolute garbage. Maybe, just maybe one turns into a PEPE or a WIF… but this is rare and not worth your time. You are better off focusing your time on something like a solid airdrop farming strat, as one airdrop can change your life… the Wormhole drop was $1,000 per wallet… farm 100 wallets and make 100k. This is purely an example…but just goes to show you don't need to be gambling to make a solid return.

On to other things.

Bitcoin is a risk asset, and crypto is the last free market. Crypto is the first and most volatile to move when something happens globally. Since Bitcoin is a risk asset, you need to treat and trade it like one. The countless friends telling me they round tripped 100k PnL over the last few months is absolutely insane. If you have made life changing money, please take chips off the table and change your life.

The post-halving landscape is upon us. The implications of the halving simply create a supply and demand crunch in the Bitcoin network. It’s not instant, and we have seen previous halving cycles always end in a pump… That being said, we are also up from 45k since January with the ETF launch so how much of this has been front-ran?

Do I think that this was THE top? I don't think so, seems a little lazy and too boring… where are the fireworks? If there is less new Bitcoin mined daily, and overall demand is still high, the price will increase. When does price continue to go up? Not sure… but I have mentioned before that when options come on the ETF, the endgame is lower vol, with price continuing up and to the right forever.

As for a timeline and plays for options on the ETFs, I spelled out my thoughts in the last few newsletters, which you can read over at blog.premia.blue. The SEC continues to push out options on the spot ETFs, and it’s a matter of when they get approved, not if.

Ok… Now that reality has set in, let’s look at some actual plays traders could maybe, possibly, hypothetically employ if they wished to trade the markets today (NOT FINANCIAL ADVICE).

Trade #1

Sit in spot and outperform most active traders.

Trade #2

Hold spot, sell dated futures to capture the basis, and hold until expiration to realize profits. Currently, this strategy can yield around 20% annually without leveraging. This approach involves taking advantage of the price difference between the spot and futures prices, locking in profits as the futures contract approaches its expiry.

Trade #3

Hold spot, sell perps in a 1:1 ratio to hedge, and collect funding payments. This locks your USD value. Use the funding received, if it's in your favor, to purchase long call options at no additional cost. This strategy allows you to benefit if the price significantly rises, as the long calls provide leveraged exposure to upward movements while your spot position and sold perps balance each other out and hold its USD value. However, it's crucial that you're collecting, not paying funding for this to be effective.

Trade #4

If you're considering directional plays with options, consider using spreads instead of buying outright calls or puts. Spreads like the long call spread involve buying a call option while simultaneously selling another call option at a higher strike price. This strategy reduces the overall premium paid, limits potential profit and loss to a predefined range, and decreases the cost of Theta. By selling the higher strike call, you offset some of the premium cost of the long call, making it a cost-effective way to target a specific price range with less capital at risk. This can be switched to a long put spread by simply using puts instead of calls.

Wrap-Up

Recap:

  • IV's drifting

  • Post-Halving Clarity

  • Global Uncertainty Lingers

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