Monday Alpha #17

TL;DR: Low Volatility Regime Enters The Chat

Monday Alpha

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TL;DR: Low Volatility Regime Enters The Chat


  • 1W: 52.92%

  • 1M: 55.98%

  • 3M: 59.26%

  • 6M: 62.44%

  • Index Price: $63,479

  • DVOL: 58.17


  • 1W: 60.91%

  • 1M: 63.03%

  • 3M: 63.20%

  • 6M: 67.00%

  • Index Price: $3,082

  • DVOL: 68.43

Thoughts on Vols

Volatility peaked at an 87 handle during the ETF event and it’s fallen sharply since, following the typical pattern where volatility decreases after major events as market uncertainty resolves.

This sell-off in volatility post-event suggests that the market had largely priced in the event's outcomes. Looking ahead to the summer, the continued low volatility could indicate a quieter trading environment, posing challenges for options strategies that thrive on larger market movements.

An interesting strategy some traders are employing involves holding spot, while simultaneously selling perpetual futures contracts to collect funding payments. This funding income is then used to finance the purchase of long call options or call spreads. This trade only works when funding is in your favor. 

Traders are leveraging the funding payments from the futures contracts to cover the costs of their bullish bets on the asset, aiming to establish these positions at zero net cost. These long Deltas give you exposure to the upside just in case price continues to go higher. For example, traders could go and buy BTC ATM March for 66v.

TL;DR: Long spot, short perps to pay for long calls at zero net cost.

Weekly Insights from GreeksLive

Tons of uncertainty visible in the trades last week as price took us for a spin with the sharp sell-off. I would like to see more longer dated bullish plays come through the tape the next few weeks as vols are declining, hinting at larger players positioning for more upside momentum into end of year. For now, we continue the chop fest with no clear take on direction.

BTC & ETH At-The-Money Implied Volatility

BTC ATM Implied Volatility

ETH ATM Implied Volatility

Post-Halving clarity has become clear and as expected, IV got hammered post-Halving. This leaves us in a weird moment in time. We are in May, and the classic “Sell in May and go away” seems once again a perfect indicator.

We are now entering this low vol regime, which I expect to last through summer until the US election news cycle to pick up. Now is the time to look for longer dated plays and get positioned while others are losing monies getting chopped.

BTC & ETH Implied Volatility Term Structures

BTC Implied Volatility Term Structure

ETH Implied Volatility Term Structure

Vols continue creeping lower as mentioned above. We do have a slight kink higher on ETH which is in June for the ETH ETF announcement. That being said ETH is still trading higher than BTC, I expect this to change post-ETF announcement. However, there are some interesting plays looking forward into end of year and even way into March (as a buyer.)

Though this low vol regime can last a long time, you can start to look into positioning for longer term plays. March is only at 67v, this feels "cheap" to me. That being said we could easily slump down into 40/50 handles and you want to make sure you have dry powder available.

BTC & ETH 3-Month Annualized Basis

BTC 3-Month Annualized Basis

ETH 3-Month Annualized Basis

Basis has gotten absolutely hammered. March 31st you could have locked in a "risk-free” trade for 37% on Binance. Basis trading involves buying spot and selling a dated future and capturing the basis. I’m not sure why these trades aren't talked about more on CT, nor do I understand why people look down on easy, profitable trades.

Ah that’s right, it’s because most of CT is not real, nor are they real traders. Stables yield is roughly 5-10% depending on the platform, so that is your risk-free rate in crypto now. If the market provides an opportunity for a low risk trade that is more profitable than the risk-free rate, traders should consider putting in the effort and locking in free monies.

Note: Current Basis is hovering around 10%.

Marty's Thoughts: Low Vol Regime Enters The Chat

The ABS strategy has been working well. That’s the classic “Always Be Selling” strategy. Vols have fallen from 80 to 50. As we enter summer, it’s the time to position for longer dated plays while others get chopped. Personally, I’m mostly back to looking at selling the front end garbage to pay for the long-dated Vega. If you have been a reader of the newsletter for a long time, then you know this is a Marty classic that played out perfectly last year.

Currently December and March for BTC being in the mid 60 handle just doesn't feel right… I feel like I want and need to get exposed which is why I have started to nibble.

This period of low volatility could extend for a considerable duration, making it essential to keep some dry powder available to maintain positioning. Should volatility for these longer-dated contracts drop into the 50 handle, I would definitely be interested in nibbling more.

On another note, options for ETFs have not yet been approved, which could soon attract institutional volume sellers to the market, potentially further reducing volatility. This scenario might redefine Bitcoin as a lower volatility asset that continues its upward trajectory. We must wait for the approval and flow of options to determine if our strategies hold or require adjustments.



  • IV's drifting lower still

  • Basis Hammered Lower

  • Awaiting Institutional Vol Sellers

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