Monday Alpha #19

TL;DR: I Got a Fever and The Only Cure is More 1x2’s

Monday Alpha

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: I Got a Fever and The Only Cure is More 1x2’s

BTC ATM IV

  • 1W: 48.39%

  • 1M: 51.68%

  • 3M: 58.28%

  • 6M: 63.90%

  • Index Price: $69,057

  • DVOL: 53.58

ETH ATM IV

  • 1W: 58.73%

  • 1M: 64.70%

  • 3M: 69.17%

  • 6M: 72.72%

  • Index Price: $3,777

  • DVOL: 67.14

Notice ETH vols trading higher than BTC.

Weekly Insights from GreeksLive

Recent activity from GreeksLive indicates increased interest in buying volatility at low levels. The most popular strategy this week is the short-dated calendar spread, which involves the following steps:

Calendar Spread Structure:

  1. Buy 1 contract at $68k, expiring on June 8.

  2. Sell 1 contract at $73k, expiring on June 14.

This strategy aims to profit from stable or slightly rising Bitcoin prices. By purchasing and selling options with different expiration dates, it capitalizes on time decay and changes in volatility. The goal is to benefit from the differential in premium decay between the near-term bought option and the longer-term sold option.

ETHE Discount to NAV

In case you live under a rock, the ETH ETF was approved, and the ETHE discount to NAV instantly narrowed to near-zero. It will eventually reach zero once fully converted to an ETF. Currently, it sits at a -1% discount to NAV. This was a great opportunity for those long time readers who took the play, gaining a free bonus when the approval came.

Note: The approval came and no one seemed prepared. I was honestly expecting a push.

BTC & ETH Implied Volatility Term Structures

Front-end got absolutely hammered down after the ETH ETF approval. There is a slight kink on the June 14th expiry, which is right after the US economic data coming out on the 12th. Overall ETH vols trading higher than BTC, mid 60's longer dated stuff for BTC still feels somewhat "cheap". I was originally under the impression that ETH ETF would be pushed to the August deadline, but that’s not the case… now looking for ETH ETF to trade and vols to slump off after it starts trading, allowing The King (BTC) to come back into the spotlight.

BTC & ETH ATM Implied Volatility

I wanted to quickly cover these ATM IV charts. There was a noticeable push higher leading up to the ETH ETF announcement, followed by an immediate flat line after the news dropped, a classic sell the news event. Weekly implied volatility spiked over 100%, which is quite extreme. Many were caught off guard by the announcement, but things have since settled. You can see some interest picking up in BTC over ETH, supporting my thesis that the spotlight will eventually return to BTC.

BTC & ETH 3-Month Annualized Basis

Recently, basis has been picking up despite a slight sell-off this morning, currently sitting at around 15%. This basis strategy can be profitable in any market condition. By locking in the 15%, you simply wait until expiry to cash out. This method provides a reliable return regardless of market fluctuations. For more details, check out the “Cash & Carry” section of our Options vs Perps article HERE.

Marty's Thoughts: 1×2 Options Strategy

In uncertain times, like now, I've been deploying a 1x2 options strategy, which involves buying one call and selling two higher strike calls for a net credit of close to zero. This strategy is ideal for a neutral to mildly bullish outlook, profiting if the asset stays below the higher strike at expiry. It offers limited risk, defined by the strike difference minus the initial credit, and benefits from time decay and lower volatility.

When holding the underlying asset, this strategy acts as a boosted covered call with higher returns. You generate immediate income by selling an additional call, enhancing the traditional covered call. The payoff graph shows different profit scenarios: stable or slightly rising prices retain the net credit, moderate increases yield gains from the asset and credit, and significant increases cap gains but keep the initial credit. This approach boosts income effectively.

Wrap-Up

Recap:

  • ETHE Discount to NAV Closed

  • ETH ETF Approved, awaiting it to go live

  • ETH Vols Trading Higher than BTC

  • Basis picking up

Trade on Premia: https://app.premia.blue/
Marty Community Telegram: https://t.me/optionswithmarty

DeFi Options Premia

Join the next generation of Decentralized Finance with Premia and Archetype

Premia Blue is the first non-custodial options exchange with fully customizable options parameters and risk exposure.

Maximize capital efficiency, define your own risk, and optimize fees earned with Premia Blue on Arbitrum!

Join the conversation

or to participate.