Monday Alpha

Vol sellers rejoice! The prevailing low volatility climate persists. Volatility remains suppressed, trending downward, with no significant spikes since the Ethereum Shanghai Upgrade.

Vol sellers rejoice! The prevailing low volatility climate persists. Volatility remains suppressed, trending downward, with no significant spikes since the Ethereum Shanghai Upgrade.

This muted regime and sideways price action has had several effects on the cryptocurrency community. It has cast a shadow over Crypto Twitter, making it notably sad and boring. It has also provoked traders into overtrading as they try over and over to extract value from minor price movements. More broadly, this low volatility environment has filled crypto space with a sense of frustration and difficulty. Yet, it’s during such challenging times that strategic trading, staying hedged, focus, and continued learning come into play. Premia Educational series has launched, providing you with a fun, interactive way to learn options. Check it out, and please provide any feedback.

Please note, Premia does not provide any 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 — How Long Can She (Vol) go

1W: 34.84%

1M: 36.59%

3M: 39.13%

6M: 43.41%

Index Price: $26,825

1W: 32.95%

1M: 35.59%

3M: 38.92%

6M: 42.96%

Index Price: $1871

Things To Pay Attention To

  • 9:45 am ET: S&P U.S. services PMI (May)

  • 10:00 am ET: Factory orders (April)

  • 10:00 am ET: ISM services (May)

  • 8:30 am ET: U.S. trade deficit (April)

  • 3:00 pm ET: Consumer credit (April)

  • 8:30 am ET: Initial jobless claims (June 3)

  • 8:30 am ET: CPI and Core CPI (May)

  • 8:30 am ET: PPI and Core PPI

  • 2:00 pm ET: Minutes of Fed’s May FOMC meeting

  • 8:30 am ET: Initial jobless claims (June 10)

  • 8:30 am ET: U.S. retail sales (May)

  • 10:00 am ET: Consumer sentiment

BTC, ETH, NQ, and Gold Prices

Rolling 30-day Correlation between BTC, ETH, and Gold vs NQ

Since the last Monday Alpha, institutional traders on GreeksLive have shown a growing preference for the short strangle strategy(trade #1, and #2). Block trades are large-volume transactions typically executed by institutional entities. With the prevailing low volatility environment, these short strangle strategies have been very effective. For instance, we saw a significant ETH trade comprising of 4,140 contracts, with a notional value of $7.88 million.

Also, a BTC trade followed suit, involving 240 contracts, which amounted to a notional value of $6.53 million. These trades below highlight the efficient use of the short strangle strategy during a period of low market volatility. Should be noted that these short strangle trades are number 1 and number 2 in the graph, they were taken in the last week, and they expire at the end of June.

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Used when low volatility is expected, the strategy maximizes profit if the asset’s price remains between the two strike prices at expiry, allowing the trader to keep the premiums from both options sold. In the example below we will be looking at the largest ETH option strategy blocked on GreeksLive in the last 2 weeks since Monday Alpha.

  1. Sell a $2,000 Call: You sell a call option, giving another trader the right to buy ETH from you at $2,000. This contract is valid up until the option’s expiration date. For selling the option you receive a premium upfront, which is essentially the price the other trader pays for the option contract (a credit).

  2. Sell a $1,800 Put: Simultaneously, you also sell a put option of the same expiry, providing another trader with the right to sell their ETH to you at $1,800. This contract also lasts until the option’s expiration date. This options sale also earns you a premium upfront, adding to your immediate income from this strategy (a credit).

  3. Premiums Collected: The premiums you’ve collected from selling both the call and the put options are yours to keep.

  4. Maximize Profit, Manage Risk: The goal with this strategy is to maximize your profit, which occurs when ETH price stays between the two strike prices ($1,800 and $2,000) through to the options’ expiration date. If this happens, both options will expire worthless, and you retain the entire premiums from selling the options. However, significant price moves outside this range can lead to large or infinite losses, so active monitoring and risk management strategies are crucial when using a short strangle strategy.

Max Profit and Loss

The trader’s hope with this trade is that the price of ETH stays between $1,800 and $2,000. If that happens, both options will expire worthless and they keep the premiums. This is their maximum potential profit.

If the price of ETH rises above $2,000, the call option could be exercised. The trader would need to provide ETH to the buyer of the call option at a price of $2,000, even though it’s now worth more. In this case, the losses would increase as the ETH price increases.

If the price of ETH falls below $1,800, the put option could be exercised. The trader would have to buy ETH from the holder of the put option for $1,800, even though it’s now worth less. As with the call option, the losses increase the further ETH’s price drops below the put option’s strike price.

Given the potential for unlimited losses, effective risk management are key when implementing the short strangle strategy. While this strategy can yield profits in a low to moderate volatility environment, you must always be aware of how quickly volatility regimes can shift. As the old saying goes, selling vol can sometimes feel like “picking up pennies in front of a steamroller”. This is indicating to the risk of accruing small gains while potentially facing large losses. Therefore, traders should always be prepared for sudden volatility spikes and adjust and hedge their strategies accordingly to protect their positions.

Back to thoughts by Marty

This bi-weekly Monday Alfa is supposed to be a shorter and different style of read compared to the Monthly Newsletter. Here we aim to shine light on larger block orders with data provided by GreeksLive, as well as provide you with all of the information needed for the trading week ahead, and get some more personal insight by Marty. We can sit here for months in this low or muted vol regime and simply put, the regime and stay muted longer than you can stay solvent anon. Covered in the previous Monday Alpha, we went and listed all the possible catalysts for vol to come back and the time horizon we are looking at.

ETH and BTC IV vs HV

Volatility vs Historical Volatility for BTC

Volatility vs Historical Volatility for ETH

How Low Can She Go, Marty?

The answer? Lower.

Simple as that, with no catalyst, it can go lower. IV’s from the 1W to 6M is in the 30–40 range, and we might see 20’s… HV is in the high 20’s right now. This might be a hot take… but it’s possible.

In trading crypto options during a period of low volatility, it’s crucial to remember that although it may seem unexciting, this environment can also present opportunities. Despite the fact that we cannot perfectly time vol events, we can still prepare our portfolios.

Purchasing some long dated options in this environment could offer protection against unexpected spikes in volatility. At the same time, selling options can generate consistent income due to the time decay factor, which is accelerated in a low volatility environment.

Even though a low volatility regime may keep asset the underlying prices stagnant, unforeseen macro events could trigger substantial price movements. Therefore, it is critical to employ risk management strategies, which can include diversification across different types of crypto assets, and staying hedged.

Im going to sound like a broken record here, but selling short dated options to fund the long term Vega play is the play and has been the go to trade for many players in the space.

Crypto markets are known for their high volatility, but understanding and effectively navigating through these low volatility regimes can significantly boost your portfolio’s performance. This strategy is a simple play to collect premium and theta in the short term, while funding the long term play that volatility will mean revert to the norm.

That wraps it up for Monday Alpha #2!

For our loyal readers and fans of Premia x Marty, we read all of your messages, and greatly appreciate all your feedback and requests regarding the newsletter series! Our and Marty’s DMs are always open for any questions or requests to add to the newsletter or the vol space as a whole.

Let’s recap:

  • Low muted vol regime can last a long time

  • Institutional players are favoring selling short June Strangle

  • No clear catalyst for vol

  • Now is the time to learn instead of overtrading, anon


or to participate.