Monday Alpha #20

TL;DR: Memecoins and Addiction w/Marty

Author

Marty
June 17, 2024

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: Memecoins and Addiction w/Marty

BTC ATM IV

  • 1W: 44.55%

  • 1M: 47.19%

  • 3M: 54.59%

  • 6M: 61.58%

  • Index Price: $65,705

  • DVOL: 48.96

ETH ATM IV

  • 1W: 58.72%

  • 1M: 61.75%

  • 3M: 65.77%

  • 6M: 70.92%

  • Index Price: $3,543

  • DVOL: 63.06

Notice ETH vols trading higher than BTC.

BTC Price: Zooming Out

Lets start the newsletter with a reminder that we have been up only for 2 whole years…

This chart shows 1 year, but since FTX crash price has been up only. With price being just under ATH, people’s portfolios are at ALL TIME LOWS and it seems the liquidations on the timeline of people trading memes is peaking… Maybe instead of trading shitters you should focus on finding an edge and compounding real returns while trading majors instead of illiquid shitters.

Shitcoins = gambling and you have an addiction. You just haven't said it out loud yet.

Weekly Insights from GreeksLive

This past week saw a significant increase in downside protection, as blocked with Greeks Live. This is justified given the price free fall this Monday morning. While the strikes seem a bit low, it's essential to check the IV at which they were purchased, likely making it a good deal when purchased. The June 21 call spread, the #1 strategy in size, still gives me hope that we can make it all back in 1 trade;)!

BTC & ETH CME Futures Open Interest

There have been recent discussions where some numbers, math, and charts were presented, but unfortunately, they turned out to be incorrect. The main point of contention was regarding ETF flows and their influence on basis trading. Basis trading, an old and straightforward strategy, involves capitalizing on the price difference between the spot price of an asset and its futures price. Despite the simplicity of this strategy, there was confusion about its impact and the actual data surrounding it.

Most of the ETF flows have been directed into basis trading, which is evident from the data observed in 2024. During just May/June, the OI in CME contracts saw a significant increase of over $3 billion. Its right there… you can see the increase… you don't need to overcomplicate it with 100 charts… it’s right there.

This spike in OI indicates a rise in the activity and the number of positions held, reflecting heightened interest and participation in basis trading strategies. It’s essential to accurately interpret these figures to understand market movements and the strategies being employed by investors before you start posting threads on twitter lol.

Reminder… they are basis trading, always were, always was.

This is in coin value, not Dollar value like the BTC one above. Just wanted to show the ETH one as well to show that interest is growing more and more, currently sitting at OI ATH on the CME as we await the ETH ETF to start trading.

Funding APR Heatmap

First time we have covered funding here in the newsletter (I think)! Funding rates have stabilized across the board following a significant downturn in altcoins. The severe price decline in alts was expected, given the industry's recent focus on speculative and low-quality tokens. From widespread promotion of questionable projects to D-list celebrities launching their own tokens, it was only a matter of time before the market corrected. Now, we find ourselves here… wow… surprised that your shitcoin wasn't the future of France eh?

BTC & ETH ATM Implied Volatility

As we move through mid-2024, IV has been generally drifting sideways or down, outside of ETF announcements and approvals. We await the trading of the ETH ETF and the upcoming US presidential elections. In terms of price movement, my expectation is for a range between 60-70k until further notice. Every breakout tends to be sold down, and every dip is eagerly bought. A strategy to consider could be 1x2's or the ABS strategy, with a focus on nibbling long-dated vega in case there is a spike in volatility.

Marty's Thoughts: Basis Trading

Of course, they are basis trading. Most aren't simply holding long positions in a crypto ETF, big shops and desks operate differently. Basis trading remains attractive for large desks looking for around 10% returns. However, the potential unwinding of this trade could have significant implications. Currently, they buy ETF shares as a spot position and short futures on exchanges and the CME. When the futures contract expires, they roll the position to the next contract, continuing this cycle until they decide to unwind.

The unwind process is straightforward: when the trade is no longer attractive, they start closing futures positions or let them expire without rolling, and then begin selling their ETF holdings. This is a scenario I’ve been considering that could be even more added downward pressure as they unwind. On the other side of the conversation, these desks might need shares for ETF options once trading starts, which could mitigate the impact of the unwind. This is definitely something to monitor and discuss in future newsletters. For now, just planting the seed.

As for what’s next? No idea, probably low vol summer, chop fest, timeline gets WORSE… and then we can run it up. Looking for risk assets to be repriced up into election time as Biden can't have economy nuke into election time as he needs to be painted as the greatest president ever, with the greatest stock market ever, sitting at all time highs.

Wrap-Up

Recap:

  • IV's drifting lower/sideways

  • Basis Hammered Lower, yet still attractive

  • Funding Reset

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!

Reply

or to participate.