Monday Alpha #25

TL;DR: Zoom Out

Author

Marty
August 26, 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.

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TL;DR: Zoom Out

BTC ATM IV

  • 1W: 46.91%

  • 1M: 51.11%

  • 3M: 60.91%

  • 6M: 63.60%

  • Index Price: $63,746

  • DVOL: 52.71

  • BVIV: 54.75

ETH ATM IV

  • 1W: 55.16%

  • 1M: 59.47%

  • 3M: 69.49%

  • 6M: 72.58%

  • Index Price: $2,731

  • DVOL: 61.57

  • EVIV: 63.97

Weekly Insights from GreeksLive

WOWZA! Multi-leg strategies are dominating the trading scene this week. Multi-leg options involve combining multiple contracts within a single trade, offering several advantages to traders. First, they provide cost efficiency. Instead of buying an expensive single call or put, traders can use spreads to lower the initial cost by offsetting the purchase with the sale of another option, creating a more favorable risk/reward profile.

Second, multi-leg strategies help manage time decay, or theta. By holding both bought and sold positions, traders can offset the time decay of owned options with those sold, effectively balancing their "theta bill." Third, these strategies allow for flexibility in market positioning. Traders can use them to express views on both market direction and volatility. Lastly, multi-leg strategies offer built-in risk management, defining maximum gains and losses upfront, which helps limit risk while still allowing for potential upside.

We covered blocktrades a few newsletters back, but blocking trades allows for best pricing and execution for any options strategy you can think of. Above are the largest trades blocked through Greeks.live in the past week!

BTC Price Outlook

TL;DR: Zoom out. Bitcoin (BTC) has been on an upward trajectory, likely to continue gaining against fiat currencies indefinitely. Let's take a trip down memory lane, starting with Marty's thoughts.

I began my crypto journey as a Bitcoin maximalist, dismissing everything else as inferior. Back then, Bitcoin was the only real player in the game, and that was enough for me. I was convinced that banks were inherently bad, the world was on the brink of collapse, and crypto would eventually dominate. Over time, my perspective has evolved, but my core thesis remains surprisingly similar.

  • Original Thesis: Bitcoin will continuously outperform fiat currencies, the world is ending, banks are the devil, and crypto will take over.

  • Current Thesis: Bitcoin will still outperform fiat currencies, banks have a role to play, crypto may not fully take over, and the world isn't ending.

  • A few things to know about me: I primarily trade BTC and ETH options, steer clear of meme coins, and rarely maintain a directional book.

This isn't to say that crypto is bad, far from it. We're still in the early stages. While ETFs and institutional players have brought crypto to the main stage, mainstream adoption is still a distant goal.

Example, your grandma likely isn't using crypto for everyday transactions yet. However, there are promising developments, like partnerships between Circle and banks that may soon enable Apple Pay with USDC. These are significant steps forward, but there's still a long way to go. I think the end game is more like instant settlements on payments globally, similar to Brazil's Pix with the rails still being controlled by institutions. I’m happy to be wrong there. Pix is an instant settlement layer that was created by the Central Bank. Let's imagine that, but globally and allowing all FX trades and transfers to settle instantly. That’s where we are most likely headed. Similar to an instant SWIFT system.

Pix reading material in English: https://www.bcb.gov.br/en/financialstability/pix_en

Crypto trading volumes are significantly small compared to TradFi products. We haven't event seen a real pick up in structured products yet, I think this will come with options on the ETF's. There is still a long way to go. If you think that we are still in infancy stages, then we are still early, and there is plenty of time to catch the train to Valhalla. Time horizon is long, and your only job is to not get shaken out. The only way to do this is to stop chasing shitters, and you either find some edge or simply build a spot bag to catch the train. Though there are 10000 new projects everyday with new chains and new product offerings, I find it hard to chase and keep up. As most of them are destined to go 0, I don't put any mindshare to chasing the "next best thing". I’m constantly trying to get sold on why X is good or why Y is better… I stay in my lane, with what I know, and I am happy in my lane. I am starting to turn to a crypto boomer it feels.

If anyone has any interesting or opposing views, I am happy to have you on the Marty or the Eden Show that we host to have an interesting conversation and do a deep dive! DM or ping on twitter. This week on the Marty show we have my buddy Joe on, an Ex-TradFi player that has some interesting views on this. Wednesday 2pm EST, 18hr UTC.

BTC & ETH ATM Implied Volatility

These types of vol spikes are insane, and they all end the same. Build up into the event, and sell off hard post event. This move is old as time, nothing new, and it happens every time. When things get this frothy on the front end, either its time to sell all the vol or step away from the keyboard if you're trying to trade directionally with no edge.

BTC & ETH Implied Volatility Term Structure

I’m still in the boat that Nov8 vol remains "cheap". Election vol build up will probably happen as people start to speculate and things become more and more uncertain. As election day nears and market participants brace for potential policy shifts, economic implications, or geopolitical changes, demand for options as hedges or speculative tools is likely to increase, driving up IV. Getting in and out first is key if playing an increase in vol play.

BTC & ETH CME Annualized Basis

To wrap up, let's quickly cover the CME futures basis. The basis is the spread between the spot price of an asset and its corresponding futures price for a given date. The trade is straightforward: buy the spot asset, sell the future, hold the positions until the future contract expires, and then collect the difference, known as the basis. This trade can be rolled over and over from futures contract expiry to the next. Over the past few months, the basis has been hammered from the highs, but has remained relatively steady around 9-10%. These returns are still very attractive for large funds entering the crypto space. Remember, US Treasuries are around 5%. Much of the ETF inflows are driven by investors positioning themselves for basis trading, as many of these large funds do not to hold direct exposure to BTC itself.

Wrap-Up

Recap:

  • Basis is hovering around 9-10 percent

  • BTC goes up forever against fiat, leave the shitters alone

  • Front end was too lifted, Nov8 still looks "cheap"

  • Premia ARB STIP BRIDGE live - Maker/Taker and Vault Incentives are live

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

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