Top News of the Week
1. Bitcoin Breaks $100,000:
Bitcoin hit an all-time high of $103,713 before pulling back to $101,316. This milestone comes amid post-election optimism in the U.S. and the potential nomination of Paul Atkins, a crypto advocate, to lead the SEC.
2. El Salvador’s Bitcoin Success:
El Salvador’s Bitcoin investment has surpassed $600 million, solidifying its leadership in global crypto adoption and sparking renewed interest in its strategy.
3. Bitcoin Consolidates in a Range:
After its rally, Bitcoin has remained in the $90,000-$105,000 range for two weeks, signaling a consolidation phase as the market awaits a clear breakout.
Bitcoin Chart Analysis
Bitcoin displayed significant volatility this week, peaking at $103,713 before retracing to $101,316. This consolidation near record highs indicates accumulation, with potential for further upside if favorable market conditions persist.
Options Skew Analysis
The skew for puts has increased significantly, reflecting higher demand for downside protection. This has made lower-strike puts (e.g., $90,000) more expensive, which could affect the profitability of strategies involving short puts.
Strategy Review
Current Strategy:
● Put Sold ($90,000, expiration December 27):
○ Initial Premium: $36.36
○ Current Premium: $40.41
○ Result: Loss of $405 per contract, driven by an increase in the skew for puts, indicating heightened demand for downside protection.
● Call Bought ($105,000, expiration December 27):
○ Initial Premium: $16.75
○ Current Premium: $14.43
○ Result: Loss of $232 per contract, reflecting a drop in premium as Bitcoin stabilizes.
Overall Balance:
● Total Loss: $637 per contract.
Key Takeaway:
The strategy depends on an upside breakout to be profitable. If Bitcoin remains range-bound, no significant gains are expected before expiration.
Capital Management:
The unused margin is invested in Simple Earn by Coincall, generating annualized returns of 12%-20%, partially offsetting the current losses.
Learning This Week: Calendar Spreads and the Vega Trap
What Are Calendar Spreads?
A strategy involving the purchase and sale of options with the same strike price but different expirations, designed to exploit differences in time decay (Theta).
Practical Example:
● Buy a Call with a 60-day expiration (strike $100,000) for $500 USD.
● Sell a Call with a 30-day expiration (strike $100,000) for $300 USD.
The Vega Trap:
Although this strategy is vega positive, meaning it benefits from rising volatility, in practice, volatility often impacts short-term options more than long-term ones. For example:
● If implied volatility rises, the short call might increase by $100 while the long call increases by only $50, resulting in a net loss of $50.
Why It’s Relevant Now:
Bitcoin’s consolidation and declining volatility make this strategy attractive, but analyzing volatility’s impact on each expiration is crucial to avoid surprises.
Summary and Conclusion
1. Bitcoin Consolidation:
BTC continues to trade between $90,000 and $105,000, potentially setting up for a breakout if bullish momentum persists.
2. Current Strategy:
○ Short Put ($90,000) and Long Call ($105,000), both expiring December 27.
○ Current loss: $637 per contract.
○ To be evaluated at expiration.
3. Next Steps:
○ Explore Calendar Spreads to capitalize on the current low-volatility environment. Vol pick up so we need to wait.
Thanks a lot.
SpreadGreg
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Every investment involves risk. Remember to follow daily strategieson our Telegram channel: https://t.me/T okencimiento/1
I trade crypto options on Coincall. Here’s the link: https://www.coincall.com/r/Tokencimiento15r
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