Weekly Overview
The week has been dominated by anticipation surrounding the inauguration of President Donald Trump and his pro-crypto stance. Bitcoin reached a high of $109,000, while the options market showed elevated volatility and significant skew in puts.
1. Bitcoin near all-time highs:
○The price has consolidated between $100,000 and $105,000, reflecting optimism over a potentially favorable regulatory environment.
○ Bitcoin’s correlation with the S&P 500 is again 0.84, its not increasing independence as an asset.
2. High implied volatility (IV):
○IV for 7-day expirations is elevated at 68.5%-70.2%, indicating short-term uncertainty.
3. Extreme skew in puts (delta 25):
○Puts are significantly overpriced, with the 25D PUT percentile at 100%, signaling strong demand for downside protection.
Bitcoin Chart Analysis
In the BTC/USD weekly chart:
●Consolidation range: Bitcoin remains within a defined range of $100,000 to $109,000. This pattern indicates market indecision but could set the stage for a larger move in the coming weeks.
●Key indicators:
○Realized Volatility (RV): Moderate, suggesting the market has not experienced extreme price movements recently.
○Net Unrealized Profit/Loss (NUPL): Around 55%, indicating most holders remain in profit, reinforcing current market stability.
BTC VOl Structure “No Comment” Trump Volatility
Volatility and Skew Structure
Volatility:
●Short-term (7 days): IV is elevated at 68.5%-70.2%, near historical highs.
●Medium and long-term: The volatility curve is flat between nearby strikes, simplifying spread analysis for short expirations.
Skew:
●Puts are significantly overpriced, with the 25D PUT percentile at 100%, reflecting strong demand for downside protection.
Implications for Traders
1. Short-term opportunities:
○High IV and put skew create opportunities for controlled volatility plays, such as bull put spreads, to capture inflated premiums while limiting risk.
2. Ideal conditions for spreads:
○The flat volatility curve between nearby strikes reduces the risk of significant changes in implied volatility affecting spread positions.
Strategy: Bull Put Spread
What is a Bull Put Spread?
A bull put spread is a conservative strategy designed to benefit if Bitcoin’s price remains stable or rises slightly. It is also a volatility-based strategy, making it suitable for capturing inflated premiums due to high IV and skew.
Strategy Parameters:
●Underlying asset: BTC/USD.
●Expiration: January 24, 2025 (7 days).
●Strike 1 (put sold): $100,000 → Price: $1,120 (IV: 68.5%).
●Strike 2 (put bought): $97,000 → Price: $533 (IV: 70.21%).
Net premium received:
●$1,120 – $533 = $587.
●This represents your maximum potential profit if BTC closes above $100,000 at expiration.
Potential Outcomes at Expiration:
1. BTC closes above $100,000:
○Both options expire worthless.
○Maximum profit: $587 (net premium received).
2. BTC closes between $100,000 and $97,000:
○The sold put incurs a partial loss, offset by the bought put.
○Example: If BTC closes at $98,000:
■ Loss on sold put = $100,000 – $98,000 = $2,000.
■ Gain on bought put = $97,000 – $98,000 = $1,000.
■ Net result = $587 – ($2,000 – $1,000) = – $413 (moderate loss).
3. BTC closes below $97,000:
○Both options are in the money.
○Maximum loss: Strike difference – Net premium:
■ $3,000 – $587 = $2,413.
Profit-Taking Strategy: This is primarily a volatility-based strategy rather than a purely directional one.
Traders often exit the position early once they capture 20%-25% of the maximum profit ($117-$147 in this case), especially if IV declines or the premium decays quickly.
And the rest of the asset in Simple Earn !!! 46% Today
Takeaway: Key Lessons from This Week
1. Leverage skew for better premiums:
○Selling the delta 25 put ($100,000) captures inflated premiums, maximizing income while controlling risk.
2. Risk control with spreads:
○Bull put spreads limit downside exposure, making them ideal in markets with high IV and moderate directional uncertainty.
3. Understand volatility’s role:
○The flat IV curve between strikes simplifies strategy implementation and reduces the risk of unexpected volatility shifts impacting the position.
Conclusion
This week highlights the importance of understanding volatility and skew when trading crypto options. A bull put spread is an excellent tool for traders seeking income with defined risk, especially in markets with elevated IV and strong demand for puts.
Remember to stay adaptable and monitor key events, such as Trump’s inauguration, which could lead to unexpected market moves.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Every investment involves risk.
About Author
SpreadGreg is a distinguished Principal Trader and CEO at GP Asset Management LLC in Chicago, with over 11 years of professional trading experience and specialized in financial options and commodity futures strategies, he combines technical skill with strategic insight.
Comments