Today, the largest BTC options block trade is once again a bullish spread. A boss spent $1.2 million to buy call options with a strike price of $44,000 and sell call options with a strike price of $50,000, totaling 1,000 BTC, expiring at the end of January.
Looking at the term structure of BTC options on Deribit, the implied volatility on January 12th has spiked to 80%. In the options market, everyone’s expectation is that there will be significant market movements before the 12th. Traders estimate that the coming week will be more exciting than the previous week, so it’s important to buckle up. For those trading with leverage, it is strongly recommended to buy some out-of-the-money options for hedging to avoid being liquidated.
From the volatility smile of BTC, the put and call options expiring at the end of January are relatively balanced. The puts for March have a slightly higher implied volatility than the calls, which is a normal tendency. Generally, if the right side (compared to the left side) of the smile is significantly higher, it indicates a strong demand for call options, suggesting that the market (in the short term) is nearing its peak. In this case, it is recommended to sell call options and buy put options. Conversely, if the left side of the smile is exaggeratedly high, it suggests that the market (in the short term) is nearing its bottom due to panic. During such times, it is not recommended to trade as it can be quite risky. Unless you are engaged in arbitrage strategies.
The risk-off sentiment continued for a 3rd day in a row, starting with European rate hike hopes being pushed back on the back of a mini-resurgence in German inflation as prices rose to its fastest rate in 3 months, with ECB’s march cutting odds back below even at 43%. Dec-24 Euribor futures dropped 14 ticks to suffer the largest fall in nearly 6 months.
On the US side, an upside ADP beat and stable jobless claims added further fuel to expectations of a decent NFP print later today, with the former reporting strong gains in services, leisure and hospitality sectors. On the other hand, wage growth continued to soften with job-changers wage growth dropping from 8.3% to 8.0%, while job-stayers falling from 5.6% to 5.4%.
Treasury yields were around 7bp higher across the curve, with 10y yields creeping back to the 4% handle. Rate calibration continues to be a main theme in the new year as traders unwind some of the excessive rate cutting odds we had warned about over the past week. An exceptionally robust corporate issuance supply (>$50bln WTD) further pressured yields all week, while both French and Spanish government auctions saw hefty tails in conjunction with the large correction in Euribor futures. In the US, better paying flows (higher rates) were seen across fast money accounts, with front-end SOFR futures (mid 2024–25) bear-steepening by 9.5bp on the day.
Equities remained weak once again with energy and big-tech taking their turns to drag the main indices down, as investors have been caught wrong-footed with extended long positions across both stocks and bonds. Short-interest in SPY and QQQ ETFs also remain mired in some of the lowest levels in years, with investors allergic to purchasing any downside protection just ahead of a (supposed) central bank cutting parade. A strong NFP and CPI might be the catalysts for the next break lower in risk assets, at which point we might see more engaged dip-buyers into the month-end FOMC.
Furthermore, the sell-off in Apple continued, with Wall Street analysts continuing to slash estimates on concerns over weakening iPhone sales, with analysts ratings on the stock at 3-year lows and the weakest amongst the ‘magnificent 7’ tech giants, wiping out nearly ~$390bln in market-cap in just 3 days.
The NFP ‘whipser-number’ today should be slightly higher than the 175k consensus given the recent JOLTs and ADP releases, with variables coming from the pace of holiday retail hiring (likely to be soft) and returning workers from the concluded autos and casino strikes (adding to jobs).
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