Cheap call options better than buying SPOT for break-out
Looking for clues in BTC over the last few weeks has been extremely tough. Trends that we have noticed are falling volumes, tighter ranges, weakening implied volatility in the options market, and simmering realized volatility as well. What exchanges can we trust when it comes to volumes? How much of trading is just arbitrage across exchanges, and how much OTC business is going on where volumes are not reported into the market? All of these questions, if answered, can provide clues to help us gain market insight. The unfortunate fact is that one will never have ALL of the answers, but the more of these questions you can answer, the more informed you will be compared to your competition in the market place.
On Feb 19th, the CME Bitcoin Futures contract saw a record day volume wise trading over 18k contracts. Since then, average has fallen back into the low thousands.
cmegroup.com/trading/equity-index/us-index/bitcoin_quotes_volume_voi.html
Since the recent highs on Feb 24th and quick reversal back into the range, the volumes have been quite awful. BTC’s feel at the very moment is that it wants to probe the recent highs and see how strong the resistance is sitting at the $4,200 level. Unless large buying volumes come into the market, probing is all we shall see at that resistance level. We believe it will take a serious force of buying to take those levels out to the upside.
If low volume persists, this technical pattern presents a potential false-break out trap; if traders see $4,200 being tested, they may not want to miss that major break out to 5k BTC and beyond causing them to buy into this false strength. If this market traps them and retraces back to that magnet level of $3,600, they will be forced to puke out and realize some pretty quick losses. If a trader knows that the emotion of missing a 20% rally will eat away at him, but has been punked out on these false-break outs in the past, a much safer (and cheaper) way to put on bullish exposure without getting whipsawed would be to buy short-dated calls.
In our morning piece two Fridays ago (medium.com/@BitOoda/btc-option-skew-29ad32df8a63), we wrote, “Given the “gappy” way BTC trades and the suppressed implied volatility, breakout trades are very cheap to initiate. While these trades may be cheap for a reason, it does not cost you much to buy the March $3,250 put (roughly $15–20 vs. $3890) or $4250 call (roughly $50–55). As a ‘live’ option trade (unhedged), this can be a good way to capture profits in case the range breaks.” Today, the March (3/29/19) $4,250 calls can be purchased for roughly $30. This would give you 9 days (which isn’t much) of comfort in if we break through the $4,200 resistance, you can participate on the move to the upside. If you feel as though 9 days may be too short dated, the April (4/26/19) $4,250 calls can be purchased around $135. The April options can give you a month and week or so of time to sit on this market but know you can realize gains on a sharp move to the upside.
As we monitor the options market daily here at BitOoda, we think there are several opportunities in the market for those who think this extremely tight range is due to break-out. If you are of that mindset, please let us know your thoughts and we can help design the right trade or structure to fit your thesis.
On Feb 19th, the CME Bitcoin Futures contract saw a record day volume wise trading over 18k contracts. Since then, average has fallen back into the low thousands.
cmegroup.com/trading/equity-index/us-index/bitcoin_quotes_volume_voi.html
Since the recent highs on Feb 24th and quick reversal back into the range, the volumes have been quite awful. BTC’s feel at the very moment is that it wants to probe the recent highs and see how strong the resistance is sitting at the $4,200 level. Unless large buying volumes come into the market, probing is all we shall see at that resistance level. We believe it will take a serious force of buying to take those levels out to the upside.
If low volume persists, this technical pattern presents a potential false-break out trap; if traders see $4,200 being tested, they may not want to miss that major break out to 5k BTC and beyond causing them to buy into this false strength. If this market traps them and retraces back to that magnet level of $3,600, they will be forced to puke out and realize some pretty quick losses. If a trader knows that the emotion of missing a 20% rally will eat away at him, but has been punked out on these false-break outs in the past, a much safer (and cheaper) way to put on bullish exposure without getting whipsawed would be to buy short-dated calls.
In our morning piece two Fridays ago (medium.com/@BitOoda/btc-option-skew-29ad32df8a63), we wrote, “Given the “gappy” way BTC trades and the suppressed implied volatility, breakout trades are very cheap to initiate. While these trades may be cheap for a reason, it does not cost you much to buy the March $3,250 put (roughly $15–20 vs. $3890) or $4250 call (roughly $50–55). As a ‘live’ option trade (unhedged), this can be a good way to capture profits in case the range breaks.” Today, the March (3/29/19) $4,250 calls can be purchased for roughly $30. This would give you 9 days (which isn’t much) of comfort in if we break through the $4,200 resistance, you can participate on the move to the upside. If you feel as though 9 days may be too short dated, the April (4/26/19) $4,250 calls can be purchased around $135. The April options can give you a month and week or so of time to sit on this market but know you can realize gains on a sharp move to the upside.
As we monitor the options market daily here at BitOoda, we think there are several opportunities in the market for those who think this extremely tight range is due to break-out. If you are of that mindset, please let us know your thoughts and we can help design the right trade or structure to fit your thesis.
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