As expected, by crossing the 10,500 level we saw a regime shift in BTC. Volatility came back both in realised and implied. The flash crash we saw over last weekend, with over $1bn worth of position in BTC being liquidated across exchanges, shows us that it is unlikely to go away soon. 10 days realized is sitting now at 81%. Implied volatility spiked massively, with 1M vol moving from 50% to the high 60s. Skew collapsed to trade negative on the whole curve.
If volatility is back it is not in a market without direction. BTC was slow to react to the strong rally we saw in the last 2/3 weeks in precious metals and in a more moderate way in equity. But it is catching up fast now and with no slowing down in monetary easing in sight we don’t see reasons why it should stop. Gold could be breaking $2000 any time, which would probably trigger a further spike in all the “non-printable” financial assets.
Looking at technicals, we broke some strong resistances lately and the 10,500 that was attracting everyone’s attention is acting now as a strong support and bulls best ally.
Even if 12,000 got rejected over the weekend, on the upside we see no very strong resistance before the 13,000/14,000 level.
Considering the high level of implied and the current skew, we think the best strategy would be to put on a 25-Sep-2020 12,000/14,000 call ratio.
For a cost of $250, a 1/1.5x offers a max value of $2000 if we close at 14,000 at expiry, giving it a 8x pay out ratio. It expires in 52 days, making it much more interesting than an August one which has a similar cost. The break even point is at 12,250 and 17,500, giving enough head room in case of a massive rally.
For the more adventurous ones, we would recommend pumping that ratio to 2. It enables doing this strategy for a flat cost, in case we would consolidate around here longer and only present a risk of loss of capital above 16,000 at expiry. 16,000 being 41% away from current levels it should give enough room to react in case of a bigger rally than anticipated.
The information and opinions contained in this research report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to its’ accuracy or completeness. Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor. Neither Covario nor its affiliates accept liability whatsoever for any investment loss arising from any use of this research report or its’ contents.
This research report and all the information, opinions and conclusions contained herein are protected by copyright.