Trading Strategy: Still bored of the 9000-10000 range?

A bit more than a month ago on the 15th of June, we suggested selling the 31 Jul 2020 8,000/9,000/10,000/11,000 Iron condor. This strategy played beautifully as BTC failed to escape the 9,000–10,000 range. Worth $600 at the time, it is trading around $110$ now.

With less than 10 days to go until maturity we suggest to ride it until the expiry and pocket the remaining premium. Despite Gold, Silver and SPX having a current positive momentum, BTC is still desperately looking for the catalyst that will bring it above 10,000.

BTC price over last month

Unfortunately, with the massive decline of realised vol (10 days realized around 20), implied volatility has plummeted and carry strategies are looking a less attractive than they were a month ago.

Nevertheless, for those still expecting this quiet crypto summer to continue, the same strategy, (8,000/9,000/10,000/11,000 Iron condor) can be put on for the August expiry. $440 of premium can be collected with a max loss of $560, meaning break-even points at 8560 and 10440 (8% on the downside and 12% on the upside from current spot). If Bitcoin price at expiry is between 9,000 and 10,000 the investor will keep its full premium.

These break-even points make sense as we see 8,600 and 10,500 as being 2 strong support and resistance that the market failed to break numerous times.

Iron condor pay out

The risk of this position is of course if we break those support/resistance. This strategy is also short vega.

But we are way more cautious on that trade, compared to last month considering the decrease in implied vol, the recent rally of precious metals and the chart below indicating a potential break out before mid August

In that context, the alternative would be to bet that we re gonna exit that range, up or down. An august 8500/10.500 strangle would be the obvious choice but with implied vols trading around 50 and realized around 20 it could be an expensive strategy to carry. A more reasonable one, would be to buy an August 10,500/11,500 call spread and a 8500/7500 put spread betting that with so much investors attention on the 8600 and 10500 levels, we could escape fast once we break those. This strategy cost $250 to put on with a potential $1000 max gain, giving a 1 to 4 ratio. Breakeven points are 8250 and 10250 (12% on the downside and 10% on the upside from current spot). Obviously this strategy is long vega.

Call spread + put spread pay out

Sources:
Tradingview.com
Deribit.com

Disclaimer

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.

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