March 20, 2023
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Wednesday 2:00pm ET - FOMC
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Thursday 10:00am ET - New Home Sales
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Friday 9:45am ET - Flash PMI
Disclaimer: Nothing here is trading advice or solicitation.
This is for educational purposes only.
Math minded people here, pardon any typos.
THE BIG PICTURE THEMES:
This week might be the biggest all year. The FOMC rate decision on Wednesday, currently projected at +25bps, is going to set the tone for the Fed going forward.
The Fed has to jungle a banking crises from rate hikes hurting market value of high quality collateral but also fighting inflation.
Anything outside of a +25bps hike is likely to be a major surprise to the market.
Bitcoin and Gold are reacting with upside momentum as the expectation is the Fed might decide to ultimately lift their inflation target from 2% → 3%.
David Brickell from Paradigm has a great thread around BTCs current rally and price action.
BTC: $28,047 +30.50%
ETH :$1,800 +15.87%
SOL: $22.01 +14.86%
TERM STRUCTURE
(March 19th, 2023 - BTC Term Structure - Deribit)
Last week the already backwardated term structure moved higher for even more backwardation.
We can see this puts our term structure richness at a peak level, looking at the 3yr chart below.
What’s even more fascinating is the peak backwardation occuring due to the upside spot move, an additional rarity.
The FOMC decision is a strong catalyst for mean reversion this week.
SKEWS
(March 19th, 2023 - BTC RR SKEW (C-P) ∆25 - Deribit)
The RR-Skew is right back at the annual highs, as seen above, and this is completely justified given the price action and the fundamental shift, which creates the most bullish easy money theme all year.
For context, the current RR-Skew could easily move higher given the precedent seen in January of 2021… (see below).
However, from a trade setup perspective, betting for further extension is a hard trade with usually low probability.
Week-over-week we can see how the 4/28 contact (39 DTE) shifted.
The entire curve is shifted massively higher with low delta calls showing the MOST gain, while low delta puts remain priced identically.
This provide a few interesting scenarios.
#1
A good trade setup in my mind is around the FOMC activity post decision.
If the Fed raises rates by +25bps, the Gundlach point of view, this could slow down the massive BTC move.
Something like a broken wing call fly (30k-34k-45) (+1/-2/+1) would perform nicely given a vol. collapse and call wing flattening.
#2
Another idea is taking advantage of the low delta RR, given the ∆5 put has essentially been anchored to a lower vol. versus the ∆5 call into the event.
(ex: buy the 4/28/23 $19k put for equal cost to the $50k call, delta hedged)
PROPRIETARY “GVOL-DIRECTION” FLOWS - @Gravity5ucks
Historical record of volumes, both in terms of contracts and notional. The latter equals the values of 2021 when spot prices were at the highest. Unbelievable!
(BTC Weekly Volumes Notional - Options Deribit Historical Section)
On the other hand the disenchantment on ethereum continues, with notionals that have reached a minimum of around 30% of those of bitcoin ($3B vs $10B). Flippening can wait.
With the exception of a substantial sale of $22k puts on April, the majority of the flow focused on calls, with call spreads dominating the tape.
It should be noted that the buyers of the $27k calls (which they had purchased with the spot at about $25k) are still in position even after reaching the level. No fast take profit is a good sign of conviction of this upside move.
(BTC AD Direction tables with uni_trade - Options Scanner section)
(BTC Heatmap)
Paradigm Block Insights (13Mar - 19Mar)
Productive week for risk assets! BTC upside buying dominates the tape alongside strong spot rally. BTC IVs trading in line with ETH, given the large flows.
BTC +26% / ETH +14% / NDX +6.4%
🌊BTC Flows
Massive upside buying flows in BTC drove vols and spot higher. Positive spot / vol correlation feels likely to continue and largest traders feel positioned for a sustained rally. BTC 1w RV trades 87v!
3000x May 32/38k CSpd bought
2500x Jun 40/45k CSpd bought
1500x Jun 29/35k 1x2 CSpd sold (buying 2x wings for upside convexity)
🌊BTC cont.
Large outright wing buying was also a theme, especially early in the week before the rally picked up steam. Relentless call buying has completely shifted skew, 1m 25d skew trades 8v over on call side.
2650x Mar 26k Call bought
1825x Apr 26k Call bought
1400x Jun 35k Call bought
🌊 BTC cont.
Important to note we saw a reasonable amount of profit-taking flows blocked too:
2000x 31-Mar-23 25000 Call sold
750x 31-Mar-23 26000 Call sold
743x 30-Jun-23 27000 Call sold
🌊 ETH flows
Bullish flows overall in ETH, we are keeping a close eye on the underperformance relative to BTC, ETH/BTC trades 0.065, -11% YTD.
35500x Apr 1400 Put sold
10000x Mar 1400 Put sold
20000x Mar 1800 Call bought
5000x Mar 1900 Call bought
Similar to BTC, traders took profits in ETH via outright call selling. Also, they rolled risk up strikes via call spread selling.
10000x Mar 1900 Call sold
6000x Mar 1600/1900 CSpd sold
5000x Apr 1600/2000 CSpd sold
5000x Apr 1600/2100 CSpd sold
Option volumes exploded this week on
@tradeparadigm 🚀
💥 Mon 3/13 - $1.1 Billion - ALL TIME HIGH!
💥 Tue 3/14 - $1 Billion - 3rd Highest Day!
💥 Wed 3/15 - $950 Million - 4th Highest Day!
Market share steady at 36% of @DeribitExchange !!
Stats👉https://tinyurl.com/3ds4th2c
Latest Paradigm Macro Pulse Newsletter is out. You don’t want to miss this one👇
https://www.paradigm.co/blog/the-macro-pulse-the-end-game
💥 What we’ve witnessed over the past week is ultimately the long term bullish thesis for crypto playing out real time 🚀
💥Fed rates are simply too high
💥The BTFP and liquidity provisions help stave off a liquidity and solvency crisis only short term
Short and sweet wrap-up of the banking crisis and its implications from our own
@davidbrickell80. 👍
BTC
ETH
The Squeethcosystem Report (3/13/23 - 3/19/23)
As the markets continue to express their fragility, traders are left with immense opportunities. ETH ended the week 10.12% and oSQTH ended the week at 23.78%.
Volatility
Squeeth IV found a bid throughout the week, ending the week over 100% IV.
Volume
The 7-day total volume for oSQTH via Uniswap oSQTH/ETH pool was $8.94m. March 18th saw the highest volume, with a daily total of $1.85m traded. An additional $1.74m traded via OTC auctions this week.
Twitter: https://twitter.com/opyn
Discord: discord.gg/opyn
Lyra Weekly Review
Volatility
Current ATM IV is ~80% in ETH, up ~5 points on the week. Markets remain in backwardation with a slight discount to the call skew.
Trading
Lyra options reached a new high OI and premium volume traded this week!
Check out the Lyra Research Collectives guide to arbitrage:
ETH Market-Making Vault
The ETH MMV on Optimism has returned +6.22% since its inception (June 28th, 2022) representing a weekly change of +.34%. Annualized performance since inception is +8.42%.
The ETH MMV on Arbitrum has returned +2.42% since its inception representing a weekly change of +.16%. Markets have returned to normal operations as the USDC depeg seems to have stabilized. Annualized performance since inception is +17.0%
Depositors earn an additional 12.95% rewards APY, boosted up to 25.9% for LYRA Stakers on Optimism or 20.20% boosted up to 40.4% for LYRA Stakers on Arbitrum (new).
Net MMV Exposure:
Both ETH vaults are short gamma/vega with Optimism holding more long units. The Arbitrum ETH MMV was briefly blocked from hedging during high volatility but has since been able to hedge to delta neutral.
Optimism:
Arbitrum:
BTC Volatility
BTC Market-Making Vault
Lyra’s BTC MMV has returned +1.54% since its inception (August 16th, 2022). This represents a weekly change of -0.01%. Annualized performance since inception is +2.61%.
Depositors earn an additional 16.1% rewards APY (boosted up to 32.2% for LYRA Stakers)
Net BTC MMV Exposure:
Learn more about Lyra in this GVOL explainer video!
Trade: app.lyra.finance
Twitter: https://twitter.com/lyrafinance
Discord://discord.gg/Lyra
Watch @itseneff and @GenesisVol talk options here
