AD Derivatives Newsletter: MSTR Trends & IBIT Options Launch

Get insights on this week’s macro events, including the Fed Minutes and holiday trading setups, plus key crypto trends driving Bitcoin's rally. Discover how MSTR and the IBIT options launch are shaping market opportunities.

USA Week Ahead (ET):

1. Tuesday 9am - Case-Shiller Home Price Index

2. Tuesday 2pm- FOMC Minutes

3. Wednesday 8:30am - GDP (1st Revision)

4. Wednesday 10:00am - PCE index

5. Thursday/Friday - (None) US Holiday

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Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.

Authors have holdings in BTC, ETH, and Lyra and may change their holdings anytime.

MACRO Overview

This week on the macro front we have the Fed Minutes scheduled for a 2p (ET) release.
After a 25bps cut a few weeks ago, the bond market will likely be reading for further hints around more rate cuts. 

Chart: Finviz.com | US Dollar Index

The US dollar has also been firm since the election and any slowdown in rate cuts are going to support a higher US dollar. 

We’re also going to get the Personal Consumption Expenditure release on Wednesday. This is the Fed’s preferred inflation gauge and it will give also help guide bonds. 

The rest of the week is going to be light trading with Thursday equity markets closed and a half-day of trading Friday. 

The holiday week can be one of the my favourite trading setups… Often times there are low-volume flows that push prices one-way, which end up being quite big moves.

The setup I’ve noticed in the past… is that if spreads (think futures yield curve flies Zf/Zn/Zb for example) become crazy during the week… there’s a great “snapback” reversion trade during the Monday Dec 2nd session… as volume comes back in. 

That’s an interesting setup that ill be looking for during the holiday week. 

AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice.

BTC: $96,328 (+7.2% / 7-day)

ETH: $3,321 (+7.9% / 7-day)

SOL: $248.14 (+6.7% / 7-day)

Crypto Options Overview

As I think about MicroStrategy (MSTR) more, I believe they’re an important gauge of the extent of the Bitcoin rally… whether BTC continues higher or slows down.

Here’s my thinking: 

1. MSTR, as everybody knows, is quickly buying BTC in large chunks supporting the market higher.

2. They do this by selling equity and convertible bonds.

3. Looking at MSTR implied volatility is a key gauge for Convertible bond appetite and therefore continued spot buying of Bitcoin as a result.

Convertible bonds from MSTR have 0% interest rate, but provide an embedded 5yr option 55% out-of-the-money. (Details here) 

Chart: MSTR ATM IV Term Structure

When implied volatility is 250%, anything that’s 55% OTM for 5yrs is basically at-the-money. 

This makes the convertible bonds VERY interesting… the embedded option is very valuable at this level of implied volatility. 

Should implied vol remain high, I bet MSTR sells more and more Convertible bonds… meaning they buy more and more BTC. 

To me the first sign of a BTC rally “TOP” will coincide with a drop in MSTR implied volatility. 

Just an idea I’m playing with and something to keep in mind. 

For the BTC rally, it doesn’t really matter that MSTR is trading at a massive premium to balance sheet… Citron dropped a note during the week saying they were short MSTR vs long BTC as a relative value trade. 

Makes sense longterm and similar to my thinking last week. That said, the market activity makes me think MSTR can still do something completely, COMPLETELY, insane (like rally to $1,500 by EOY as BTC breaks past $100k and is FOMO bought to $120-$140k)

Just a thesis… not a prediction. But selling volatility in BTC or MSTR feels scary. 

I’d rather avoid selling MSTR vol. and instead look to buy BTC volatility.

I don’t think we’ve seen the “rip your face off rally, blow-off top” yet. 

Chart: BTC 7-DTE RV (vs) IV

Looking at the Implied vs realized relationship for BTC, Implied is barely trading over realized… 

Realized could quickly break higher, as seen around Nov 18th, if FOMO follows BTC trading past $100k. 

On to another exciting piece of news last week.

IBIT Options Launch!

Obviously another extremely exciting development is the launch of IBIT options… this likely triggers more ETF inflows as pension funds and traditional players can finally OWN BTC and sell covered calls against their holdings to generate passive yield.

Deribit ~30-dte Delta Surface IV

IBIT ~30-dte Delta Surface

We see that the OTM call wing on IBIT (∆5 / ∆10) is trading about +3% to +8% points premium to Deribit. Interesting. 

(BTW, we’re happy to have IBIT, MSTR, COIN, etc data available in our API) 

AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice.

Paradigm's Week In Review

Paradigm Top Trades This Week

Weekly BTC Cumulative Taker Flow

Weekly ETH Cumulative Taker Flow

BTC Cumulative OI

ETH Cumulative OI

BTC

ETH

BTC IV has risen to 56% and the corresponding vol risk premium has shrunk to its lowest level in 30 days, indicating options are trading at a premium. 

BTC and ETH ATM IV for the 7 and 30 day expiries has held roughly constant around 60% despite large price movements over the week. 

BTC saw substantial trading volume on the 130k strike for both the Nov 11 and Dec 27 expiries!

Derive’s internal borrow rate remains the lowest place to borrow USDC - currently at 2.4%!

AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.