Market Insights
Article by Elisha
Markets stabilised across the board on the news of Evergrande making some coupon payments.
On Wednesday morning in Asia, BTC breached the 40k support level and traded to a low of 39,600. It bounced quickly after and is now trading above the 42,600 level (38.2% Fibonacci retracement level – Chart 1).
Chart 1
The short-lived panic was a great opportunity to reduce our long ETH and BTC gamma (long front-end puts) and turn short vega in both ETH and BTC. Front end vols have collapsed a whopping 30% in the last 24 hours! Largely due to the relief rally across global markets coupled by very heavy options selling, particularly in the 42-44k strikes for BTC.
We remain long ETH gamma (close expiry calls and puts) and are now neutral on BTC gamma. Our short vega position in both ETH and BTC has worked very well and we intend to add there. Overall long gamma and short vega reflects our expectation for decent spot volatility over tomorrow’s massive quarter-end expiry. At the same time, we expect heavy option selling flow as option positions get rolled over.
Direction-wise, we’ve seen the downside skew in risk reversals neutralising which indicates less bearishness in the market. We’ve also seen call buying interest for 2022 options (100-300k strikes!), indicating increasingly bullish longer-term settlement.
We’re undecided at this point. There are upcoming bullish catalysts such as possible crypto ETF approvals out of the US and also the Taproot upgrade for BTC. At the same time, the Fed has kicked the can down the road on the taper decision so November could present some macro risk.
So we’re staying nimble for now. Long spot and long gamma in BTC, ETH, BCH, DOGE, ALGO, SOL and LUNA. Against short vega in BTC and ETH. Over the years, this has been a reliable default position when we are unsure of market direction.
a) For the front-end traders, they were frantically covering their short positions as the continued rally squeezed into their shorts b) Mid-tenor traders were relatively
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