16 November 2021

TA Tuesday: Short-volatility strategies as a great opportunity

Crypto Finance Team

team members

At the time of writing, $BTC is trading at $61,800 after a week of bullish moves, which were mainly driven by overnight offers from Asia.

The markets of the future have calmed down and contango is shrinking across all maturities at all of the exchanges. On CME, the 3-month annualised basis went from 9.25% (on November 9, 2021) to 6.6% (at the time of writing). Leverage is decreasing: funding rates, which we know are mean-reverting, are turning back and starting to turn negative.

Realised Volatility (RV) is steadily declining week after week, dropping below the 25th percentile for nearly every measurement window. While implied volatility (IV) has been decreasing for most maturities since last week, the RV/IV relationship is holding up well, variance risk premium continues to be high, and I keep seeing short-volatility strategies as a great opportunity, especially for the expiration on 31 December. But if you are willing to play, be careful not to get squeezed.

I still see room for short-term price corrections before an explosive move to $70,000 – which could come soon with the event of some positive news.

The situation is similar for that of $ETH, which is currently trading at $4,300, and ETH/BTC is at the psychological level of 0.7.

The derivatives market is doing the same for $ETH: the basis is decreasing for all the different maturities leading to lower funding rates.

As RV continues to drop, IV continues to bet on new highs of $ETH. I still believe that the RV/IV is too high, and that there is great potential for volatility sellers.

Average transaction fees are decreasing, but I still see room for a short-term price correction, and I expect other L2 tokens to outperform $ETH.

A few words about some other coins:
The market has done particularly well this week in terms of the pricing of different coins relative to other coins, but there are still some juicy opportunities:

  • LINK/LTC: currently 0.1223
  • UNI/XRP: currently 22.8751
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