Market Update: 22 Dec 2021
Last week, the desk took on the largest amount of option buying ever. And in spite of the spot rally post-FOMC, vols trickled lower (Chart 1).
This week, we continued to take on huge option buying flows (including the 22,500 ETH calls bought on Monday morning — Chart 2). Still vols have continued to slide (Chart 3).
Without our constant bidding, vols would easily be 5–10% lower right now. We’ve been surprised at the massive volume of option selling across the board.
We reckon the market is getting complacent as spot ranges compress in this 45,500–49,500 channel. And now would be a great time to buy some wings (far strikes).
We maintain our view that there will be a squeeze (likely to the topside) as liquidity thins out into the holidays and into 2022. If this happens, owning wings would be very profitable.
The post-FOMC rally allowed us to take profit on some of our long delta (long spot) and long gamma (short-term options) positions.
And as usual, we turned super long gamma (short-term options) from winning most of the flow from the Defi options vaults (DOVs) on Friday (9 active DOV protocols in total now!*)
Over the weekend, the long gamma was a real pain to manage. With spot stuck within 45,500–48,000, we bled a significant amount of theta (time decay).
Fortunately, the large buy flows on Monday morning neutralised the gamma and vega on our books.
Now we are keeping very nimble. Long wings all round and short small ETH vol against long vol in the Altcoins (which is now a very long list from new DOVs such as AVAX, NEAR, SOL, mSOL, 1INCH, ADA and FTM).
*Active DOV protocols: Ribbon, Thetanuts, StakeDao, Tap, Katana, Friktion, Chest, Opium and Siren.
