BTC Senate Election Trade (Education)

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

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Implied volatility in the BTC options market is screaming high, relative to recent history.

Pictured below is the current IV term structure today, versus merely 7-days ago.

(“Shadow Term Structure” gvol.io-pro feature)

It’s also important to note, that recent history shows a strong correlation between BTC spot price (left) and realized volatility (right).

(“Realized Volatility” gvol.io-pro feature)

It’s therefore natural to assume that if BTC spot price pulls back… Implied volatility will likely head lower, implying the spot & RV correlation will continue downward.

If the senate election swings towards Republicans we can assume that congressional gridlock will slow the spigot of fiscal stimulus, causing BTC buying pressure to ease.

Using Paradigms RFQ system, we think constructing a BTC put butterfly is a smart limited risk strategy to capture both a spot price pull-back and an implied volatility deflation.

(Paradigm RFQ system)

Butterflies have a peculiar Vega (sensitivity to changes in implied volatility) profile, which changes based on the time until expiration and distance from strikes.

To help new traders understand a Butterfly trade, think of it this way, the Butterfly buyer is financing the $32k puts, by selling many 28X24 (2x1)s.

As BTC retraces in the $32k-$28k price range, the Butterfly belly ($28k) decays with the passage of time & an implied volatility drop, essential allowing the $32k put to capture “Intrinsic” value.

Taken together this can be a very powerful option strategy.

Hope this lesson was helpful.

Trade with GVol: Delta, Gamma, Vega, ALPHA

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