Markets rebound strongly as ETH outperformance continues
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After a shaky start to the week and another dump in the early hours of Monday morning which again took Bitcoin (BTC) below $50k, markets recovered swiftly to be trading above $58k at the time of writing, a rebound of more than 20% from the lows.
Ethereum (ETH) continued its strong performance with most market participants and seemingly all of CT (crypto twitter) talking up the prospects for ETH on 2.0 and the highly anticipated EIP-1559 upgrade.
The closely-watched ETH/BTC ratio hit the key psychological level of 0.05 as industry legends talked about the prospect of ETH overtaking BTC in market cap — watch it here: The Ethereum Bull Case.
The market also looked to buy recent laggards in this rebound with Polkadot (DOT), Kusama (KSM) and Uniswap (UNI) all registering strong gains for the week.
In the options market, there was strong flows in ETH with participants buying upside calls and call spreads — a strategy that we like as well
If we believe ETH could reach $10k+ by year end, buying a 31-Dec-2021 ETH $5k/$10k call spread (which costs around $350 at current levels) provides a highly attractive payoff. Contact the desk for pricing and other structures
In other flows, we saw good two-way flow in both bullish and bearish structures across Bitcoin (BTC), Dogecoin (DOGE) and Ripple (XRP)
BTC short-dated implied vols traded at 90% on Sunday before market stability caused a collapsed in vols with May at-the-money’s currently trading at 65% implied.
At current levels, TDX would be once again looking to accumulate vega to protect against a generally long delta book and we see pockets of value in June and July downside puts.
Short-dated skew on BTC remains bid despite the market recovery suggesting the market is still cautious of further potential moves on the downside.
ETH upside continues to be well-bid, reflecting the highly bullish market sentiment.
With the current market structure of skew in ETH, holders who are looking to hedge their downside exposure can look to put on some zero/low cost risk reversals. For example, ETH 25-Jun $2,240/$4,480 risk reversal would only cost $20 at current levels and provides protection against an unforeseeable downside move (not financial advice, important to note that this strategy also caps the upside at $4,480, contact us for more details and other ideas).
Trading Ideas and Strategies
With the lack of clear direction on Bitcoin, Cash and Carry continues to be a popular strategy amongst clients looking to generate low-risk returns. Clients have executed Cash and Carry out to the May expiry at approx. 13–15% APR
TDX USD Stablecoin Yield Generator continues to deliver strong returns for our clients, averaging weekly payouts of 33.65% over the last 10 weeks.
If you liked the above trading ideas and would like to explore further, please click any of the links below: