I stared down at the mat in disbelief.

Sweat, pouring down my face like a faucet.

I had just been tapped out for the fifth time in less than five minutes by a man half my size….

To make matters even worse, he looked like Harry Potter.  

Whatever ego I entered the training room with that day left my body faster than the beads of sweat puddling below me. 

This humbling experience was nearly 15 years ago. It was the first time I did live rounds of submission grappling. 

Prior to it I had some experience in traditional wrestling and thought adding in submissions to the equation wouldn’t be all that different. 

Ego was my tuition payment on that error. 

My Harry Potter-esque training partner was a jiu-jitsu brown belt who was preparing for ADCC trials (the grappling equivalent of the Olympics), and I was a fresh young white belt who thought I was up for the challenge relying on brute force alone.

He quickly dispelled me of this notion by repeatedly submitting with ease. 

He had an answer for every attack I attempted.

In fact, the harder I tried to force positions, the easier it seemingly became for him to exploit the massive holes in my game. 

It wasn’t until I had an additional year or so of training that I even understood how it happened, but over time I came to realize that day I was playing checkers while my opponent was playing chess. 

I think back on that first day of training and the lessons I’ve learned on the mat since because the principles of jiu-jitsu have so many parallels with trading….

The harder you try to force a trade the way I tried to enforce my will on my opponent that day, the worse positions you’ll find yourselves in.

Rather than attempting to jam a square peg through a round hole, you’re better off waiting for the perfect set-up to present itself then executing swiftly when it does.

I bring this up now, because from my perspective the Bitcoin options market isn’t giving us a whole lot of reasons to be active. 

What this boring, range bound market does offer us however is the time to study the current structure and share some signals to be on the look-out for which will offer much cleaner set-ups if they come to pass as we exit Q2.

So without further ado let’s dive in….

The Chop Don’t Stop

We had both a CPI print and FOMC announcement last week. And even some decent price action to start the week.

Yet not much has changed on BTC from an options volatility perspective.

As we can visualize on the BVIV implied volatility index chart below, each and every spike in IV since the March highs has been promptly sold off. This has created a long series of lower highs and lower lows on the chart.

This week was no exception as Wednesday morning’s high of 55 quickly reverted -10% back down to 50 by Thursday afternoon. 

Volatility crushed.

This appetite for the market to sell implied volatility at nearly any level is a continued signal that the majority of participants are not anticipating price to leave its current range.

Rather, they’re content to sit back and enjoy their summer while harvesting sold options premiums.

And though there’s no denying this has been the predominantly winning trade to make throughout Q2, any time I see both implied and realized volatility levels fall in such a methodical fashion for such a long period of time I can’t help but wonder when the next big spike that catches everybody off guard may occur.

It’s my nature. I live for the rare events and the opportunities they provide. For me, that’s when the market comes alive and is the most fun to trade. 

It’s where the principles of jiu-jitsu surface in my trading game.

If we zoom out on the BVIV chart here to the multi-year view we can see that weekly reversal candles in implied volatility have tended to happen sharply.

They come about seemingly out of nowhere after long 1-3 month consolidation periods - not unlike the one we currently find ourselves in.

From this view I get the impression that implied volatility is too cheap to sell at these levels, given its propensity to snap back to life on a moment’s notice.

It’s also still too rich to buy given the lack of clear directional signal from the market of late. 

And that leads me back to what I hit on in the intro, sometimes the smartest move you can make is no move at all but instead patiently waiting for the market to come to you…

Closing Time 

Heading into the second half of June the positioning in this month’s ~$6.5 billion notional value opex becomes all the more relevant.

As we see indicated by the green bars below there remains a large amount of open call interest at $70,000 and above, and a decent sizing of puts (purple bars) at $65,000 and below. 

We can think of these high levels of open interest as resistance (in the case of calls) and support (in the case of puts) due to the friction they create when price reaches those strikes. 

Every now and then we’ll break past a large call or put wall and experience a gamma squeeze. But these are outlier scenarios, especially ahead of opex’s as large as this one coming up at the end of June… An opex that keeps getting kicked down the line as I originally had my eyes on it ceasing at the end of May.

Not coincidentally these $65,000 and $70,000 levels sync up with the range Bitcoin’s been trading in since it bottomed in mid-May.

In short what we can gather from this data is that there are currently many participants speculating that Bitcoin will remain range bound through the end of Q2 and harvesting the out-of-the-money options premiums. 

Come the end of this month that positioning will be rolled into new contracts, or closed out entirely. 

As that positioning begins to close and roll out it could be what provides price with the directional momentum it needs to definitively break-out of what’s seemed to be a never ending range between $60,000 and $70,000 with a few deviations along the way.

In the coming weeks be on the lookout for that as well as a spot led move either below $65,000 or back above $70,000 accompanied with a rising BVIV.

That would be the market tipping its hand that another high volatility move is imminent. 

There will be signs, but for now it seems to me the best thing one can do is wait patiently for them to reveal themselves. Don’t force it. Let the market come to you. 

Until next time….

Watching the tape, 

JJ