Mind The Gap Below

When you wish for volatility, be careful.

You might just get it.

Throughout the past few weeks we’ve been searching for signs that BTC’s low volatility regime may finally be reaching an end.

It appears we may be on the brink of that regime change….

Just not in the direction we had hoped. Let me show you.

Below we see a GEX chart showing dealer positioning in the options market. The chart shows us that there is a large amount of short gamma at the $60,000 level. That's the large red bar below.

For those that don’t understand GEX or gamma exposure, we can think of it like when price moves through mud or on ice. When positive, price runs into mud. When negative, it moves quickly. It has to do with how dealers need to hedge when price moves.

Right now, options sellers are short a large amount of $60,000 put options, which can cause price to accelerate to the downside should this level fail to hold in the coming days.

You may remember us discussing this back in early March when we unpacked how gamma was the primary force driving BTC up from the low-$50,000s to new all-time highs in a short amount of time.

This current positioning could cause a similar effect - only this time to the downside, as the dealers short (sold) those $60,000 put positions will have to hedge themselves by selling perps, spot, and or buying put options to protect against losses should $60,000 break. 

It’s the act of trying to minimize losses that drive prices lower in this scenario.

Fortunately at present we have a counterbalancing force by way of bid walls on the orderbook that look positioned - for now at least, to prevent any rapid drops in price.The green lines you see at the bottom of this chart represent the amount of bids outnumbering the amount of asks in the Binance spot market within 5% of the current price.

If these orders are filled or front run it could prevent the market from melting down into a full blown crash from here, but there is always the possibility that these bids are removed in the coming days which has the potential to lead to what we went over earlier, a free-fall in price. 

While such a scenario wouldn’t be optimal, it's one to be aware of and monitor in the coming days as we’ve now entered an area of elevated risk.

For those still searching for hope that this pull-back is nearing its end, we have seen call volumes for the May expiry continue to increase dramatically through the first half of this week. We now see an additional 5,000+ notional BTC worth of calls added to the expiration since we spoke on Friday.

Most notable among these has been a buyer of $69,000 calls which now have over 1,700 BTC worth of open interest alone.

Somebody has been betting big on the bottom being in soon, let’s hope they’re right and we can avoid the gamma spiral below $60,000.

Until next week, trade safe and beware of the tail risks present.

Watching the tape…

JJ