Mar 26, 2020

VIX + Covid 19 Crisis = Opportunities

Anybody who’s been even remotely following the markets over the last month knows that we are living through exceptionally volatile times.

- VIX has reached an all time peak of 83, surpassing the 2008 highs


- Crude Oil VIX (OVX) has exceeded high of 220 vol ( 190 record close )


- VIX term structure went on a record inversion


- VXX has went up almost 400% in less than a month
and so on...

With this, a simple spread trade on VXX / VXZ made over 50% in the last month ( and at one point much higher )


And this extreme volatility is not about to subside - with virus still rapidly spreading and posing tremendous health hazards, peak unemployment claims announced just this morning, and increased risk of unhealthy inflation from QE Infinity, volatility is here to stay.

So how should we trade now that the "big move" has already happened? The risk / reward calculus is no longer obvious. Veteran VIX traders who have been through 2008 may have contrarian views, and consider the current regime to yield plenty more opportunities for great trades.

If you remember, in 2014 I interviewed John Hwang (ex head of VIX trading at MS) about how to trade the VIX during market crashes. Recently, I had a chance to speak to John again, and he’s confided that he’s out of retirement, trading up to 17 hours a day, and “arbing the heck” out of the curve.

So I begged him to share some of his favorite trade ideas, and how to navigate the VIX at these levels, after the vol spike… and suggested that he republish his classic book.

Well, republishing books takes a while and because trading opportunities can go away, John has agreed not only to talk about VIX again, but to do a live training webinar to discuss unique, once in a life time opportunities to capitalize in this high VIX regime both on short and long vol sides (yes, even at this level)!

The 2 hr webinar will happen this Sunday (March 29th) at 4 PM Eastern, with an exclusive Q&A session (seats limited), and I will be joining as well. If you are interested, check out this link to find out more.

Dec 25, 2019

Bitcoin In A Year - Analysis Of Reddit Predictions

Every year for the last 7 years user BlackSpidy runs a contest to predict bitcoin price year in advance. More than predicting, the forecasts reveal sentiment and general mood of the forum about bitcoin as I will demonstrate below. While the very first year of the contest started in December 2013 yielded too few predictions, 2014 and on had enough data to be parsed.

2014 was the year of Mt Gox failure, and rumors of bitcoin ban in China, and BTC crashed from 850 to 325, finishing the year around 378 . Reddit readers predicted a median price of 700 for the end of 2015.

2015 was a slow year for BTC, trading between 225 and 350, and finishing the year at 362 . The end of the year rally inspired readers to forecast the median price of 650.

2016 was a bullish year for BTC, when it doubled over year, finishing at 753 . Sentiment was highly positive and readers predicted 1270 for the next year.

2017 was obviously a gear year for bitcoin, when it grew 9x, finishing the year at 10,859 . Excitement about the possibilities was so high that median forecast for the next year was 51,000 and even 1st quintile of the forecasts was over 26,800 . Of course looking back these numbers were never realized, not even close.

2018 was a bearish year, with prices falling to the year end value of 4,165 . Reddit readers were predicting the doubling of the price since the lows for the year end of 8,350, which is not radically far from the 7,200 where we are about now.

Obviously 2019 was a good year for BTC, but the price still has not fully recovered. Oscillations around 10k level were quite wild, and in my opinion inspired more enthusiasm for the currency. Readers are predicting 2020 price of 17,110 , more than 2x of current price.

Given the positive bias of every annual prediction - that is redditors predict 2 times the current price, and about break-even realizations of the forecast, it is hard to make a concrete conclusion. Will bitcoin indeed stabilize above 10k next year, or will the market trade up and down around 10k level?

Whatever your opinion is, I suggest you check out Deribit exchange - currently the most liquid BTC and ETH options market. Merry Christmas and good luck with your trading!

Over the last few years I have been working more and more with NLP (natural language processing), a branch of AI focused on processing of text data, information extraction, figuring out relationships between different entities, etc. If you are interested in working on project processing your proprietary data into signals, or extracting information from public or government publications, send me an email.

Jun 21, 2019

Throw Away Your Skew Model : BTC at 10K



BTC is about to break into 10K territory - or already did on some exchange by the time I finish this post  - the level we have not seen in over a year. As we approach this round number we will observe the usual phenomenon of price clustering around this level, as key psychological level switches from support to resistance.

I typically do not pay significant attention to technical indicators, however this one is really different. Price clustering around key powers of 10 - like hundreds, thousands, or 10 thousands have been observed and well studied. While I do not know how will this impact spot returns, I can certainly say that it will have significant effect on the distribution of prices, and for option traders this means skew.

I expect skew behave quite different than it was before around this level, as trades will primarily focus on the price, as opposed to return / vol covariance, or other skew factors. If you're currently an options market maker - this will get tricky. And if you are a trader of options I expect there will be many interesting opportunities in the coming week or two.

If you're interested in trading BTC or ETH options there is only one exchange that I will recommend - Deribit


Nov 18, 2018

Bitcoin Put Skew

Quick note: after the sharp selloff last week market makers are repricing the downside risk in BTCUSD rate as traded on Deribit. Here are the skews for the first three months that I prepared.







The x axis is put delta, so it is in the same direction as strikes ( I do not know how to reverse axis so the numbers are declining from left to right )

There is a strong bidder for 2500 strike in Dec,  causing the spike in the last chart, but even without it we can see the elevated puts. On the other side, calls showing supply at this time, with largest sizes on the upside Dec calls.

In the meantime, someone on Twitter posted a painting by Ferdinand Hodler "Disillusioned One"