This is not investment advice
Bitmex bounties and Twitter ‘influencers’ don’t exist in the traditional options markets. This growing open interest combined with directional bias and no circuit breakers leads to massive daily moves that the ‘long vol’ trader can take advantage of with strangles and straddles. Combine this with the free alpha you get Twitter traders with an actual track record of correct predictions and its easy to get started.
Bitcoin is the first-ever hard-capped, highly liquid asset. This leads to extreme reflexivity as the supply can’t increase to meet demand, the way it does in the gold market.
There is no valuation model. Stock to Flow has held up for the time being but by 2022 we will know if it has predictive value. It’s worth remembering that the Black Scholes model for options pricing was ignored for a decade according to Twitter.com/100trillionUSD.
Edge still exists for retail. New platforms are launching all the time for arbitrage and other strategies. Deribit.com is by far the leader at the moment but FTX is growing quickly. Much like the early days of Bitcoin and Altcoins, you can get ahead by simply doing your own research and trying new platforms and ideas that literally don’t exist in traditional markets.
Poor Liquidity can benefit small retail customers as you can get in and out of positions without moving the price. Large volume trader ‘Theta seek’ couldn’t get out of his long vol position here . He managed to avoid Theta (time decay) by shorting ( or selling short) calls and longing perpetual swaps.
On-chain data can provide ideas that don’t exist in traditional markets– Glassnode, Tradingview, Coinmetrics, Skew. My first trade idea came from the Bitmex 7 day vol on Tradingview. It requires patience though. I have had to sit on my hands for weeks. This is probably a good sign because I have no edge against more experienced options traders.
Volatility historically increases in a Bitcoin Bull market. If this trend persists, a mean reversion strategy, which is common in traditional options might work. I discuss this in my first post. It is a simple way to go long volatility that beginners can understand and the main ingredient is patience.
Limited Downside when buying options. Unlike the insane leverage on Bitmex and other platforms. Buying options comes with limited downside and can be tested on a small scale.
After the March 12th bloodbath leverage traders are mentally scarred. But this will pass and optimism will return. Implied volatility will drop and Open interest will grow large. By having even 3% of your portfolio in straddles and strangles at this stage, you will be better prepared than most.
I’ll cover the new risks (Exit scams, Protocol Failure, Hacks, Illiquidity and more) to watch for in a separate post.
9 reasons that Bitcoin Options are a unique opportunity for retail investors at the moment. was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.