Two Pathways Of Opportunity

Midnight again.

What kept me captivated was not the data, but rather the various paths it could take.

I found myself lost in another world, imagining different scenarios that could lead to price movements and how it would play out on the charts. It’s no wonder I lost track of time.

I’m just a janitor on the internet after all - my talents put me more on the "wordcel" side of the spectrum, which means I’m better at writing than I am computer science.

There’s no other way to succeed in trading unless you can identify and act on big opportunities before they arise, and to do so requires at least a small amount of "shape rotating" ability.

The shape I’ve spent so much time rotating is seen below.

It’s a three dimensional view of implied volatility. I tend to shy away from sharing this here in Espresso since it is a bit too much to digest.

For those not already familiar with it, what it represents is the options market expectations of future volatility on ETH.

The opposite is true when IV is high, when this happens options premiums skyrocket, as was the case last week, when the ETH ETF bombshell sent IV levels over 170.

It’s easier to see it when we compare the current structure to one from a week ago, seen below. Note the drop from dark blue to light blue (current).

The dynamic that drove this is the market positioning itself for future upside after last week’s ETF approval news broke by buying longer dated call options, then shorting nearer dated calls as a hedge.

The short selling of nearer dated calls is what’s caused the IV and consequently options premiums for those months to decline.

One of the features I love about Coincall is it allows us to view changes in options premiums for specific contracts over time, and when we pull up the June and July ETH $4,000 calls there we can visualize this effect all these short calls are having on premiums.

Below we see how first the June calls had their premiums decline by over 50% from their peaks last week, despite ETH’s price remaining largely unchanged.

Two Pathways Of Opportunity (jlabsdigital.com)

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