Bitcoin Bros Bounce

$BITO has taken a beating as crypto liquidity drains - is the move over?

Created with Midjourney

Setting the Table:

• After gapping down at the open, the market slowly ground back to flat, likely supported by the active gamma hedging into an expiration Friday. Being a serial expiration (the monthly occurrence where every option class has something expiring, not just weekly or dailies) the OCC topped 52M contracts. 

  • Going into expiration, an option position gets increasingly delta sensitive. The gamma increases as theta decays, particularly when spot is close to the strike in question. A slight move up or down could mean in the money or out of the money. 

  • This means that market makers are actively trading stocks hedging positions that are close to the money. It can have an outsized impact on regular equity volumes, and force names to “pin”, which likely helped slowly pull the market back up to unch’d

• I’m closely watching the gap between historical and realized volatility. While vol kicked back up again last week with some stock movement, the 30 day VRP levels still remain positive. The historical vol kicked up, but over the medium term implieds have continued to come down.

  

• AI is on the tip of everyone’s tongues, and upending how we produce everything from video games to ganache. That means easy money in the stock market too? Investing with the new hot thing is hard, as AI focused investment funds have found. While the names sound buzzwordy and attract headline attention, their performance is lagging. If it’s much consolation, we all know well that over 90% of active managers don’t beat the index either.